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The 5 biggest auto stories of 2016

December 30, 2016
By David Kiley
 
The auto industry is a prime mover of the U.S. economy. According to the Center for Auto Research, in Ann Arbor, Mich., the industry provides some 7 million private sector jobs, and $500 billion in salaries. Each auto manufacturer job creates 11 other jobs in related industries (dealers and suppliers) as well as indirect jobs (businesses that are otherwise dependent on auto plants, corporate offices, supplier parks, etc.).
On the whole, the auto sector is responsible for almost 4 percent of the U.S. economy, so it is worthwhile taking a look at the biggest stories impacting the industry in 2016.
Peak auto sales
Industry sales have peaked at 17.4 million, and will trend downward through 2024, heading to a low of slightly above 15 million, according to multiple analysts. That will put pressure on earnings for many automakers. Though General Motors, Ford and FCA dramatically lowered their "break-even" levels after the 2009 economic meltdown and restructurings, those break-break even points (the level of industry sales necessary for the companies to earn a profit) have crept up since then. Still, automakers will remain in the black at that level.
Despite stock market gains, higher wages and low unemployment, nearly record incentive spending by automakers are only allowing automakers to tread water, compared with last year’s sales levels.
Shot across the bow from Trump
President-elect Donald Trump won industrial swing states Michigan, Ohio, Wisconsin and Pennsylvania, as well as reliably red-state Indiana, by promising working-class people in towns that have lost jobs to Mexico, China and other developing cheap-labor countries that he will shake up trade and tax policy to bring jobs back.
It remains to be seen if Trump has the resolve to take executive-order actions at his disposal, or if he can garner support from House and Senate Republicans to essentially punish corporations for practicing free-trade and following trade agreements signed and supported by the last three U.S. presidents. The likely result: Not that many jobs are prevented from leaving the U.S., or are specifically repatriated to the U.S. because of Trump in the next four years.
The uncertainty of what Trump will do will impact decisions by GM, Ford and FCA in particular about where they source products over the next four years. Because Mexico has become a place where these companies can build small, fuel-efficient passenger cars and minimize their labor costs on small-margin or no-margin small cars, Trump’s chess moves will have a lot to do with product and manufacturing decisions until he establishes actual policy. 
His move with Carrier Corporation to save some 700 jobs in Indiana that were headed to Mexico does not constitute policy. Indeed, the company’s CEO has strongly suggested he kept some jobs in Indiana as a carrot to the new President to not target the government contracts of Carrier’s parent’s company, United Technologies. 
But the Carrier move and other small measures like that could be merely intended to get companies to not make decisions to send jobs south of the border on his watch, saving him from having to make actual policy.
Fuel economy challenges
The federal government is sticking to its tougher emissions and fuel economy regulations to be reached by 2025. But stubbornly low gas prices and consumer love of SUVs and pickup trucks is making that very difficult.
"Low energy prices have increased the demand for less fuel-efficient vehicles, and this will make achieving the fuel standards tougher," said Martin Zimmerman, a professor at the University of Michigan’s Stephen M. Ross School of Business. 
 
"It was a significant," he said, "but perhaps not surprising, move by the Environmental Protection Agency to propose that the 2022-2025 standards remain unchanged and set the stage to implement that ruling before the new administration takes office, an action that will make it more difficult for the Trump administration to change the standards, though there will be continuing pressure for some modification, perhaps extended deadlines."
Consumer Debt-a-Palooza
The average U.S. household today can’t really afford the average-priced new vehicle. Instead of buying new cars that they can afford, consumers are piling on huge long-term debt for new wheels.
Data from Experian shows that the average loan term for a new car in the U.S. is 68 months. That is an all-time high. It’s also an average, which means some desperate consumers are taking eight years to pay off a new vehicle. The average amount financed is $30,032, the first time that amount has gone over $30,000. And the average monthly loan is $503, the first time the amount has gone over $500.
This trend is resulting in consumers spending thousands of dollars more over the life of their loans than they would if they had better credit and kept their loan terms to a more manageable four or five years. 
Longer loan terms, like the ones we are seeing today, also keep consumers out of the market for a new car longer, and keeps them upside-down in their loan and the value of the car for a longer period of time. 
Unfortunately, car dealers and auto company finance companies are not in the business of protecting consumers from themselves. They are in the business of closing loans.
The mania over autonomous driving
There is a race among auto companies, and even players such as Apple and Google, to deliver "autonomous driving" to consumers. This story has taken on a life of its own, with most leading automakers playing "can-you-top-this" with the latest concept technology or statements about when, as in what year, they will deliver "autonomous driving."
The whole concept grew out of a suite of technologies meant to make drivers safer, and to rely less on the human factor to prevent accidents. Tech such as radar, GPS, adaptive cruise control, blue-tooth-enabled cameras, electronic stability control and more have all had an impact on better enabling cars to avoid accidents and override the driver’s ability to react on their own in the split seconds it takes for an accident to occur.
But the technology has grown into a phenomenon that has us awaiting a time when "hailed" cars such as Uber and Lyft will be driving passengers around urban centers programmed for traffic control without a driver, cars that will drive themselves from a parking space in a multi-level garage to a valet area for the driver, and for drivers on the highway or suburban neighborhoods to be able to freely text with one hand while eating a chicken dinner with the other without worrying about running into something.
I’m not sure when we transcended safety and began applying this technology to our own sheer laziness, but here we go, as long as the regulators and trial lawyers get on board. Said the University of Michigan’s Zimmerman: "I think we will see continued progress and technology developments, and some new alliances as well as more pilot programs. We are still somewhat away, however, from fully driverless cars for the mass market or even widespread use in the taxi market."
Runners-up for biggest stories:
 
1. Though the crime was committed in 2015, Volkswagen went through the settlement and court procedures in 2016 over its falsifying of emissions data on its diesel engines. 
The cost of the debacle for VW so far is between $16 billion and $17 billion, with costs still rising, and that is not including the ongoing costs of having to over-incentivize vehicles sales to make up for the damage to VW’s reputation, or the costs of reducing staffing in Germany. Imagine the thinking of those responsible that they were doing something good for the company.
2. The rise of Tesla. The electric-car company’s share price has bobbed up and down in a year when the Dow Jones Industrial Average teased with 20,000 for the first time. The company’s iconoclast CEO, Elon Musk, though has solidified himself as a key actor in the auto industry who will be with us for years to come. The expansion of Tesla’s EV tech to a car that will cost consumers less than $30,000 after federal incentives will test its credibility with non-elite buyers.
 
3. Car hacking: You think hacking our elections is a big deal? Wait till hackers perfect the art of hacking our tech-filled cars and figure out how to crash vehicles by remote control. We already know that cars are vulnerable.
 
David Kiley covers the global auto industry for Forbes.com and Automobile Magazine. 
 
 

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