Performance returns to the Motor City but the road ahead is unclear

February 10, 2015
4 min read

The North American International Auto Show (NAIAS), which takes place in Detroit every year, stimulates discussion for industry observers, some years more than others. This year, the auto industry continued to celebrate a return to pre-recession sales levels with an emphasis on performance and luxury.

Although Chevrolet started the day with a focus on the ‘greener side of life’ by showing off the next-generation of its Volt extended-range electric and Bolt all-electric car, Ford stole the show with the unveil of the ultra-expensive Ford GT supercar. A little while later, Acura showed its own halo car, the NSX.

Before we get to that, let’s talk Volt/Bolt for a second. The Volt is an extended-range electric vehicle, which means it’s meant to travel a certain distance – in this case up to 50 miles – on electric power before a gasoline engine kicks in and generates more charge for the battery. The Bolt, meanwhile, is a concept people-mover that promises more than 200 miles of range from an all-electric powertrain, for a price tag of around $30,000.

That was probably the biggest ‘green’ news from this year’s NAIAS. That and maybe the news that the NSX uses electric motors to give its gas engine a boost. Much of the focus was on performance and luxury vehicles, suggesting that automakers are continuing to shake off the austerity loomed during the Great Recession.

56% of US consumers say they, or someone in their household, plan to buy a car within the next three years.

The return of high-end performance cars such as the Ford GT and the Acura NSX, as well as other performance vehicles like the Ford Shelby GT350R Mustang, the Cadillac CTS-V, the updated John Cooper Works version of the Mini Cooper, and the Lexus GS F show that the industry, which has gotten back to pre-recession sales levels of around 16 million units per year, is once again brimming with optimism. Research shows that 56% of US consumers say they, or someone in their household, plan to buy a car within the next three years. Even the ultra-luxury Bentley brand made news by announcing its plans to build an SUV called the Bentayga in the near future.

There’s at least one reason to worry, though – with sales back at pre-recession levels, they will likely peak and plateau some, especially as pent-up demand from those buyers who held off on buying a new car during the recession eases. Mintel forecasts a very slight improvement from 16,475,000 units sold in 2014 to 16,925,000 in 2019 as the most likely outcome for the next few years (see Mintel’s New Cars US 2014 report). Additionally, 48% percent of US car buyers are interested in longer warranties, suggesting they plan to keep cars longer. That could be a bad sign for new car sales, as buyers would be out of the market for a longer period. This doesn’t mean the good times will stop or the market will crash, but it does mean that things may level out.

There are other worries, too, such as a slow economic recovery, a generation of Millennials that’s buried under student loan debt and underemployed, a rise in subprime auto loans, stagnant wages, and consumers taking on too much debt in order to afford new cars. While none of these things – or even all of these issues combined – are likely to send the auto industry into a tailspin, it does mean that perhaps some optimism should be tamped down, especially until the wider economy fully recovers from the damage done by the recession.

So while there’s no need to fret, it will be wise to remember that the seemingly end good times the industry was enjoying before the recession probably won’t return, and the current optimism is good but one must be careful not to over indulge in it. The auto industry might finally be stabilizing a bit, and that might even be better in the long run than constant growth that’s almost certainly unsustainable.

Tim Healey
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