Lackluster auto show doesn’t bode well for the industry’s future

The Detroit auto show, now open to the public after its press preview last week, is eerily low-key this year.

Despite celebrating its 30th anniversary as an international show, German automakers Mercedes-Benz, BMW and Audi, which typically have used Detroit as a stage for major product reveals, were noticeably absent.

{mosads}So too were the spectacular vehicle unveilings that in the past included cattle stampedes on the city’s streets to usher in a new truck and Jeeps crashing through glass doors for a dramatic entry.

Shortened was the usual list of significant vehicle introductions. The most important vehicle intros were highly-practical, three-row sport-utility vehicles — the Ford Explorer, Cadillac XT6 and Kia Telluride.

A freshened Volkswagen Passat was the only traditional sedan unveiled at the show. The mix indicates the enormous shift in consumer preference from cars to sport utilities that has occurred in recent years.

Indeed, the show had a bit of pizazz as Ford introduced the 700-plus horsepower Ford Mustang GT500 and Toyota brought back the “Fast and Furious” favorite, Toyota Supra.

This year is a transition year for the Detroit auto show as it reinvents itself as a summer, outdoor event in June 2020 in hopes of winning back participation from international brands.

The show is emblematic of the transition period the auto industry itself is in now.

The last decade has been a party for sales and profits for automakers. In the depths of the Great Recession, U.S. vehicle sales plummeted to a scant 10 million, a level at the time that made most automakers unprofitable. General Motors (GM) and Chrysler were forced into bankruptcy, emerging with government help.

Sales grew year after year following the recession, setting a record of 17.5 million in 2016. Sales have remained close to that high for the past two years. In fact, sales ended 2018 on an unexpectedly strong note, eking out a year-over-year sales gain from 2017 that few analysts forecasted.

However, the party may be winding down. For 2019, most forecasts, while still positive, put sales under the 17-million mark as disruptive headwinds of uncertainty loom.

Additional rising interest rates and increasingly possible tariffs are expected to push the cost of vehicles higher in an environment in which affordability already is a challenge for many consumers.

The benefits of last year’s tax reform won’t be repeated and may lead to some negatives this year as tax refunds may not be as prevalent or as large as consumers expect.

Beyond the U.S., the largest vehicle market in the world, China, upon which global automakers rely for significant revenue and profits, posted its first drop in vehicle sales in 20 years last year. This year’s sales are predicted to be about the same.

Sales in Europe are down. Automakers in the U.K. are bracing for Brexit. European auto execs say the situation could be catastrophic and send Europe into a tailspin. Honda, BMW’s Mini, Aston Martin and Bentley already are making alternative arrangements. GM, fortunately, sold its European operations and brands to France’s PSA.

Jaguar Land Rover and Ford recently announced restructuring and layoffs of thousands in Europe. Ford is trying to make its European operations more consistently profitable by closing plants, cutting the workforce, eliminating some vehicles from its lines, mostly cars, as it already has done in the U.S., and abandoning some markets, possibly Russia, altogether.

During the Detroit auto show press days, Ford and Volkswagen announced the beginnings of an alliance that has them collaborating on commercial vehicles, trucks and electric and self-driving technologies.

Adding to the turmoil is the fact that Carlos Ghosn, who once headed an alliance between Japan’s Nissan and Mitsubishi and France’s Renault, sits in a Japan jail accused of financial misconduct.

Back in the U.S., Detroit automakers paint a rosier outlook for their home market than do most outside analysts. Still, they are responding to current and short-term market conditions while also preparing for the future.

GM offered retirement packages to thousands of employees at year-end and will begin significant layoffs as early as this week. GM, Ford and Fiat Chrysler must negotiate a new national contract with the United Automobile Workers this year when the current one expires in September.

As the first volley in those talks, GM said it will close five North American assembly plants that employ 2,800 people, some of whom can transfer to other plants. GM also will discontinue some car lines made by those plants, focusing its resources on sport utilities and trucks more than cars as well as future advances including electric vehicles, self-driving cars and mobility services.

Ford has announced a major restructuring as well. Wall Street analysts have been eagerly awaiting details of that $11-billion plan.

{mossecondads}Last week, Nissan said it would eliminate 700 contractor jobs in the U.S., and electric-vehicle maker Tesla said it was slashing its workforce by 7 percent to help make it profitable.

In the long term, the industry faces massive transformation from a world of individually-owned, gas-powered mostly trucks and sport utilities to a future that is electric-powered, eventually self-driving vehicles, and vehicles are owned and operated by a mobility fleet service, not individuals.

No one knows when the inflection point for the shift is nor when profitability comes from the vast investments being made in the future technologies that will power the transformation. In the meantime, it will be a tricky tightrope walk between the present and the future.

It’s unclear how Detroit’s transition from a winter to summer auto show will turn out. It is even fuzzier which automakers will succeed in managing the transition from today to the new future.

Michelle Krebs is a Detroit-based executive analyst for Cox Automotive.