European premium brands were already poised for another great year in the U.S., but success looks unstoppable now as the euro plunges against the dollar and the oil price joins in to create a golden scenario.
As the global automotive industry prepares to begin revealing its new models at the North American International Auto Show (NAIAS), the European premium brands – that’s mainly the German Mercedes, BMW, Audi and Porsche, plus the British-based but Indian owned Jaguar Land Rover – the fall in the value of the euro against the dollar will give these luxury cars a price advantage. Americans will need fewer dollars to buy one, (at least those not currently produced in the U.S), or the companies can add gizmos and extras to make them more competitive in the U.S. market.
The dollar has risen 13 percent against the euro since last June, and about 15 percent against the yen.
The dive in the price of gas at the pump removes another reason not to buy one of these mainly gas-guzzling sports cars, luxury sedans or upmarket SUVs. The sudden, deep and unexpected fall in the price of oil might boost sales of traditional big and expensive profit makers, but it also will provide a further hurdle to sales of already unloved battery-only electric vehicles and plug-in hybrids. U.S. and global auto manufacturers are spending massive amounts of capital to develop these cars, in response to government regulation insisting that fuel consumption across fleets is raised to scarcely attainable levels. Also, as fuel prices plunge you can hear the call beginning for an increase in U.S. gas taxes to try and curb demand and force unwanted fuel-sipping small cars on to the American public. This is also starting to ignite a move to dilute or postpone the swinging U.S. regulations which call for an average fuel consumption of 54.5 miles per U.S. gallon by 2025.
At the show, expect to see most manufacturers claiming to be at the forefront of the connectivity revolution, already previewed at the Las Vegas Consumer Electronics Show (CES). This promises great new ways to use the internet to provide in-car entertainment and plug-in your mobile phone to find useful travel information. Connectivity, and safety controls on braking, steering and accident avoidance, are the first step on the road to autonomous, computerized driving, which is still some way off, although Mercedes Benz seems to be in the lead, followed by its compatriot Audi.
Leading the charge of new vehicles from Europe is the Mercedes-Benz GLE Coupe, a sporty looking SUV which will compete with the BMW X6. Like BMW and its SUVs, this Mercedes will be built in America, at the Tuscaloosa, Alabama plant. BMW will launch its new 6-series range, with a two-door coupe, convertible and four-door Gran Coupe. You may think the front grille looks just like the previous one, but you’d be wrong. There are now nine vertical bars, rather than 10. Audi will unveil the new big Q7 SUV which has three rows of seats and is 700 pounds lighter than the previous model. Alfa Romeo will be making its first appearance at the show as a fully-fledged U.S. market participant since pulling out nearly 20 years ago. Alfa Romeo, charged with accounting for an improbable global 400,000 sales for its parent FCA by 2018, is putting a first toe in the water in Detroit with the little 4C Spider.
Volkswagen on the retreat
It’s not all glory though for the Europeans. Volkswagen of Germany, Europe’s biggest selling manufacturer which wants to be the world’s number one, still finds it impossible to woo enough buyers of its mass market cars like the Passat, Golf and Jetta. Huge profits from its Audi and Porsche subsidiaries though will provide rich compensation.
“The German premium players will do well in 2015 in the U.S., I’m pretty sure, after quite a good one in 2014,” said Professor Stefan Bratzel of the Center of Automotive Management in Bergisch Gladbach, Germany.
Last year BMW sold 396,750 of its cars, Minis and Rolls Royces in the U.S., an increase of five percent over 2013, according to Automotive News. Mercedes-Benz sold 366,589 cars and SUVs, Maybach limousines and Smart city cars, up seven percent, while Audi sales rose 15 percent to 182,011. Volkswagen brand sales dropped 10 percent to 366,970.
Bratzel expects the U.S. market overall to increase between three and five percent.
“It will be even better for the German premium players and the main reason is they have a really good image, and of course falling oil prices will help their powerful cars,” Bratzel said.
“I’m curious to see whether Cadillac will get into a stronger position because I’m not sure that it has the strength to compete very well against the Germans,” he said.
Cadillac sales last year slipped six percent to 170,750. GM appointed Johan de Nysschen to run Cadillac in August, who has promised radical action to transform the company, including moving the brand's headquarters to New York. Meanwhile Toyota’s Lexus remains a big power in the U.S. premium market with its sales of 311,389 last year, up 14 percent. That put it in third place in this segment behind leader BMW, and Mercedes.
Bratzel said Volkswagen’s problems in the U.S. were predictable and avoidable.
“What is missing is the new models and especially in the SUV segment. There has been an urgent need for these. This is what I call a complete program failure because it is an elementary mistake. We all know that as long as you don’t offer new models, in a short period of time you will get into trouble, and that has happened,” Bratzel said.
In response to this, VW is expected to unveil an SUV concept model at the NAIAS that is expected to be made at the Chattanooga, Tenn., plant. VW has already announced it will make a seven-passenger SUV for 2016, and this would be a five-seat version.
As for the U.S. market generally, most commentators expect another strong year, although some are starting to wonder if the end of growth is in sight. IHS Automotive expects sales of 16.9 million this year, up from 16.5 million in 2014.
Anna-Marie Baisden, auto analyst at British based Business Monitor International sees 17 million this year, although she worries about clouds on the financial horizon.
“It will be another big year for SUVs and trucks and even better for the premium brands. I think currency is in their favor (of the premiums) added to the fact that localized production will help too. We are forecasting U.S. growth this year and sales will reach 17 million. But we have already flagged up the risk of problems ahead, with loan delinquencies starting to creep up. It’s not eye-catching at the moment, but if rates do go up, this will start hurting people,” Baisden said.
Investment bank Morgan Stanley also sees 2015 as a great year in the U.S. for sales, as the annual rate hits 17 million, but warns that the top part of the upward cycle might not be so great for balance sheets. A combination of new capacity coming on stream and easy credit might end in tears.
“Ever wonder why U.S. auto sales keep rising so much despite rather pedestrian GDP growth, sluggish wage growth, (and) stagnant housing market,” said Morgan Stanley analyst Adam Jonas.
Gas tax increase?
Jonas said this growth also comes alongside statistics like declining driving license penetration and shifts away from car ownership. Jonas suspects this might be linked to overly easy credit, with over 90 percent of new car sales bought on monthly payments.
Jonas also said there is a groundswell of support for the government fuel economy rules to be relaxed because when they were designed, the price of oil was expected to be much higher by now. The low price of oil is also opening the possibility of higher gasoline taxes, Jonas said.
NAIAS press review days are January 12 and January 13. The show is open to the public at the COBO Center from January 17 through January 25.
Neil Winton, European columnist for Autos Insider, is based in Sussex, England. E-mail him at firstname.lastname@example.org