Howes: Automakers bet big on present, electric future
Don’t let fat profits and record sales fool you: The automakers showing their stuff at the Detroit Auto Show, opening to the public Saturday at Cobo Center, are nearing an inflection point likely to separate the haves from the have-nots.
Near-term battles will continue to be waged with best-selling pickups and SUVs. But the long war ahead for dominance in the United States and key global markets around the world will be more electrified than anticipated just a few years ago — and everyone is not expected to be able to keep pace.
At least that’s the bet being wagered by General Motors Co. and Ford Motor Co., BMW AG and Audi AG, Nissan Motor Co. and Fiat Chrysler Automobile NV’s gas-electric hybrid minivan on the floor of this year’s North American International Auto Show.
No longer is the choice either trucks or electrics, present or future, for the world’s strongest automakers. It is both, thanks to changing priorities of consumers in urban areas, stiffening government regulations effectively requiring electrics to be part of corporate lineups, and global instability that cannot ensure gas prices will stay low for years to come.
“If you’re serious about the game and you can afford it, you have to play every element of this,” David Cole, chairman emeritus of the Ann Arbor-based Center for Automotive Research, said in an interview. “It’s like an insurance policy. You do it even if you think it’s not the right thing to do. And those who can’t afford the insurance policy are at a real high risk.”
The difference, less than seven years after two of Detroit’s three automakers emerged from federally imposed bankruptcy, is that Detroit can play. GM and Ford, especially, are planning for both the next product cycle and the future — a sharp contrast to the traditional (and oft-criticized) Detroit model of making big bucks at the top of the business cycle and worrying about the future once it arrives.
“Good leadership and great companies are able to do both investments in what we see as the near-term future ... and also we think and believe is going to happen,” Mark Reuss, GM’s executive vice president of global product development, said in an interview. “It’s not an either/or thing.
“The stream of profitability that we are now enjoying temporarily — and it’s always temporarily, by the way — if we don’t invest into the new profit stream of the future while we’re enjoying that, we will perhaps have been negligent.”
Those who have the cash and the technical know-how are playing a long game. They’re investing aggressively in traditional portfolios of cars, trucks and SUVs to maintain profitability even as they push to develop affordable electrics and craft solutions with the powers of Silicon Valley and its startup rivals.
Transition and unpredictability are the new normal. The hot markets of Brazil, Russia and China are cooling, India less so. Oil markets are gyrating as fuel-economy rules in the United States steadily toughen, underscoring the need to spread investment capital between traditional segments, hybrids and electrified vehicles.
“The recent dramatic decline in the Chinese stock market ... and geopolitical tensions in the Middle East, which tend to lead to increased gasoline prices, remain headline risks,” Standard & Poor’s Ratings Services said in a report late last week.
Additionally, Silicon Valley technology is disrupting the industry’s evolution, presenting new competitors, heightened consumer expectations and opportunities for the likes of Detroit to become early movers in the inexorable morphing of metal and rubber with chips, code and connection.
More people using “mobility” solutions — such as ride-sharing services Uber and Lyft, to name two — means fewer people are expected to choose to own cars, imperiling sales and revenue growth.
That’s why players who can afford to play are expanding their core car and truck business to include mobility; failing to do so would be kissing opportunity goodbye.
Eyes on ‘mobility’
Welcome to all of the above. If the 2016 Detroit Auto Show is the celebration of an industry running on all cylinders, it also marks an official coming out of “mobility” as a legitimate piece of the traditional business that built Detroit and helped put the world on wheels.
GM opened the new year with a $500 million investment in Lyft Inc., the ride-sharing startup with whom the automaker will partner to develop a fleet of on-demand autonomous vehicles.
Its Chevrolet Bolt EV, said to get 200 miles a charge, is being touted as an affordable electric with the flexibility to meet the needs of emerging mobility trends.
Ford used the CES technology show to tout plans to invest $4.5 billion in electrified vehicles by 2020; to expand its electrified hubs in Europe and Asia; to add 13 new electrified nameplates; to invest $2.1 million in a battery lab at the University of Michigan.
Yes, electric vehicles claim just 2 percent of U.S. sales. Yes, many of them are prohibitively expensive or too quick to lose their charge. Yes, good ol’ pickups, SUVs and crossovers drive both the top and bottom lines of the global players — not just Detroit.
Call it the auto show paradox of 2016: The automakers riding truck and SUV profits to record profits are doubling down on development of slow-selling electric vehicles because they’ve concluded they cannot afford to do otherwise.
Not because the near-term payoff is big, but because advantage likely will accrue to those willing to take calculated risks.
“That piece of the business becomes a growth opportunity,” says Reuss, echoing remarks by Ford CEO Mark Fields last month in Dearborn.
“There are people looking at this ... who have pretty deeply seated beliefs that we’re in a transition here. The point is it’s rapidly changing.”
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.