With the automotive market performing slightly ahead of expectation for the year, IHS Markit analyst Mike Wall pinpoints trends that will keep projections positive for the rest of 2018. So far this year, Wall said news in the industry has been “interesting,” as some automakers phase out sedan nameplates to focus on trucks and crossovers, while others move “heaven and earth” to source components after a major supplier fire. In an interview with MiBiz, Wall shared his insights into the automotive industry.
What’s your read on the automotive industry — both the good and the bad?
When you think about it from a good perspective, vehicle sales in the U.S. have held up pretty well. It’s maybe even slightly ahead of expectations. We haven’t changed our overarching figure for the year (and) are still sitting at 16.9 (million units). But at the same token, we have been pleasantly surprised with how sales are holding up. What we are watching closely is vehicle affordability and interest rate increases from the Fed. That may temper some consumer enthusiasm in the back half of the year. … However, production-wise, we haven’t changed our forecast much. We tweaked it down a little bit to 17.2 (million units). Part of that is due to car realignment.
What do you make of Ford and other OEMs dropping various sedan nameplates in favor of expanding crossover and SUV offerings?
I would love to have seen a little more from the car side of the business, but I understand where (the OEMS) are coming from. … We are also seeing more and more crossover activity. You will see it more this year and really into the next several years. You know, General Motors is going to stay in some of those key car segments, but I think what you will see is automakers trimming different areas of the passenger-car lineups: some of the subcompact cars, some of the full-sized cars. At least one thing we have to keep our eye on is, with the proliferation of crossovers, it creates some risk in terms of margins and pricing. (Ultimately), the consumer wins because they are going to have a lot of product to choose from.
Earlier this year, you said consumers were voting with their dollars and favoring pickup trucks and crossovers. How is this shaking out for automakers?
This secular shift away from cars to trucks and crossovers — that is ongoing. Really, that’s quite strong still, according to our expectations. It’s playing out differently with different automakers. I mentioned Ford, and they are probably on the one extreme. On the other extreme, there are some automakers that are trying to walk the line. If you look at some of the Asian automakers — the Hondas of the world, the Toyotas of the world — they have a huge vested interest in passenger cars … (and) these are important programs for them.
The fire at the Meridian Magnesium Products of America plant in Eaton Rapids rippled through the automotive industry, even forcing Ford to suspend production on its bestselling F-series. What effect do you think the disruption will have on sales this year?
I think (Ford has) been able to manage it reasonably well. In fact, they had a pretty good stock of vehicles on dealer lots, so I don’t think it’s going to impact sales performance all that much. Actually, it was remarkable that Ford was able to move heaven and earth to get that (truck) plant open and running … but I’d like to point out that Ford had no other choice. This is the franchise. The F-series, hands down, is the most important program for them, (and) they made the best out of tough situation.
Given the importance of the F-series to the company’s overall performance, why would Ford only source the magnesium instrument panel from one supplier?
It’s a great example of how challenging this can be for suppliers and automakers in the industry. On the one hand, if you think about the thousand-plus parts in a vehicle, if any of those parts go away, you are going to have a problem building that vehicle. As an automaker, if I am going to dualsource something, you have to think costs. … Having said that, this is probably the worst component for Ford (to lose). It’s magnesium; there’s not a lot of capacity for this part. It’s a challenge all automakers and suppliers have to wrestle with (in terms of) how do we protect our supply chain.
What are your thoughts on President Trump’s recent announcement of a tax on auto imports of European cars?
I think folks would be amazed at just how much ‘foreign automakers’ produce in the North American — and even more so — in the U.S. market. On the one hand, a company like BMW is importing many 3 Series and a variety of passenger cars. They are shipping these vehicles to the U.S and all over the world. It does create additional challenges for automakers and downstream suppliers in them trying to navigate business. However, hopefully, this may advance some discussions about the NAFTA renegotiation … and other trade agreements.