by winston » Fri Sep 25, 2015 7:13 am
Disruptive Technology That Could Wipe Out the Traditional American Auto Industry
Trend(s): Ride-sharing and -hailing, self-driving cars, urbanization, climate change, currency headwinds
Explanation: The assertion that automakers face significant long-term challenges seems a little kooky at first glance. But it’s always a good exercise for investors (or anyone, for that matter) to challenge their most basic assumptions.
There’s no debating the fact that 2015 is turning out to be an extremely strong year for the auto industry. Toyota (TM) exec Bill Fay said in July that he expects this to be the best year for U.S. car sales since at least 2005, when there were 16.94 million new vehicle sales. Taking August data into account, we’re now on pace for 17.4 million car sales, which would match the record high set back in 2000.
However, with the rise of Uber and the sharing economy, traditional automakers should treat these next few years as if they were the all-time peak for auto sales, because they very well might be.
The average car has a utilization rate of about 4% over its lifetime, meaning 96% of the time it’s idly parked, unused. A more efficient economy would have fewer car owners and more people carpooling, leasing their cars out or hopping rides for a small fee.
The global trend of urbanization, in which a larger and larger percentage of the population lives in urban areas each year, ensures that ride-sharing will become more and more appropriate, and perhaps necessary. Public transit should also become increasingly prominent; expect to see more propositions like Elon Musk’s Hyperloop.
It’s worth mentioning that ride-sharing, ride-hailing and public transportation are also lower-footprint ways to get around, and as concerns over climate change accelerate and governments incentivize eco-friendliness, the traditional automakers will need to adapt.
And right now, traditional automakers are behind the curve.
The inevitable rise of disruptive technologies like self-driving/electric cars, which are already being developed by Google (GOOG, GOOGL), Tesla (TSLA), Uber and perhaps Apple (AAPL), hasn’t been embraced with quite the same fervor by American automakers like Ford (F) and General Motors (GM), which are more or less twiddling their thumbs on the sidelines.
Alas, they twiddle at their own peril.
Finally, the reason that American automakers face a stronger threat than foreign carmakers stems from currency headwinds and higher labor costs.
While currency headwinds don’t pose long-term threats by necessity, the dollar has been strong enough for long enough that overseas competitors are enjoying meaningful cost savings today that they can reinvest for tomorrow. In January, Ford’s CFO alleged that Toyota alone was reaping a $10 billion advantage, or as much as an extra $11,000 in profit per car, from the weak yen.
With the presence of unions and pressure for higher minimum wages mounting, we can expect U.S. automakers to keep moving American jobs overseas to boost their bottom lines and remain price-competitive. But they shouldn’t expect that to play out without catching some major backlash from American consumers.
Major At-Risk Stocks: Ford, General Motors
Source: Investor Place
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