A Prediction (Automotive Trends)

I was listening to an NPR call-in show about the current spike in gasoline prices, and one caller pointed out the bind of the lower-middle class Americans. They are typically stuck with beater cars/pickup trucks with horrible mileage, and they are spending a greater proportion of their income on gasoline, so therefore they are getting hit disproportionately harder. It got me thinking: with gasoline prices getting worse, the market for small, fuel efficient, and—most importantly--inexpensive cars is going to open up in a big way.

I have talked about the falling sales of SUVs in my earlier rant about US automakers; it was also pointed out in the New York Times article "U.S. Makers Facing Glut of S.U.V.'s as Gas Rises" (May 3, 2006): Americans shied away from large sport utility vehicles and pickup trucks in April as gas prices approached $3 a gallon. With a battery of new S.U.V.'s waiting in the wings, domestic automakers are now facing the very situation they had hoped to avoid.

The latest surge in gas prices poses a long-term problem for the domestic auto companies, which had been hoping that gas prices would moderate and make S.U.V. sales easier. Now, analysts warn it may be harder to get consumers to buy a gas-thirsty vehicle when the oil market remains so volatile.

If I had a "Quote-a-Day Emperor Palpatine Calendar" (on sale at your local Imperial Bookstore), it would be saying: "You have paid the price for your lack of vision." [insert lightning bolts from fingertips here].

The Japanese manufacturers seem to be ahead of the curve once again: not just with hybrids, but also compacts that still have a decent level of styling, fit, and finish (as opposed to "this is the bottom of our line, and we are treating it as such")—e.g., the Honda Fit and Toyota VarisYaris.

But more importantly, I don't know how much my readers have been following stories of the Chinese producing automobiles for sale overseas (Europe, and soon the U.S.)—it is something that I have tracked. Remember: these are the guys who can undercut the Koreans on price at a comparable quality level. Basically, they will be able to manufacture cars at the WalMart price point.

Detroit sees this on the horizon: whether or not they can do anything about it is another question (NYT "See the U.S.A. in Your New Car From China, Starting in '07", January 10, 2006):

It does not matter that Geely, the Chinese carmaker getting a lot of attention at the auto show here, has yet to sell a single car in the United States. It is the possibility it could that has Detroit talking.

"I think it's the beginning, the very beginning, of Chinese international participation in the U.S.," said Robert A. Lutz, General Motors' vice chairman and product development chief. "A few years down the road, sure, it'd be foolish not to see it as a threat."

Geely (pronounced JEE-lee) does not have a model that meets United States safety and environmental regulations, but the company said it was working on a small four-door sedan that it could sell here for less than $10,000.

Under the best of circumstances, it would be more than two years before a Geely is sold in the United States. The company plans to sell a model first in Puerto Rico, where it has signed a contract with one dealer, in the spring of 2008. Geely hopes to move into the United States later that year.

But Geely will probably not be the first Chinese automaker to take on the American market. A rival, Chery Automotive, has already announced plans to begin shipping cars to the United States in 2007.

My prediction is that if the price of gas continues to rise, the market for small, fuel-efficient, inexpensive cars will be something that the Chinese will be able to capitalize on, to the detriment of the Big Three.

To wit, the Atlantic Monthly article Countdown to a Meltdown (full text available online!—strongly recommended) had an interesting anecdote in their possible future timeline of the United States economy that resonates strongly here:

Toyota's acquisition of General Motors and Ford, in 2012, had a similar inevitability. Over the previous decade the two U.S. companies had lost money on every car they sold. Such profit as they made was on SUVs, trucks, and Hummer-style big rigs. In 2008, just before the oil shock, GM seemed to have struck gold with the Strykette—an adaptation of the Army's Stryker vehicle, so famous from Iraq and Pakistan, whose marketing campaign attracted professional women. Then the SUV market simply disappeared. With gasoline at $6 a gallon, the prime interest rate at 15 percent, and the stock and housing markets in the toilet, no one wanted what American car makers could sell. The weak dollar, and their weak stock prices, made the companies a bargain for Toyota.