North American auto industry: Remembering 2009 and looking ahead to a brighter 2010

News A LOOK AROUND THE WORLD North American auto industry: Remembering 2009 and looking ahead to a brighter 2010 The new year has brought a sense of cautious optimism to Only a few companies were really able to capitalize on the Detroit. The consensus is that the worst has passed for the limited market opportunities: Hyundai was the big winner North American auto sector and that recovery has begun (see figure 2), as the only major automaker to actually (see figure 1). increase its US sales in 2009. While consolidation and financial woes will continue, most Ford was able to capture market share with superior players can move beyond simple survival this year and products and consumer confidence for having foregone look forward to the prospect of growth. As such, the auto a government bailout. As the automotive industry recovers, industry is ready with some of its best products ever, as automakers and suppliers are looking forward to a brighter showcased at this year's Detroit auto show, appropriately future. Under renewed and stronger leadership, Detroit's themed "What a difference a year makes". Electric vehicles automakers have aggressively focused on reinventing were the most visible departure from the past, displayed in themselves and delivering new portfolios of stylish vehi- a prominent "Electric Avenue" exhibit. The industry's shift cles with advanced technologies, including a number from facing a devastating collapse in 2009 to enabling of electrified vehicles. future mobility in 2010 has made for an exhilarating ride. 2010 will bring some of the first mass-produced electric The advent of e-mobility in North America vehicles to market, including the Chevy Volt, Nissan Leaf Few doubt that the current industry's foray into EVs will and the Toyota Prius Plug-in. prove more fruitful than its last attempt in the early nine- ties – not only because of the technology advancements, Most auto companies suffered tremendously last year, but also because of the government's increased influence and none suffered more than GM and Chrysler, who on the industry and interest in paving the way for electric are still recovering from the effects of their bankruptcies. vehicles and e-mobility. 1 A LOOK AROUND THE WORLD The federal government has recognized the importance of The Midwest seems to be a contradiction. Traditional auto- electric vehicles to support its environmental and energy producing states are much less prepared for the rise of agendas and has stepped up support for the development e-mobility, at least on the demand side. While this region of zero-emission technologies through various grants and may be investing in battery plants and retooling factories programs. For example, the Advanced Technology Vehicles to produce EVs, it has limited policies in place to encour- Manufacturing Loan Program will provide OEMs, battery age customers to buy EVs. Furthermore, the infrastructure and electric motor suppliers with USD 25 billion in loans and consumer appetite for EVs in the Midwest are well to accelerate the progress of bringing alternative, low- behind those in the coastal regions. emission vehicles to the market. Overall, the ideal environment for mainstream EV adoption However, to enable mainstream adoption of EVs, a more is not yet in place. Depending on what policies and initia- comprehensive regulatory and infrastructure strategy is tives are implemented, local demand for EVs could exceed still needed. Market and cost of ownership incentives for 10% market share or remain below 2% by 2020. EVs are relatively low in North America due to the minimal fuel tax levels compared with Europe. Furthermore, in a Cautious optimism and mixed expectations recent study, we found that the readiness for e-mobility on The North American automotive landscape has changed the demand side has yet to be developed in many states, dramatically in the past year – there is new hope in Detroit. counties and cities. The auto industry faces a true patch- Freed from many legacy burdens and with active govern- work of markets in North America (see figure 3), as each ment interest, the domestic auto sector has the oppor- state has varying levels of incentives and infrastructure tunity to reinvent itself and take advantage of the enor- to encourage e-mobility. mous potential in e-mobility. Not surprisingly, coastal territories lead the way in terms Companies will continue to look to consolidation, joint of overall readiness. The geographies with the highest ventures and other alliances as economies of scale and readiness index have e-mobility-friendly regulatory en- operational efficiency become increasingly important. vironments and the beginnings of a recharging infrastruc- The outlook and path to profitability will remain uncertain. ture in place. California, for example, receives the highest Financial distress and access to capital will continue to be marks for its supportive regulations, the relatively high a constraint in 2010, placing anxiety around the needs to number of refueling stations in place and recent partner- build up working capital and invest in R&D in response to ships with OEMs, such as Nissan, to promote e-mobility. vital market trends such as CO2, safety and connectivity. 2 A LOOK AROUND THE WORLD New vehicle technologies, especially alternative vehicle As long as these structural challenges and strategic power systems, are expected to increasingly dominate the opportunities are addressed adequately, the North automotive industry. Players are putting great emphasis on American automotive industry can indeed look forward moving these new technologies forward and getting their to a much brighter future and will prosper again. latest products to market. It is looking like EVs will inevita- bly dominate the future of the North American auto indus- try, with the first mainstream vehicles available in 2010. Vehicle electrification presents automakers, battery manu- facturers and suppliers with the momentous opportunity Juergen Reers to redefine the ownership experience for consumers. Not Managing Partner at Roland Berger only will this industry shift create new prospects for in- Strategy Consultants, Detroit cumbent players through new products, business models juergen_reers@us.rolandberger.com and mobility solutions, but it will also enable participation from the utility and renewable energy sectors. However, the industry cannot take off in North America Antonio Benecchi without adequate government policies and proper Partner at Roland Berger demand-side drivers (e.g. higher fuel taxes). Strategy Consultants, Detroit antonio_benecchi@us.rolandberger.com 2010 will be a year of recovery and guarded optimism for the North American auto industry. Nevertheless, much effort must still be expended. Automakers and suppliers must avoid complacency and cannot ignore the incon- Thomas F. Wendt venient realities of the restructuring and realignment Principal at Roland Berger that remains to be done. Strategy Consultants, Detroit thomas_wendt@us.rolandberger.com 3