51吃瓜

American automakers are weighing continued sales optimism against uncertain policy moves. Meanwhile, electric cars look ripe for consumer-friendly jumps in performance.

US automakers聽, nearly 320,000 fewer than 2016, snapping a streak of seven straight years of sales gains. But they did benefit from higher prices for some vehicles, and more demand for higher performance vehicles like SUVs and electric cars. A bullish outlook for 2018 could be dented, however, if the latest tax reforms hurt middle-class spending, or if the federal probe into Russia鈥檚 suspected meddling in the 2016 US presidential election destabilizes the Trump administration, experts say. Meanwhile, automakers have differing preferences in choosing the right technology standards for autonomous vehicles, and changes are likely on the way for fuel economy regulations.

Even as auto sales were down last year, 鈥渋t was a strong year,鈥� said Wharton management Professor聽, who is also director of the school鈥檚聽聽at the聽. 鈥淓verybody has known that the party would end sometime.鈥� He explained that the record sales in previous years tapped into pent-up demand created during the Great Recession of 2008.

鈥淭he party is still on,鈥� said Paul Eisenstein, publisher and editor of The Detroit Bureau.com, a publication focused on the auto industry. He said that auto industry executives are actually upbeat, and 鈥渋f anything, I think they were surprised that it didn鈥檛 go down more.鈥� If auto sales were to fall to 16.9 million or 17 million in 2018, that would have been seen as a record not too long ago, he added.

MacDuffie and Eisenstein discussed the outlook for the U.S. auto industry on the Knowledge@Wharton show聽.

Question Marks Amid Optimism

While the auto companies were happy with the latest tax reform bill, 鈥渢hey鈥檙e all hoping that it doesn鈥檛 mess things up for the middle class,鈥� said Eisenstein. If the middle class and other car-buying segments find their finances crunched by taxes, 鈥渢hat could send car sales into a tizzy,鈥� he added. The fate of the North American Free Trade Agreement (NAFTA), which the Trump administration wants to disband or overhaul, is another worry for the industry. The US auto industry聽聽of NAFTA, which allows duty-free trade between the US, Canada and Mexico.

Eisenstein cited another factor that could spoil the party. 鈥淓verybody is trying to whistle past one potential graveyard and that is [about] what could happen if things get a little bit weird with [Special Counsel Robert] Mueller鈥檚 investigation, and anything that could happen that shakes up the confidence and instability with the Trump administration.鈥� Mueller is probing Russia鈥檚 alleged interference in the 2016 presidential election.

Outside of the Mueller probe, Eisenstein saw 鈥渢hree big question marks鈥� facing the auto industry in 2018. One is if sedans will continue to sell, he said, pointing to Ford Motor Company鈥檚聽聽on January 16 that it would cut its car portfolio by 10% and increase its SUV portfolio by 10% 鈥� a move toward higher-margin vehicles. The second issue relates to spending on development of electric vehicles, and the third has to do with spending on developing autonomous vehicle technologies. Here, he noted that automakers 鈥渁re spending tens or even perhaps $100 billion on technology that they don鈥檛 know if the market will accept.鈥�

Which Level is Best?

With autonomous vehicles, the industry faces strategic dilemmas, said MacDuffie. Most automakers are working on 鈥渓ower levels of autonomy,鈥� where they could keep rolling out additional features. But the big question is how much they need to invest in the so-called Level 3 or Level 4 technologies for autonomous vehicles (AVs), he said. Level 3 is 鈥渃onditional automation,鈥� where the driver does not have to monitor the system, but must be able to resume control at all times. Level 4, called 鈥渉igh automation,鈥� is where the driver is not required to be resume control and the AV system can take care of defined use cases.

Automakers have varying strategies for how to approach those issues. MacDuffie pointed out that Google, for example, is pushing for a fully automated system where the driver is not required throughout the entire journey.

There鈥檚 no question that technologies for both electric vehicles and AVs will reach a critical mass at some point in time, Eisenstein said. 鈥淚t鈥檚 just a question of when do you shoot your bullets,鈥� he said. 鈥淒o you spend your money now or do you hold tight right now and start to see who鈥檚 winning and losing.鈥�

A New Charge for Electric Vehicles

MacDuffie saw more demand for electric vehicles, and predicted聽聽in both investments and consumer demand. He noted that electric vehicles saw 鈥渕ore of an uptick鈥� in 2017, especially with high demand for those cars in China and with some automakers announcing plans to discontinue internal combustion engines.

Eisenstein, too, was bullish about electric vehicles, and listed the major product milestones ahead. Last weekend, Ford聽聽an electric SUV called Mach 1, which he thought could rival Tesla鈥檚 offerings and also Porsche鈥檚 Mission E. Audi and Hyundai are among the other makers with electric vehicle brands that have longer-lasting batteries and higher performance. At the same time, prices of electric vehicles are dropping, he said. 鈥淸Also], they鈥檙e going to put more excitement into electric vehicles,鈥� he added, explaining that automakers are working to get more acceleration and power in those vehicles.

Plummeting battery prices are also fueling increased interest in electric cars because they make the vehicles significantly cheaper, said Eisenstein. He noted that from about $1,000 for a kilowatt hour at the start of this decade, battery prices are down to $140 now, and predicted that they would further halve over the next few years. For cars with 60 kilowatt-hour batteries, factory costs could drop by up to $40,000 per car, he added. 鈥淎ll that adds up to a reason why battery cars now start to sound like something that makes sense to be in your driveway.鈥�

All of that also makes up for some of the excitement that was missing from the electric-car space. 鈥淚鈥檝e been waiting for the industry to put more emphasis on the performance side and excitement side of electric vehicles,鈥� said MacDuffie. Electric cars bring 鈥渢remendous acceleration benefits鈥� and that is one big reason why Tesla鈥檚 higher-end cars have been popular, and also why Chinese investors are bringing a bunch of electric supercars to market, he added. 鈥淓lectric was so tied up with the notion of green environmentalism that I think it made [buying one] seem like a dutiful kind of thing that you did for the right reasons. But it was boring.鈥� But now, improved technology and lower battery prices have 鈥渉elped make a performance promise real.鈥�

Policy What Ifs

On the policy front, MacDuffie said 鈥渙ne small surprise鈥� in the 2017 Tax Cuts and Jobs Act is that subsidies for electric vehicles were left untouched. A big question mark in the year ahead would be on potential聽, he added.

According to Eisenstein, the Trump administration may not go for a 鈥渨holesale rollback鈥� of the so-called CAF脡 (Corporate Average Fuel Economy) standards on miles-per-gallon standards, but freeze it at about the CAF脡 2021 standard (about 40 miles per gallon); the CAF脡 standard for cars in model year 2025 is 50.4 miles per gallon.

On the features front, MacDuffie said he expected automakers to invest more and compete harder on touch screen automation and voice recognition controls in cars. Technology partners will help car companies improve the interfaces, which would also give firms access to valuable customer data they could try to monetize, he added. However, the distraction they cause in vehicles is a problem, he said noting that the number of deaths due to vehicle accidents rose from 35,000 in 2015 to 40,000 in 2016, and is estimated to have maintained that trend in 2017.

Among other highlights for the year ahead are rollouts from automakers of so-called 鈥渕uscle cars,鈥� or high-performance cars, said Eisenstein. MacDuffie expected vehicle performance overall to improve with better technology, but also a continued recall of vehicles affected by the聽.

Takata was the dominant supplier of airbags to automakers for many years, and 鈥渘ot enough capacity exists globally outside of Takata to build all the replacement parts to get this done quickly,鈥� he said. 鈥淎nd then you also have the issue of getting people who may not be paying so much attention anymore to bring their cars in and get the darn replacement done.鈥�

*[This article was originally published by , a partner institution of 51吃瓜.]

The views expressed in this article are the author鈥檚 own and do not necessarily reflect 51吃瓜鈥檚 editorial policy.

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