HARI SREENIVASAN: Some further thoughts about the state of the industry and what the auto show reflects about that.
Dan Neil is the auto columnist for The Wall Street Journal. He attended the show in Detroit earlier this week. And Karl Brauer is a senior director at Kelley Blue Book, a company widely known for its research and data about pricing and reviews.
So, Dan, let me start with you. What were your impressions from the floor?
DAN NEIL, The Wall Street Journal: Well, it would appear that Detroit is getting the band back together again.
The sort of the conditions of the mid-2000s bubble is there in force. There’s a lot of focus on big trucks, big SUVs. The new Escalade was there, the new Cadillac Coupe. Cadillac has had a great year.
So, and a lot of the conditions are reoccurring. There is a lot of cheap money out there, a lot of incentives. And there’s moderate fuel price pressures. And, most of all, you have got these manufacturing with these very intense volume-driven business plans that is sort of kicking this all over.
HARI SREENIVASAN: So, do you detect a sort of confidence in the industry right now? I mean, this is one of the first years that the U.S. government is really out of Chrysler and GM.
DAN NEIL: Yes, you could call it confidence. You could call it pernicious amnesia.
You know, the — it is a little eerie to walk through the show and see so much of the same film we saw six or seven years ago. And part of that is the nature of the automobile industry itself. It is based on growth. It’s capital-intensive. You have to put, you know, factories in the ground.
So you’re always a little bit out over your skies. And the other thing, it has to be said, the U.S. market is intensely competitive. It’s one of the — it’s the most stable automobile market on the face of the planet. And so everybody wants to play.
HARI SREENIVASAN: All right, Karl Brauer, I want to ask you, there was such a push a few years ago about these small vehicles, these more efficient vehicles. And here we are rolling out trucks. They might be lighter, but they’re still big trucks.
KARL BRAUER, Kelley Blue Book: Yes.
Well, what has happened is we have got technology now that is making trucks and SUVs get the kind of mileage that economy cars used to get. I think that is one of the things that you have to keep in mind when you look at the horsepower numbers and the performance numbers these cars are getting.
They are doing it in spite of or in addition to meeting the government standards that are rapidly increasing the fuel efficiency that these cars have to acquire. We have to go up by about 10 MPG in the next 10 years to meet those standards on average. Every car has got to be about one MPG — or 10 MPG better. And we did that last year.
The average car sold in this country was — I think 24.8 was the average MPG, and it was 23.8 one year ago. So, even though we saw a lot of performance cars, like Dan said there, a lot of them are niche cars or even concept cars. The volume vehicles out there, they are getting better and better mileage because of the technology that’s under the hoods of all these new vehicles.
HARI SREENIVASAN: Karl, staying with you for a second, what about the alternative fuel vehicles that we heard so much more about? Is the Chevy Volt or the Tesla the exception and not the rule?
KARL BRAUER: You know, it still basically is.
You know, we did see some growth in the hybrid market this year, largely because Ford put out models in the last 12 months that did quite well. But when you put all the alternative vehicles together, including the electric, the hybrid and the diesel, you are still less than 4 percent of the total market.
And it really was interesting to walk through the show and look through the show this year and see almost nothing talking about, you know, alternative super-high-fuel-efficiency technologies. It was really more about performance and capability.
HARI SREENIVASAN: Dan, I almost heard more about alternative fuels at the Consumer Electronics Show news than here.
What is it with all the sports cars that are being announced today, not just the Corvette, but Subaru, BMW? All these guys are putting out very high-performance vehicles now.
DAN NEIL: Yes, well, you know, people who buy sports cars are interested in bench-raising, which is comparing the numerical values in the owner’s manual and bragging about them.
But let me offer a corrective here. The Ford F-150 is being built out of aluminum. This is a radical and risky step forward for the company that makes the most popular vehicle in America for 32 years running. I mean, they sold three-quarters-of-a-million of these trucks last year. They are going to make it out of aluminum. And it’s going to save, on average, they estimate three miles per gallon.
Doesn’t sound like a lot, but when you lay the big multiplier in of three-quarters-of-a-million vehicles and the hundreds of thousands of miles driven, the Ford F-150 will save more real-world gas than, certainly, you know, Tesla or the Volt, as admirable vehicles as they are.
HARI SREENIVASAN: All right, Dan, also, it seemed like there were more models announced this year. It seemed like there is an option at every price point.
DAN NEIL: Yes. Yes, absolutely. And that is another thing. I mean, it is a year of interlopers.
Take, for example, German premium luxury manufacturers, BMW, Audi, Mercedes-Benz. They’re all going down-market, Mercedes C and CLA. BMW introduced the 2, which is a two-door, between the 1 and now the 4. So — and you have this hyper-fractionizing of the segments.
Audi has the Q3, which is the cute SUV. Porsche is really bringing a very tiny SUV to market called the Porsche Macan. So the Germans are coming after the territory now occupied by Honda and Hyundai. And so that is a big change. And they’re coloring in all the white space.
HARI SREENIVASAN: Karl, let’s think a little bit about this on a kind of a macroeconomics picture.
With what Dan said, with money being cheap, with these long loans, are we getting into a possible trap here where people are maybe buying more than they can afford in terms of cars?
KARL BRAUER: Well, so far, the numbers are still looking pretty good in terms of, you know, the amount of loans that are out there, how high they are, how many are being defaulted on.
Right now, everything still looks fine in terms of the availability of credit. But what is really fabulous is that we’re seeing an increase in transaction price across all these sales, all these new vehicle sales that are going on, and a decrease, relatively speaking, in incentives.
So when you have the manufacturers not cutting prices and also selling as many or more cars at higher prices, what you are left with is good profitability. And don’t forget that when that restructuring occurred with the domestics a few years ago, the idea was to make them so they could be profitable, restructure their companies to be profitable at 10 million annual industry sales.
And we hit 15.6 last year. And we’re going hit probably something like 16.3 this year. So, so far, at least, everything is really looking good in terms of profitability.
HARI SREENIVASAN: All right, Karl Brauer from Kelley Blue Book and Dan Neil from The Wall Street Journal, thanks so much.
DAN NEIL: Thank you.