03 sean mc alinden - auto ind recovery in 2025
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w w w . a u t o s t e e l . o r g
U.S. Auto Industry in Recovery and in
2025
Sean P. McAlinden, Ph.D.
Executive Vice President of Research, Chief Economist
Center for Automotive Research
Ann Arbor, MI [email protected]
May 18, 2011
Great Designs in Steel Seminar
Steel Market Development Institute
Livonia, Michigan
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w w w . a u t o s t e e l . o r g
So What Is Next?
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w w w . a u t o s t e e l . o r g
Motor Vehicle Sales
By Countries:
0
2
4
6
8
10
12
14
16
18
20
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Mill
ion
s
Japan S. Korea Germany Canada China U.S.
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w w w . a u t o s t e e l . o r g
Top 15 Global LV Markets 2020
Fra
nce
Sp
ain
Can
ad
a
Ko
rea
Ind
on
esia
Iran
Italy
UK
Germ
an
y
Ru
ssia
Bra
zil
Jap
an
Ind
ia
US
AC
hin
a
5
10
15
20
25
30
35
40
Top 15 = 97M (82%)
Source: J.D. Power Automotive Forecasting
Millions
Source: J.D. Power Automotive Forecasting
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w w w . a u t o s t e e l . o r g
U.S. Sales and Production
(Will Vehicles Get Smaller?)
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w w w . a u t o s t e e l . o r g
U.S. Auto Sales & Production Will Steadily
Improve with Economy
•GDP Growth is Moderate (Slow)
•Used Vehicle prices and age of fleet are high
•Credit is more available/stock market recovering
•Dollar is low against Yen and OK against Euro
•Bin Laden is gone Bye Bye
But . . .
•Unemployment rate and length is terrible
•House prices are still falling and will fall more . . .
•States/Cities cutting spending and employment
•Consumer confidence was improving, now falling . . .
•Gas prices spiking with food prices
•Higher commodity prices = higher auto prices
•Japan crisis might halt automaker production as parts run short
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w w w . a u t o s t e e l . o r g
U.S. Light Vehicle Sales Percent Change
YTD Through April: 2011 vs. 2010
17.6
21.9
19.6
0 5 10 15 20 25
PassengerCars
Light Trucks
Total
Percentage Change
Source: Automotive News
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w w w . a u t o s t e e l . o r g
Steady But Slow Improvement U.S. Light Vehicle Sales Monthly SAAR:
April 2010 Through April 2011
11,489
11,823
11,067
11,553
10,820
12,217
12,687
12,250
13,099
12,640
13,450
13,120
13,170
9,000
9,500
10,000
10,500
11,000
11,500
12,000
12,500
13,000
13,500
14,000
Un
it S
ale
s in
Th
ou
sa
nd
s
Source: Automotive News Data Center
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w w w . a u t o s t e e l . o r g
Only 1.8% Growth in 1st Quarter
Need 3% GDP Growth To Have a Positive Sales Growth GDP Growth Rate and Sales Growth Rate, 1950-2010
-30
-20
-10
0
10
20
30
40
50
-4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10Sale
s G
row
th, %
GDP Growth, %
2010
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w w w . a u t o s t e e l . o r g
Back to 9%
Need Unemployment Rate Below 6%
to Have Growth?
Light Vehicle Sales and Unemployment Rate, 1978-2010
8
9
10
11
12
13
14
15
16
17
18
3 4 5 6 7 8 9 10 11 12
Ligh
t V
ehic
le S
ales
, Mill
ion
s
Unemployment Rate, %
2010
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w w w . a u t o s t e e l . o r g
U.S. Light Vehicle Age and
Scrappage Rate
8.6 8.8 8.8 8.9 8.9 9.0 9.1 9.4 9.5 9.7 9.8 10.0 10.2
6.8
5.9 5.8
6.7 6.4 6.2
5.5
4.8 4.3
5.0 5.2 5.7
6.1
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Average Age Scrappage Rate (%)
Source: R.L. Polk
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w w w . a u t o s t e e l . o r g
Changes from Jan ’07:
CPI-New Vehicle and CPI-Used Vehicle
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Jan
-07
Mar
-07
May
-07
Jul-
07
Sep
-07
No
v-07
Jan
-08
Mar
-08
May
-08
Jul-
08
Sep
-08
No
v-0
8
Jan
-09
Mar
-09
May
-09
Jul-
09
Sep
-09
No
v-0
9
Jan
-10
Mar
-10
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
New Vehicle ('97 = 100) Used Vehicle ('82-'84 = 100)
Source: BLS
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w w w . a u t o s t e e l . o r g
CAR Sales Forecast
+ 17 M
+ 3.2 M
- 6.2 M
- 12.7 M
+ 1.6 M
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
U.S. Sales
(Millions) 13.0 14.8 14.9 15.4 15.5 15.6 15.6 15.5 15.4 15.2
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w w w . a u t o s t e e l . o r g
U.S. Light Vehicle
CAR’s Sales and Production Forecast
16.1
13.2
10.4 11.6
13.0
14.8 14.9
10.5
8.5
5.6
7.6 8.5
9.3 9.8
0
2
4
6
8
10
12
14
16
18
2007 2008 2009 2010 2011 2012 2013
Sales Production
Source: CAR Research, IHS Global Insight
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w w w . a u t o s t e e l . o r g
Another Spike Gasoline Prices (Nominal)
9/03$1.62
5/04$1.95
9/05$2.86
7/06$2.92
5/07$3.12
7/08$4.00
12/08$1.67
6/09$2.60
4/10$2.85
4/11$3.80
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
Source: Energy Information Administration, USDOE, 6/8/09
Pri
ce P
er
Ga
llo
n
*Regular Conventional Gasoline
All Price Nominal
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Segment Breakdown - U.S. LV Sales Percent Change
April 2011 vs. April 2010
Source: Ward’s Automotive Reports
34.9
18.6
-22.3
17.3
20.7
16.7
3.5
6.5
17.7
-30.0 -20.0 -10.0 0.0 10.0 20.0 30.0 40.0
Small Car
Middle Car
Large Car
Luxury Car
CUV
SUV
Van
Pickup
Total
Percentage Change
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w w w . a u t o s t e e l . o r g
April U.S. Light Vehicle Sales:
Market Share by Segment
Source: Ward’s Automotive Reports
20.6
21.7
2.4
7.2
24.2
6.3
5.8
11.8
0.0 5.0 10.0 15.0 20.0 25.0 30.0
Small Car
Middle Car
Large Car
Luxury Car
CUV
SUV
Van
Pickup
Market Share Current Month
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w w w . a u t o s t e e l . o r g
Average Real Gasoline Price* and Detroit 3 U.S. Market Share
1970-2010
40
50
60
70
80
90
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
Pe
rce
nta
ge
Ma
rke
t S
ha
re
Months
Average Yearly Price per Gallon of Gas
Detroit 3 Yearly Market Share
Ga
s P
rice
pe
r G
allo
n
*Gas prices expressed in 2011 USD
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w w w . a u t o s t e e l . o r g
Real Gasoline Price and D3 Market Share
Dependent Variable: D3MKT
Method: Least Squares
Sample (adjusted): 1986 2009
Included observations: 24 after adjustments
Coefficient Std. Error t-Statistic Prob.
C 96.46619 3.272152 29.48096 0.0000
GAS -17.58972 1.843779 -9.540034 0.0000
R-squared 0.805331 Mean dependent var 66.29250
Adjusted R-squared 0.796482 S.D. dependent var 9.107380
S.E. of regression 4.108607 Akaike info criterion 5.743700
Sum squared resid 371.3743 Schwarz criterion 5.841872
Log likelihood -66.92441 Hannan-Quinn criter. 5.769745
F-statistic 91.01225 Durbin-Watson stat 1.140955
Prob(F-statistic) 0.000000
• For every 10 cent
increase in real
gasoline price, Detroit
3 market share drops
by 1.7 percentage
point.
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w w w . a u t o s t e e l . o r g
Small Car Segment Market Share & Real Regular Gasoline
Price: 1980-2010
25.1
26.8
24.6
23.1 22.4 22.4 22.6
24.3 24.2
22.4 22.3 23.0
21.0 20.0
17.3
15.5 14.9
14.0
12.6 13.0
15.2 15.1 14.7 14.1
13.6 14.2
15.3 15.8
19.0 19.6
17.8
3.33 3.34
2.87
2.67
2.49 2.39
1.78 1.77 1.69
1.76
1.90 1.78
1.71 1.63 1.60 1.61
1.69 1.65
1.39 1.51
1.90 1.77
1.65
1.87
2.16
2.56
2.82
2.98
3.33
2.41
2.81
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
198
0
198
1
198
2
198
3
198
4
198
5
198
6
198
7
198
8
198
9
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
0
5
10
15
20
25
30
Market Share Price of Gas
Source: Ward’s Automotive, Energy Information Administration
Ma
rke
t Sh
are
P
rice
Pe
r G
allo
n
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w w w . a u t o s t e e l . o r g
Small Cars Market Share
Results
Dependent Variable: MKT
Method: Least Squares
Sample (adjusted): 1980 2009
Included observations: 30 after adjustments
Convergence achieved after 15 iterations
MA Backcast: 1978 1979
Coefficient Std. Error t-Statistic Prob.
C 34.44039 4.007248 8.594524 0.0000
INCOME -0.000768 0.000142 -5.422039 0.0000
GAS 2.800797 0.804730 3.480420 0.0019
GDPR -0.242260 0.101095 -2.396354 0.0247
MA(1) 1.226285 0.029495 41.57645 0.0000
MA(2) 0.918106 0.023180 39.60775 0.0000
R-squared 0.945034 Mean dependent var 18.93667
Adjusted R-squared 0.933583 S.D. dependent var 4.407320
S.E. of regression 1.135833 Akaike info criterion 3.269466
Sum squared resid 30.96280 Schwarz criterion 3.549706
Log likelihood -43.04199 Hannan-Quinn criter. 3.359117
F-statistic 82.52692 Durbin-Watson stat 1.329571
Prob(F-statistic) 0.000000
Inverted MA Roots -.61+.74i -.61-.74i
Results:
One dollar increase in gasoline
price per gallon will increase small
car market share by 2.8%.
However, a one thousand dollars
increase in per capita personal
disposable income will offset the
small cars market share by 0.77%.
Therefore, if gasoline price
increases by one dollar, it takes
$3,646 increase on per capita
personal disposable income to
cancel out the effect on small cars
market share.
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w w w . a u t o s t e e l . o r g
Materials
and
Fuel Economy
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w w w . a u t o s t e e l . o r g
Material Trends
1. The current trend substituting for mild steel still has a way to go (e.g., aluminum doors and magnesium/ titanium/ composite components).
2. There is a threshold at which you can no longer continue to substitute lighter-mass materials due to structural performance (e.g., stiffness). (Other concerns arise with manufacturability, safety, repairability, recyclability and supply chain.)
3. Aggressive mass reduction will eventually require a significant architectural redesign to accommodate, for example:
– Aluminum (e.g., space frame structure)
– Magnesium & composites (major molded unibody components)
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w w w . a u t o s t e e l . o r g
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
1975 1980 1985 1990 1995 2000 2005 2010
Mas
s (%
of
Tota
l)
Year
Regular steel
High and medium strength steel
Stainless steel
Iron castings
Aluminum
Magnesium castings
Plastics and plastic composites
Ward’s Communications, Ward’s Motor Vehicle Facts and Figures, 2009, (and updates, 2010), Detroit, MI, 2009, p. 63
The average light vehicle in 2008 contained more than 2,000 pounds of steel, most of it
conventional steel. High and medium strength steel, however, made up more than 10% of the
vehicle. The use of aluminum grew from 1995 to 2008, while the use of iron castings declined.
Average Material Consumption for a Domestic Light Vehicle
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w w w . a u t o s t e e l . o r g
Today’s Example of State-of-the-Art Honda Civic
HSS Usage Rate: 32% HSS Usage Rate: 50%
50%
9% 3%
38% 68% 2%
19%
11%
590
440
340
270
Grade 590
440
340
270
Grade
05M Civic
50% of body now high strength steel
590 MPa steel use
tripled
CONFIDENTIAL - DRAFT
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w w w . a u t o s t e e l . o r g
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
36 180 360 720
NAS Estimate
TAR Estimate
Mass reduction (pounds)
$1,500
Mass Reduction, in General, is not Free
10% reduction in mass 6% - 7% reduction in fuel consumption
More expensive materials, slower fabrication, joining/interface complexity
“Re-optimize” vehicle: 30% additional benefit in secondary mass reductions
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w w w . a u t o s t e e l . o r g John German, ICCT, EIA Energy Conference, April 26, 2011
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w w w . a u t o s t e e l . o r g John German, ICCT, EIA Energy Conference, April 26, 2011
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w w w . a u t o s t e e l . o r g
Primary Magnesium Production
0
100
200
300
400
500
600
700
800
900
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Tho
usa
nd
To
ns
U.S./Canada
China
Global
Source: International Magnesium Association
A 40% reduction in 2008 mass of 4,070 lbs. (net of
powertrain)
using 16% magnesium would require 2.2 million
tons for U.S. production of 10 million vehicles. But
world production only 800 thousand tons in 2007.
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w w w . a u t o s t e e l . o r g
Material and Vehicle Price Indexes (Producer Price Index, 1998 = 100)
50
100
150
200
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Iron and steel mills
Aluminum sheet, plate and foilmanufacturing
Magnesium Ingot
Motor Vehicles
Source: Bureau of Labor Statistics, U.S. Geological Survey
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w w w . a u t o s t e e l . o r g
Pathway Source of
Estimate Technology Description
Reduction in
Consumption
Improvement
2008 Total
Estimated
Incremental
RPE
Annual %
Cost
Reduction
(5 yr)
2025 Total
Incremental RPE
(5 year)
1) Spark Ignited NAS DCT, GDI, Turbo &
Downsize, 5% mass 29.0% $2,159 0.5% $2,105
2) SI Extended Mass NAS/CAR
(Above plus:) 15%
mass (10% addn.
mass) 37.5% $3,089 0.5% $3,012
3) SI Extended Stop/Start NAS/CAR (Above plus:) stop/start 40.0% $3,974 0.6% $3,855
4) Compression Ignited NAS CI, DCT, 5% mass 37.5% $5,905 0.5% $5,757
5) CI Extended Mass NAS/CAR (Above with 15% mass
(10% addn. mass) 46.0% $6,835 0.5% $6,664
6) Full Hybrid NAS Power Split, 5% Mass 43.9% $6,027 2.2% $5,364
7) Full Hybrid - Extended NAS/CAR (Above with 15% mass
(10% addn. mass) 52.4% $6,957 1.9% $6,296
8) Hybrid - Strong NAS/CAR Series PHEV 40, 15%
mass (2009) 2.5 (250%) $14,156 2.1% $12,670
9) Electric Vehicle CAR/EPA/
NAS
BEV 75, 10% mass,
27kwh ($300/kwh in
2025) 6 (600%) $10,584
Technology Pathways
(Intermediate, Mid-size Vehicle)
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w w w . a u t o s t e e l . o r g
FE Technology Segmentation
Two important assumptions:
• Unknown impact from A/C credits (to lower CAFE requirements)
• BEV forecast by J.D. Power is 0.9% of market for 2020
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w w w . a u t o s t e e l . o r g
Average Fuel Expenditures at Increasing MPG Levels:
Holding Annual Average VMT= 13,000
$4,550
$2,275
$1,517 $1,138
$910 $758
$650
$7,800
$3,900
$2,600
$1,950
$1,560
$1,300 $1,114
$0.00
$1,000.00
$2,000.00
$3,000.00
$4,000.00
$5,000.00
$6,000.00
$7,000.00
$8,000.00
$9,000.00
10 20 30 40 50 60 70
$3.50/gal. $6.00/gal.
Miles Per Gallon Source: CAR Research
An
nu
al Fu
el C
ost
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w w w . a u t o s t e e l . o r g
Present Value of Fuel Savings from MPG Increases (Netted for
Electricity Cost) & Estimated Average Retail Price Increase to
Improve MPG
$3,385
$241 $230
-$591
$5,851
$551 $571
-$233
$3,744
$1,526 $1,443
$3,077
-$1,000
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
22.0-37.6 MPG 37.6 - 40.8 MPG 40.8 - 44.8 MPG 44.8 - 49.6 MPG
Savings Pgas=$3.50
Savings Pgas=$6.00
Estimated Retail Price Increase
Scenario I Scenario II Scenario III Scenario IV
Source: CAR Research, DOT NHTS 2009
Increases in MPG r=10% (discount rate);
Rebound rate=10%;
Fuel Savings valued over 5 years
VMT average years 1-5: Scenario (S) I=13,737; SII=13,923; SIII=14,157miles; SIV= 14,436
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w w w . a u t o s t e e l . o r g
Effect on U.S. Vehicle Sales, Production and Automotive Employment of
Higher Retail and Net Vehicle Prices due to Higher Fuel Economy and Safety
Net Price Increase
Baseline -2.1% 1.3% 4.3% 15.7% 6.4% 10.9% 15.0% 27.7%
Net MV
Exp.(Billion $) 713 718 709 701 669 695 682 671 636
Total MV Exp.
(Billion $) 713 867 864 847 803 771 760 748 692
Gross Vehicle Price (2009$)
$28,966 $34,210 $35,736 $37,180 $40,256 $34,210 $35,736 $37,180 $40,256
Gross Vehicle Price (2025$)
$39,764 $46,963 $49,058 $51,040 $55,263 $46,963 $49,058 $51,040 $55,263
Net Vehicle Price (2025$)
$39,764 $38,932 $40,271 $41,469 $46,012 $42,316 $44,080 $45,747 $50,782
Light Vehicle
Sales (Million
Units)
17.9 18.5 17.6 16.9 14.5 16.4 15.5 14.7 12.5
Light Vehicle
Production
(Million Units)
10.8 11.1 10.6 10.1 8.7 9.9 9.3 8.8 7.5
Automotive
Employment 877,075 903,135 861,739 826,950 711,538 803,548 757,700 717,626 612,567
MPG/GAS Price 22.0/n.a. 37.6/$6.00 40.8/$6.00 44.8/$6.00 49.6/$6.00 37.6/$3.50 40.8/$3.50 44.8/$3.50 49.6/$3.50
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w w w . a u t o s t e e l . o r g
Net Vehicle Price Change Percentages and Automotive
Manufacturing Employment
877,075 903,135
861,739 826,950
711,538
803,548 757,700
717,626
612,567
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
Baseline 37.6/$6.00 40.8/$6.00 44.8/$6.00 49.6/$6.00 37.6/$3.50 40.8/$3.50 44.8/$3.50 49.6/$3.50
Au
tom
oti
ve M
anu
f. Em
plo
ymen
t
MPG/Gasoline Price
4.3% 6.4%
10.9% 15.0%
Baseline
15.7%
1.3%
27.7%
-2.1%
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w w w . a u t o s t e e l . o r g
Conclusions
• Sales/Production/Employment will increase as
economy slowly improve
• Vehicles fleet at record age – replacement
sales must happen
• Long run threat from extreme fuel economy mandates
• May shrink industry sale, production, and employment