It’s still 2014, but not for much longer. In the global automotive business, plenty happened in 2014. Seasoned observer Dave Leggett offers a personal take on some of the year’s most significant developments, starting with a look at the overall picture.
Long standing readers of just-auto may recall that I usually end the year with a month-by-month review of the year’s news. It’s a trusted formula to provide a digest of all the things that happened over the year and it’s something that many publications do. It is comprehensive and works fine, but it’s frankly a bit formulaic and I’m not sure it’s that good a read. This year I thought I’d try something different. I’m simply going to write about what I think are the stand-out or notable developments of the year. These are the things that I think are worth reminding ourselves about, the things that impressed me through the course of a very full and busy year of news, analysis, interviews and comment on just-auto.
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It’s a very personal take and I hope it’s an interesting and accessible read.
I’ll divide this review into a number of parts covering these areas:
- overall picture;
- major global markets;
- companies and people;
- new product;
- new technologies
So, to start, the overall picture.
Was it a good year for the automotive industry? It certainly was not a bad one. The global pie has grown again. LMC forecasts that the world’s vehicle market this year is heading for 86.4m units, 2.5% ahead of 2013.
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Sales in North America continued to grow. China was up again. Western Europe’s market is expanding off a low base. But despite the overall global market expansion, there was a feeling of a mixed picture. Europe’s market recovery remained disappointingly weak and fragile; worries sounded over the possibility of price deflation. The conflict situation in Ukraine/Crimea grew into a bigger problem in Russia where the car market was hit (Russia’s economy hammered by both Western sanctions and collapsed energy prices). Manufacturing operations in Russia were severely damaged by the fall of the rouble.
Some markets in southeast Asia also went south – Thailand (political instability) and Indonesia (fiscal changes). South Africa experienced considerable industrial strife, yet again. South America was pretty flat, Argentina in a notable spot of economic bother.
It was a year that saw a couple of big recall issues that reminded us of the industry’s inherent fallibilities. A typical vehicle contains 20,000 parts. It’s one hell of an achievement to put all that together and have so little going wrong, generally. Well done everyone. But things can and do go wrong and the consequences may, very occasionally, be very serious indeed.
Recall pain, again
There was General Motors’ painful ignition switch problem, a story that emerged as a kind of unfolding nightmare. Was it handled well? Not especially, but I wouldn’t say that was unexpected either (is the corporate culture at GM significantly worse than at other comparable OEMs? I think not). GM had piled the pressure on a key supplier. Mistakes were made. Internal reporting and systems were proven to be poor, non-existent or faulty. Takata’s large airbag recall was another knock to industry confidence. Airbags have been problematic before. Both of these safety concerns eventually revolved around a near forensic investigation of information flows. Who knew what when and how was the problem dealt with? At least we can hope that some lessons have been learnt and that processes have been improved. Yep, until the next time.
Oil price fracked down
2014 was also the year that the price of oil plummeted. Now this goes very much against the prevailing industry wisdom of not so many years ago. We were being told then that the price of oil, as a finite resource being rapidly exhausted, would inexorably rise. And the auto industry had better get used to it, adjust its product offerings and so on. Well, there has been a kind of ‘reprieve’ based on fracking techniques that have yielded a big supply boost on fossil fuels, including oil. The price of a barrel of oil has plummeted to well under $100 (heading down towards $60 at the time of writing). This has been driven by a rapid surge in oil production in the US, but more fracking is in prospect elsewhere, too (including in the UK). What has that lower oil price meant for the auto industry? I sense a kind of relief. For one thing, full-size pickups in North America are not the dinosaurs that some people a few years ago viewed them as. It was a good time to have plenty of big truck to sell (eg Ram 1500 pickup). Bigger vehicles have been in vogue again. The much talked about vehicle downsizing in the industry has perhaps been checked, for now.
That said, people are more sensitive to fuel consumption these days and the manufacturers are also mindful of tighter emission (both CO2 and noxious emissions) rules ahead. Engines are becoming more efficient, weight is being taken out of the vehicle wherever possible. In line 4-cylinder engines are in fashion among automakers like never before. It’s increasingly about the use of turbos for enhanced fuel efficiency, but you can have your 2015 Ford Mustang equipped with an EcoBoost 4-cylinder 2.3 litre gasoline engine that will still give you 310 horsepower. Good to know.
On oil prices though, a cautionary note. With the price of oil where it is and likely to remain for the next twelve months, some assumptions that have been made on fracking operations may be undermined somewhat. Supply will eventually react if the oil price stays low. And that will eventually bring the price of oil back up. Fracking is a very different ball game to the vast and very deep oil wells in the Middle East. Fracking seams are relatively quickly mined. In five years’ time, we may well be back to the ‘Peak Oil’ kind of scenarios.
Ford tries aluminium with F-150, Farley to Europe
Still on pickups, 2014 saw the introduction of the next generation Ford F-150 in North America, with its heavy usage of aluminium. Bold move from Ford, which saw ‘One Ford’ strategist and CEO Alan Mulally give way to Mark Fields in 2014. At Ford, the stress was on continuity, but Fields did shake things up with an intriguing top-level job swap (news that we broke). I suspect there’s more to it than meets the eye, with the younger of the two probably being given a chance to shine and stake his case for eventual top job consideration. Loss-making Europe is certainly not an easy region to handle and Ford admitted this year (I interviewed Ford Europe COO Barb Samardzich) that it will take longer than it thought to turn it around.
Electric van can?
Plunging gasoline prices this year didn’t exactly help electric vehicle sales, though they moved up. A bit. Not enough for Carlos Ghosn to say, “I told you so”. At least not yet. All that investment in electric powertrain is for the long haul (just ask Toyota about the timescale for a return on hybrid investment). We did see the Nissan e-NV200 electric van emerge in 2014 though, and that will be something to watch, in Europe.
Nevada gets the Tesla ‘gig’
The Tesla S is beginning to make a significant impact, in Europe now, as well as in the US. We heard more this year about the plans for a ‘Gigafactory’ making batteries, with the hope that it can change some of the economics of automotive battery production. Got to admire Elon Musk’s ability to have a vision and also put a plan in place to get there. He has already achieved quite a bit with Tesla, which has successfully challenged the auto industry’s way of working. Does that mean he would rule out working with established OEMs? Nope. BMW could be described as a progressive OEM (with its i-brand and future-looking views on personal mobility) and might be a very suitable partner, along with others.
While on the subject of long hauls, there was a little bit more activity on hydrogen fuel-cells this year (next year is something of a key year, with a number of developments signposted and slated for 2015). Hyundai moved up a gear with the fuel-cell powered Tucson being made available in the US. Are the numbers big? No, they are tiny. Serious fuelling infrastructure questions remain unanswered. But fuel-cells are sure to be on the agenda for discussion over the next few years. It will be an emerging niche. The old joke about them always being twenty years away may, soon, have to finally be retired.
We also had an indication that the tide could be turning against diesel in Europe. Worries over air quality in cities have risen and diesel is taking some of the blame. Tighter emissions standards are also going to be more difficult for diesel at a time when gasoline engines are becoming more efficient. The French, who have led the European diesel charge, are now leading the policy rethink. Maybe EV specialist Renault stands to gain…
PSA sets out model rationalisation and adds a third brand
Looking at the auto industry’s companies, market geography was pretty important in 2014, particularly given mixed market fortunes around the world. Companies well placed in the US and China did well. Being reliant on Europe was not so good. Europe’s market may be coming back (off a low base) but the brutally competitive environment means it’s a very difficult place to make money. Over-capacity on manufacturing remains an issue. Some companies are stuck with a production capacity set-up that is very difficult to quickly adjust or close down. PSA Peugeot Citroen is one such company. Carlos Tavares was installed as CEO at PSA last year. It’s a tough brief, for sure. No, he can’t take an axe to operations and radically recast the company’s manufacturing footprint. Rather, he has set out a major rationalisation of the product portfolio alongside a subtle repositioning of the brands (with DS becoming a third brand) to maximise transaction prices. There’s also an expanding cooperation with Chinese partner Dongfeng. Will it work? There are some positive signs on the product side and the development of engineering architecture. The company has also edged into tthe black and he appears to have the unions with him.
FCA formed
Over at Fiat, it was a pretty lively year. FCA was formed following the merger with Chrysler (the deal wasn’t formally completed until October). It’s quite a company, with some big plans for competing with premium brands (yes, I think we have heard some of it before, but never mind). It’s probably the last chance for Alfa Romeo to actually deliver, or maybe it really will be time to seriously consider sending it Ferdinand Piech’s way. Ferrari is now to to be spun off and Montezemolo departed Ferrari – possibly in a slight huff – for a fresh challenge. Montezemolo, it would seem, may have clashed with Marchionne over strategy for his beloved prancing horse. Anyway, there’s not too much doubt on who’s running the show at FCA; the man in the everlasting blue jersey will be there until 2018.
Volvo shows first fruits of Geely cooperation
Speaking of engineering architecture, we also saw the new architecture – Scalable Product Architecture (SPA) – from Volvo Cars-Geely spawn the new XC90. Have to say, the outgoing XC90 is a tough act to follow and I’m not sure about the slightly bland styling on the new one, but the cooperation with the Chinese parent (hands-off style and ‘managing the bottom line’) seems to be going very well so far.
Jaguar adds XE
Jaguar launched its new XE small car in 2014. For those who remember the disaster that was the X-Type, the arrival of the new model was awaited with great interest. Many observers suggested that the company played safe with the design. My own view was that from the side, it could be a Mazda. However, it is an attractive car and perhaps the main point is the engineering architecture that is shared with Land Rover and the totality of models that can be spun off that.
In what was another good year for Tata-owned Jaguar Land Rover, we also saw a new Land Rover Discovery Sport (shown in Paris at a presentation just dripping with Britishness) and heard about a self-learning vehicle that can understand your driving style, patterns and needs. It can even check your calendar and remind you to pick up some flowers for your better half because it’s your wedding anniversary. Scary? Maybe a tad. On the other hand though, it may be able to ring Interflora and help you to get the whole thing sorted out pronto. Stress levels down.
Japanese get currency tailwind
The Japanese OEMs were helped in 2014 by the weak yen, bottom lines benefiting from the tailwind. Prime minister Shinzo Abe’s Liberal Democratic Party has just been re-elected in Japan on an expansionary ‘no return to deflation’ platform, suggesting that a devalued yen will remain a cornerstone of Japan’s economic policy for a while longer. The Koreans enjoyed a weak won in international markets, but it wasn’t as weak as the yen – something that hit Hyundai’s competitive position in the US.
Google’s car
When it comes to a vision of the future car, 2014 gave us the driverless car (‘pod’) prototype from Google. Was that a nice vision of the automotive future, a compelling one? Car enthusiasts may well bridle at the prospect of a car that is not designed to be fun to drive, or even designed to be driven. You simply sit in it and it takes you to your destination while you spend your time checking your social network status updates on your tablet, or whatever it is that you would choose to do instead of driving. Hmm. The jury is out, but I suspect something like that will eventually find a place in the market. Think of it more as a driverless cab, perhaps. Not sure you would want to own one. Maybe you will have a car that you can drive sitting mainly at home, available when you want some fun.
ZF hoovers up TRW
One way to think about this ‘autonomous drive’ technology is in terms of active safety and advanced driver assistance systems (ADAS) technologies steadily increasing to gradually remove driver responsibility and inputs until the car has eventually morphed into an autonomous drive vehicle. So, that would suggest that companies well placed in active safety tech are well placed for the future. Okay. And that brings us to one of the big deals of the year. ZF acquired TRW (and paid a pretty high price to do that). Does that herald a shake-out and more similar deals in the supplier area? Our supplier sector specialist struck a cautionary note.
There was also an at times arcane row over a new air-conditioning coolant that is billed as better for the environment (lower CO2) and made by Honeywell and DuPont, but some others (led by Daimler) vehemently disagree. The latest twist here.
A word on the premium brands. Things were pretty good for them in 2014, especially with the Chinese market growing again. However, there are some signs that things may be less favourable in the future. Besides a slowing market (but at circa 23.5m units this year) the authorities have been actively looking to curb corruption. Perhaps related to that has been an official investigation into competitive practices in the autos sector. Foreign companies, and especially premium brands, and their Chinese aftermarket operations have been a focus. Large fines were dished out, some corporate hands held up in apparent contrite apology. Mind you, BMW told us it was all to be expected.
We also saw action taken on anti-competitive practices in the supplier sector in the US and Europe (bearings), with suppliers fined for price fixing. It wasn’t the first time. To sum up, the response of the suppliers was along the lines of ‘we are thankful to the regulators for bringing this to our attention and will cough up immediately; we also express our sincere regret and our systems and processes are being duly revised’. Right. Let’s hope so.
To follow: more detail on major global markets, companies and people, new product, new technologies, the recalls.
