The average price for a new car in the US fell to its lowest level since 2000 in August. Such intense price competition pushed sales of subcompact cars down 15 percent over August 2017 while sales of large sedans fell 11 percent, says the US Census Bureau. In the wake of such febrile conditions, GM has announced that it will do something that’s a bit unusual for General Motors: Make more.
“We can’t be satisfied with living in the past,” CEO Mary Barra told analysts on an earnings call in Detroit. “We know that American consumers are looking for great features and more choice and a smooth transition to the technology of the future.” The company recently announced a new range of cars that will all run on battery electric power. They’ll be affordable and affordable enough to even take on small-car sales leader Toyota.
John Hoffecker, president of the Global Automotive Practice at consulting firm AlixPartners, says that savvy businesses can see a growing trend where consumers seek simple, affordable, more fuel-efficient cars. “Transportation as a percentage of GDP will continue to grow until it stabilizes at somewhere around 7 percent,” Hoffecker predicts. “And that will continue to be an issue for the industry.”
The real question, Hoffecker says, is whether there’s room to differentiate between the automakers. Is Toyota the best choice or is GM the better alternative?
“As an investor, I’m biased,” he admits. “If I were an investor in GM, I’d say, ‘That’s great.’ If I were an investor in Toyota, I’d say, ‘What’s wrong with them?’ But GM is moving faster and they are saying, ‘We want to take on Tesla.’”
Also on the rise, Hoffecker predicts, is the global status of electric cars. “Ten years ago, people would say there’s no space for them and we need gas. Now people understand there’s room for them and we need to do something about it.”
But Hoffecker says that it’ll be a while before GM or others are able to turn electric vehicles into a meaningful business model. “Most of these investments are going to be in high-volume models that have already been designed and built so they’ve already costed out,” he says. “But at the same time, there’s this perception in the market that they’re all new designs. There is a lot of R&D that still needs to happen.”
One big opportunity is the government grant for electric-vehicle charging stations. Or the utility contracts, or even the federal tax credits. “There’s a big incentive out there, but it takes time and money. So the incentive works against the incentives. I don’t see this being a runaway success overnight.”
Has the auto industry changed in the last five to ten years? Does the market demand electric vehicles? “There has been a paradigm shift,” says Hoffecker. “What the market ultimately will desire, if we don’t in fact jump the gun on this kind of change, is a viable electric infrastructure. There’s a lot of demand for EV’s but it still is a rare, rare animal.”