Low oil prices will contribute to upside potential for the U.S.
automotive market in the near term, according to a recent report
from IHS Automotive, part of IHS, Inc. (NYSE: IHS). Fueled by
reduced prices at the gas pump, U.S. consumer confidence is
expected to continue to rise, resulting in a potential shift to
larger vehicles in the U.S. and Canada as these vehicles will be
more affordable to own and the value of fuel economy becomes less
important to consumers.
From a global perspective, IHS analysts estimate that cumulative
global sales could be 5 to 7 million units higher over the period
(2014 through 2021) as a result of lower oil prices. The largest
beneficiaries will be the U.S. market, based on improved consumer
confidence; and developing markets such as India and the ASEAN
region where lower ownership costs will bring new buyers.
To balance the shift in consumer preferences, IHS Automotive
research indicates that U.S. vehicle manufacturers are ramping up
production plans for larger light trucks – including SUVs and
pickups – at the expense of the smaller B- and C-segment
vehicles.
In other markets around the world, OEM responses are consistent
with each other, but significantly different than those in the U.S.
market. IHS Automotive expects that there will be little to no
change in vehicle preference or production changes due to the
greater insulation of pump prices from oil costs based on taxes
and/or subsidies. The impact in these markets is significantly
reduced by government incentives and the need to meet
regulations.
Powertrain Changes and Fuel Efficiency
The impact on powertrain technologies is expected to mirror the
market response. In Japan, China and Europe, little change is
expected in the near term. OEMs are continuing to follow regulatory
developments, and they will need to offer increasingly fuel
efficient fleets regardless of fuel price and market
preference.
In the U.S., however, there will be a greater need to improve
the average fuel efficiency of new vehicles due to the expected
up-segment market shift. Based on this, IHS Automotive expects an
increase in market share for technologies already in the
pipeline.
“The unexpected decline in fuel price has been too fast and is
expected to be too short for any major changes in investment
strategy and technology rollout timing,” said Phil Gott, senior
director, long-range planning at IHS Automotive. “These changes
will impact short-term production plans in locations around the
world, and at first glance, may be counterintuitive.”
As an example, one OEM in Japan has already cut back domestic
production levels for some of its most fuel efficient models. At
the same time, U.S. production plans for the hybrid share of a
larger sedan have been raised. Such tactics are needed because
while fuel prices are expected to return to higher levels by the
time 2025 requirements must be met, a shortfall in meeting the
standards necessary in the interim years will cost an OEM important
credits that they may be counting on for 2025. As a result, IHS
Automotive expects greater penetration of alternative powertrains,
primarily stop-start and hybrid, as well as downsized and boosted
gasoline engines in the next several years.
No Impact Expected for Diesel Demand
IHS Automotive analysts do not anticipate any impact on diesel
demand as a result of the changing oil prices.
“At this time, we do not expect diesel demand to be impacted by
low oil prices,” Gott said. “The direction for diesel prices in
Europe -- the largest light duty diesel market -- is similar to
gasoline and the attractiveness of diesel vehicles is relatively
unchanged.”
Also, given government regulations and consumer sentiment for
diesel in China and Japan, IHS does not expect much fluctuation in
those markets either. For the U.S., diesel prices are declining,
but still remain higher than gasoline. It’s anticipated that diesel
will remain attractive for those segments that need benefits of
high torque and long cruising range.
Implications for Regulatory Reviews
The drop in fuel prices across major auto markets is cause for
additional disruption to those planning the next generation of
vehicles and powertrains, including regulators. With Europe and the
U.S. markets currently working on standards for CO2 and fuel
consumption for 2025, the timeframe over which oil prices remain
low and the resulting market response are bound to have a
significant impact on the final outcome of these regulations.
As an example, if the relatively low fuel prices in the U.S.
cause greater shifts towards higher fuel consumption vehicles, the
review process under way could determine that existing targets are
too stringent, and cause debate among consumers, politicians and
labor unions, among other stakeholders. IHS anticipates a likely
solution would be a combination of incentives, credits and
multipliers for the sales of select advanced technology vehicles
similar to flex-fuel credits that are just now being phased
out.
In Europe, the likelihood of stringent standards for 2025 is a
bit less uncertain, as the overall market response is expected to
be less dramatic. However, the impact comes at a time when some
politicians are signaling their discouragement of the use of
diesels in certain cities. While fuel prices are expected to be
recovering by 2020 or so, European OEMs are more concerned about
the impact of regulations and aligning their powertrain strategies
to meet the 2025 challenges.
“Regardless of the outcome, the timing of the current price
decline injects an additional level of uncertainty into the auto
industry’s planning cycle,” Gott said. “As we start this year, we
are just 10 years or one platform cycle away from the most
stringent fuel efficiency standards. To plan for profitable
manufacturing of vehicles and components in this era is perhaps one
of the greatest business challenges the industry has seen in a long
time.”
About IHS Automotive
(www.ihs.com/automotive)
IHS Automotive, part of IHS Inc. (NYSE: IHS), offers clients the
most comprehensive content and deepest expertise and insight on the
automotive industry available anywhere in the world today. With the
addition of Polk in 2013, IHS Automotive now provides expertise and
predictive insight across the entire automotive value chain from
product inception—across design and production—to the sales and
marketing efforts used to maximize potential in the marketplace. No
other source provides a more complete picture of the global
automotive industry. IHS is the leading source of information,
insight and analytics in critical areas that shape today’s business
landscape. IHS has been in business since 1959 and became a
publicly traded company on the New York Stock Exchange in 2005.
Headquartered in Englewood, Colorado, USA, IHS is committed to
sustainable, profitable growth and employs about 8,800 people in 32
countries around the world.
IHS is a registered trademark of IHS Inc. All other company and
product names may be trademarks of their respective owners. © 2015
IHS Inc. All rights reserved.
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