DETROIT — On Tuesday, the Society of Automotive Analysts (SAA) hosted a webinar with former Fiat Chrysler Automobiles (FCA) Executive Reid Bigland. He discussed many topics including the automotive industry pre-and-post COVID-19 as well as what he calls the “electrification conundrum.”
Bigland joined FCA in 1997 and has held a variety of senior executive positions at the company. Most recently, he served as the head of RAM truck brand and head of sales for FCA. Bigland retired from the company in April 2020.
“Consumer preference towards trucks and SUVs and stepping away from passenger cars,” he explained during the webinar. “The growth in the industry was concentrated in utility vehicles and pickup trucks. It was almost a multiplier effect. Going into 2020, I think two of the most profitable segments is the pickup truck segment and the cargo van segment. Even prior to this COVID, now home delivery has absolutely taken off. Demand was already strong for cargo vans. Competition isn’t very severe and profit potential is very significant. I think the compact and midsize SUVs are starting to become profitable as all of the new entrants are flooding in.”
Bigland said that the automotive industry was set to be very profitable in 2020 — before COVID-19 hit and changed everything.
“Used car prices today are absolutely through the roof. The average vehicle age on the road was 12 years. No matter how you slice it, going into 2020 to say things were booming might be a bit of an exaggeration. It was going to be an exceptionally strong year for new vehicle sales.”
In March 2020, several U.S. states began lockdowns due to the Coronavirus. That included the closure of automotive factories, suppliers and dealerships. Unemployment rose to 14.7 percent in the United States, an 80-year high.
The former FCA executive praised the U.S. government for stepping in to help consumers. He said their swift action, including a $1,200 direct payment to consumers and $600 per week for unemployed individuals on top of their state unemployment, prevented devastation. Without their help, we would have seen more cars repossessed and more consumers delinquent on their loan payments.
“The attitude with a lot of employees is they’re quite comfortable staying home and getting paid more than when they were working,” Bigland said. “This has kept the consumer in the game. The U.S. new vehicle sales industry and certainly used is still in pretty good shape in this pandemic/COVID environment. The consumer has held harmless. Interest rates are at a crazy low now. Housing prices are up across the country. Auto sales are down. For the most part, demand is very good from my perspective from talking to various people in the industry.”
One of three scenarios could happen:
- Either the government is going to say we’re going to reopen the economy and live with the COVID-19 amongst us and we start to get back to normal with precautions.
- The economy is going to stay relatively shut down and the government is going to step up and keep the consumer harmless.
- A combination of the two: a gradual reopening of the economy and some continuation of the stimulus.
“When I look into the short term, the auto industry looks exceptionally strong. Ramping up production amongst the cumbersome COVID environment. Health and safety issues that come up from time to time. Suppliers have to wrestle with the same issues. I think OEMs [automakers] that can figure out how to ramp up truck and SUV plants to take advantage of their strong order boards will be the most profitable. I think third and fourth quarter, they should be able to rock and roll. They are in a good position to weather this storm barring any mandated shutdowns.”
Bigland described electric vehicles as an “conundrum.” He argued that consumers aren’t excited about them if you exclude Teslas.
Back in 2010, EVs represented 2.4 percent of the industry with 274,000 registrations. Fast forward to 2019, they’ve gone from 2.4 percent of the industry to 4.3 percent of the industry with 727,000 registrations. In 2010, there were 37 EV models to choose from. In 2019, there are now 88 EV models.
“I can tell you based on my experience, any new vehicle that sells less than 10,000 per year is a financial disaster. Tesla has most certainly had the hot hand. The Model 3, S and X recorded 180,000 registrations. If we take Tesla out of it, there are 6,432 sales of EVs after 10 years of effort.
“Who really wants these things? I’m not going to say consumers don’t want these vehicles. When you look at this thing against the backdrop of ICEs [internal combustion engines], it is absolutely a tough sell. The challenge is in five years time, most major OEMs excluding Tesla are going to need to have 30-40 percent of North American sales have to be some form of electrification or they are simply not going to be compliant to sell their ICE with fines. Somehow over the next five years, they are going to have to figure out how to come up with an electric vehicle that is much more appealing to the consumer. I don’t think government regulations will change very much.”
The former FCA executive added: “I’ve seen the studies that say consumers want an electric vehicle. What a consumer is prepared to pay for, they are lucky to put on as sticky note. Are they actually prepared to chin the increased cost over an ICE. It’s running a $10,000 premium over an ICE engine. These battery prices that are supposed to be plummeting haven’t materialized. I think future EV incentives are pretty much unlikely.”
Bigland said Infrastructure is another impediment. One of the major impediments, range anxiety associated with buying an electric vehicle.
The automotive industry took a big hit in 2020, but it will bounce back again.
For more information about the Society of Automotive Analysts, visit www.SAAauto.com.