By Mark R. Smith, Contributing Writer
With the last few years in the automotive industry punctuated by such issues as lack of inventory, supply chain issues, scarcity of semiconductors and the high prices of cars ― especially electric vehicles and hybrids ― along with high interest rates on loans, it was hoped that 2024 would bring some relief.
And to hear the viewpoints of industry observers, that’s happening. The road to industry success has become more open, with more cars on dealer’s lots, supply chain bottlenecks largely resolved and a hoped-for further drop in interest rates later this year expected, though committing to a seven-year auto loan can be a stomach-turner for buyers.
While the presence of electric and hybrid vehicles still looms large on the horizon, it’s not quite as prominent in the minds of industry observers. They don’t seem to feel that mechanics who work on internal combustion vehicles have much reason to be nervous about losing any of their livelihoods in the near future.
Hybrid Time?
From the perspective of Jeannette Goldsmith, vice president with the Greenville, S.C.-based Strategic Development Group, the overall market is on the rise. “We’ve definitely recovered from the post-COVID-19 shortage of semiconductors. There is plenty of product on the market now and that gives consumers more opportunity.”
Goldsmith is still among the observers who feel that, despite its issues concerning expense, energy requirements and infrastructure, the EV market “is getting a little more real. The early adopters in the consumer market have made their purchases,” said Goldsmith, “and now it’s time to convince the rest of the marketplace that it’s time for them to follow suit.”
But she knows some key requirements must be met for that to happen. “We need to dramatically strengthen the infrastructure to bring the market to the masses,” Goldsmith said, “by expanding the charging network making them available in more and better locations.”
The other ongoing challenge in the EV market is the battery technology. “It’s better, but it’s going to have to improve on the amount of time it takes to charge a battery,” she said, which generally ranges from eight to 12 hours, “as well as the price, should they need to be replaced; on that note, the price point of EVs needs to come down, in general.”
She also stands among the growing number of observers who are surprised that there isn’t more buzz about the value of hybrids. “That market has much potential for growth and that will appeal to more people than EVs do at present,” Goldsmith said. “While they’re still pricier than a combustion engine car, they cost less than EVs.”
As for light trucks and delivery vehicles, “that market has been fairly hot, but it is also doing a lot of transitioning to EVs and alternative fuels, such as hydrogen and biofuels,” she said, “and I think the other sector to watch is hydrogen,” which is “being used more often to fuel heavy transport vehicles and construction equipment.”
But again, it’s still the battery technology that comes into play. Or doesn’t.
“Electrification is not yet viable for long-haul trucking operations, given the need to recharge the truck and the time it would take to recharge,” said Goldsmith.
Cooling Hype
David Kirsch, associate professor of strategy and entrepreneurship at the Robert H. Smith School of Business at the University of Maryland College Park, and author of The Electric Vehicle and the Burden of History, took a measured look at the early EV market.
Kirsch thinks “the EV hype is cooling and many of the commitments that incumbent manufacturers made are being walked back and slowed down. The EV outlook is still positive,” he said, “but not as positive as it was even several months ago.”
He feels that all concerned taking a more cautious approach to the EV transition would be the best first step, which could be making that rather obvious aforementioned choice. “There may be a renewed interest in hybrids, especially plug-in hybrids,” he said “as a transitional technology.
“That would have three benefits to consumers,” said Kirsch. “The first is that a plug-in hybrid can electrify as many as 95 percent of an average driver’s total vehicle miles traveled. Therefore, the plug-in hybrid driver might only need to use the internal combustion side on a long trip.
“Secondly,” he said, “the gasoline engine makes range anxiety a non-issue; the third benefit concerns costs. The price of a typical plug-in hybrid is higher than that of a comparable internal combustion engine-powered vehicle, but it’s still less than a pure EV.”
So while the hybrid market didn’t take off initially, “with the EV market slowing, consumers may reconsider the advantages of a plug-in hybrid,” he said, “especially since there is good news in the auto (and many other) industries: the supply chain disruptions that plagued the industry in recent years have largely eased.”
That increased flow in the supply chain could lead to more good news: Taking the broader view, Kirsch said, “We’re at the end of a long expansion in the automotive market, so saturation may soon occur. The industry was excited about the prospect of consumers willing to pay to replace internal combustion vehicles with EVs, but now consumers are getting more creative when thinking about what they want next.”
Still, Kirsch doesn’t think the typical car buyer is going to be overly impressed by what they see in the showroom. “Manufacturers are reasonably concerned about topline demand,” said Kirsch, “and not as many consumers are interested in the new cars that they’re seeing. On the bright side, waiting times [for a certain car or model] have declined considerably.”
Then comes the main issue for most consumers, more of whom need to borrow money to buy a car, be it new or used.
“The Federal Reserve has worked hard to tamp down inflation by raising interest rates, but it’s not as cheap to borrow money as it was during the era of low-interest rates,” he said. “While a rate drop is predicted later this year, rates for car loans and leases have yet to do so.”
Speaking of cooling hype, Kirsch also noted how the buzz about autonomous vehicles has receded. “We have a handful of robotaxis in a few cities and the startups are still working on it,” he said, “but for manufacturers who may have been expecting to sell thousands or even millions of AVs, the orders are not rolling in.”
Kirsch cited Tesla as part of the solution. And the problem, too.
Tesla “is still growing and selling interesting EVs, but its much-ballyhooed cybertruck has had functionality issues and isn’t moving the needle. It may be just a slow launch or maybe it will not catch on,” he said, “but a light-duty Tesla truck might have done quite well and any other automaker would not have brought that truck to market.”
Not Yet
The financial question marks concerning EVs filter down to the elements used in the manufacturing process, said Darin Buelow, principal with Deloitte Consulting’s Chicago office.
“We’re continuing to see location activity in the EV supply chain for both U.S. battery plants and their suppliers,” said Buelow, “including those who offer elements of what goes into a battery, such as cathode and anode producers.”
Buelow thinks there’s a reason for this activity. “Many of these projects are likely motivated by the benefits of the Inflation Reduction Act,” he said. “Even other manufacturers that are motivated to expand to the U.S. market to supply new plants are also seeking IRA support.”
There are some current headwinds, however, “such as higher interest rates and an election year,” said Buelow. “but the advantages of the IRA are substantive enough for get companies to search for sites now.”
However, he cautioned that “it will be several years before these manufacturing facilities are up and running, and it’s hoped that by that time prices of the cars and the batteries will drop, and the EV market will mature,” he said. “Still, many things have to happen.”
For instance, the industry “will need high-density charging networks and lower vehicle costs,” Buelow said, “but bear in mind that we’re getting ready for five to eight years from now.”
He said that the site selection decisions of the industry concern more than “the traditional factors, such as labor supply, labor costs and logistical access, because EV battery manufacturing is utility intensive,” he said, “and in some markets getting enough electricity to meet the growth in demand is going to be challenging.”
For instance, utility providers “have promised to wind down coal and gas usage in favor of clean energy,” said Buelow, “but if they do so too quickly, some speculate that there may not be enough generation capacity to meet project capacities in every market.”
Additionally, the demands on the electrical grid are complicated by the increase in the number and scale of data centers.
“With increasing demand for computing power driven by artificial intelligence, cloud computing, video-streaming services and more, data centers will require electricity demands that are often a multiple of the data centers of the last decade. I think there are a few options in front of generation planners,” said Buelow, “but one is to slow down the retirements of legacy power generation assets in order to meet these increasing demands.”
That issue can have to do with location, too.
“If you look at a map of every new battery plant announcement during the last five years, about 90 percent are in the eastern half of the U.S., in a triangle that ranges from Michigan to Northern Alabama and over to the mid-Atlantic,” he said. “Outside of that triangle, there are not many announcements, even in areas with large electrical capacity.”
“With constraints on site availability and heavy electrical service in many areas within this triangle, more companies are looking outside that area, often to the west, to places like Illinois, Kansas and Texas,” said Buelow. “That north-to-south corridor could be the next frontier for these projects.”
On the consumer side, “until it sees a more widespread density of EV charging stations, that part of the market may be slow to gain massive adoption. This isn’t a question about next quarter, either,” he said. “It will take several more years for the infrastructure where it needs to be.”
While that timeline may sound daunting, Buelow sees it as a normal rollout for a game-changing new technology.
“I’m sure in the horse and buggy days,” he said, “no one envisioned how many gas stations would be needed in their neighborhoods.”
Market Return
For now, internal combustion is still reigning supreme: Last year marked a comeback to historical norms for new vehicle registration, said Todd Campau, associate director, aftermarket solutions for Southfield, Mich.-based S&P Global Mobility, after “sales in 2022 were at the lowest level since 2011.”
That upswing was due to “a confluence of reasons,” said Campau. “We’re seeing new vehicles coming on the market, as the supply chain issue seems to be evening out. In fact, we’re seeing inventory build as dealerships are having a harder time seeing sales through the channel.”
So with supply catching up to and perhaps starting (in some cases) to exceed demand, might the consumer gain more leverage?
“Theoretically that should benefit consumers, but we’re now in a situation where we’re waiting to see who blinks first,” said Campau. “Consumers through most of 2023 were buying more new vehicles.” However, “likely due to economic constraints, some of the air seems to be coming out of the sails for new registrations, as consumers seem to be shifting to being patient for interest rates to drop so they can get a better payment. Consumers are looking for more affordability. For some, current vehicle prices at high interest rates are untenable.”
Overall, he sees today’s market finally getting back to where it was pre-COVID-19.
“I think we’re back to a more normal rate of sales and are getting closer to where we were prior to the shutdown. The market is back to being driven by more historically normal factors ― meaning not driven by pandemic era constraints or stimuli, nor hindered by supply chain, the microchip shortage, hybrid work,” etc. “They all had a big effect on car sales during the past few years.”
Today, he said, the main issues are how much, and how soon, interest rates and inflation will drop.
“We still expect strong numbers this year,” Campau said. “Right now, hybrids seem to be more favorably viewed. I think the EV market is leveling out a little due to various factors: EVs are moving past early adopters to the second wave; and like the rest of the market, high costs and interest rates are serving as a headwind.”
But he also voiced the familiar concerns, which are “the cost, charging experience and range anxiety that has equated to some trepidation about shifting to EVs,” he said.
He, too, sees hybrids as “a natural stepping stone and that seems to be where the market is heading. We’re now seeing more hybrid truck and utility vehicle offerings, and they seem to be well received, too. In fact,” he said, “pickups, SUVs and CUVs (crossover utility vehicle) are accounting for more hybrid auto sales.”
Campau also looked toward other avenues that lead to the future.
“There’s also a good buzz around hydrogen and the major automakers are taking notice of that option,” he said. “I think the key attraction is that the path to consumer adoption could be smoother, since the experience is more like what they’re used to with gasoline vehicles.”
“Also,” said Campau, “hydrogen provides another option to the green approach. In some cases, they can be as clean or cleaner than an EV, depending on how the hydrogen is extracted.”
Playing the Parts
Michael Chung is senior director, market intelligence, with the Bethesda, Md.-based Auto Care Association, which represents the automotive aftermarket ― parts manufacturers, distributors, warehousers, retail, tire and accessory stores, and service providers. He also reported that what he’s seeing, generally, is positivity.
“Aftermarket retail sales were up 8.5 percent from 2022 to 2023. Inflation during that time was 4.1 percent higher,” said Chung, “so we’re happy that aftermarket retail sales beat inflation.”
He’s hoping that trend continues, but he also said that the inflated prices “probably won’t be going down. While inflation has dropped to 3 percent-4 percent, it will also continue to be a headwind, but at least it’s not at its peak of 9%, which it was last spring. And interest rates have yet to drop, so it’s still a little challenging for the consumer. That’s encouraged people to keep their cars longer.”
But there will be a day when another car will become not a want, but a need. “The average age within the U.S. light vehicle fleet is about 12.5 years and continues to age. Since the pandemic, there has been even more do-it-yourself repair among auto owners, which has led to a boost in online sales for our members.”
“We expect that to continue,” he said, “and alongside that trend is that people are driving as they were before the pandemic. Total mileage in 2020 dropped more than 13 percent compared to 2019. Today, they’re back to pre-pandemic levels and last year reached 3.66 trillion miles, which was more than a half-percent above 2022 numbers and 13 percent higher than 2019.”
So Chung sees the needle moving toward full in the aftermarket this year.
“The supply chain has stabilized, interest rates should come down more and the industry continues to perform well, though there is always something to keep an eye on,” he said, like “the recent Red Sea conflict and issues with the water level in the Panama Canal” that held up the shipping of products.
“However, I expect this year to be pretty stable,” he said. “Our forecast model calls for steady growth of about 4 percent. We’re planning an update shortly and expect more good news.”
Cheaper Repairs
Also approaching the industry from the aftermarket was Bill Thompson, vice president of research for Nashville-based Endeavor Business Media. He said the company interviews 6,000 repair shops every year and has found that inflation has been one of the top issues they’ve faced.
“A little more than a year ago as inflation picked up, shop buying dynamics changed,” said Thompson.
“Repair shops have the choice to purchase parts at various price points. The pressure on the shops was most intense when inflation was really raging and marked the first time repair shops reported a significant number of customers requesting that they get their vehicles fixed as cheaply as possible,” he said. “At that point, the shops started to gravitate increasingly toward private label parts.”
Endeavor also tracks delayed maintenance, which is the percentage of vehicles on the road that the driver knows need repairs.
“Pre-pandemic, that number hit its lowest number ever, which was 17.1 percent. People had jobs, had money and were really busy, which typically translates into both needing the vehicle running well and having the work professionally done. But during the pandemic, that number rose to roughly 35 percent, then subsequently started declining.”
But then came the next problem: inflation.
“People got strapped again and the number rose back up to mid-20 percent, so today people are going more do-it-yourself again to conserve money,” said Thompson. “That has slowly increased during the past two years.”
He said today that “consumers seem to have adjusted to inflation and now shops aren’t seeing as many consumers requesting less expensive parts. Now the issue has reverted back to a long-standing labor problem: finding qualified technicians.”
As for EV and HEV (with the “H,” as in hybrid) markets, Thompson is on board with many of his peers. Carmakers “seem to be repositioning their advertising and messaging to say “electric with an engine” when promoting hybrids, he said, “to potentially alleviate the range anxiety issue. I also think we’re going to see hybrids come into focus more as the demand for EVs decreases.”
“There has been a great deal of focus on the EV consumer, compared to the internal combustion vehicle owner,” Thompson said. “With momentum behind HEVs, we expect product manufacturers to a better understanding of this vehicle owner’s maintenance behavior.”
So all told, Thompson and Chung, like many other observers, see a bright year ahead and a robust future for the automotive industry.
“Hopefully, the world is settling down and we’ll achieve greater equilibrium,” Chung said. “That will be helpful for the consumer and our industry.”
Odenton, Maryland-based Mark R. Smith joined Expansion Solutions after having written about site selection among the vast number of topics he has covered in the 
business universe. That part of his career began in 1993 when he joined The Daily Record, a Baltimore business and legal publication, where he delved into the worlds of economic development and commercial real estate, among numerous other industries; in 2003, he was named editor-in-chief of The Business Monthly, another Maryland publication that covers the scene in the Baltimore-Washington Corridor counties.
Concurrently, he’s written at length about the film and video industry for a variety of publications, and about his other loves, including music, sports and leisure.
