Automotive forecasting companies are all predicting a steady increase in U.S. new light vehicle sales during the next several years on the way to pre-recession annual levels of 15-17 million units by mid-decade. One factor in these predictions on which the forecasting companies are not dwelling as much as they perhaps should be is the large number of "unknowns" facing the industry. I believe, partially because of what this industry has experienced in the past 2-3 years, the U.S. new vehicle business now faces more question marks that at any time in the recent past. These include:

Gas prices - I would submit we don't really know what is going to happen to gas prices in the U.S. during the next few years. Look at what happened in the spring of 2008. Back then, almost out of the blue, gas prices skyrocketed to more than $4 a gallon ($5 in some parts of the country) and then, just as quickly, prices retreated to the $3 range. When this sudden spike occurred, it was pronounced enough to change the mix of new vehicle sales dramatically in favor of smaller vehicles. Could this happen again? Sure. Does anyone know when it will happen? No one I know.

Aside from the potential for sudden gyrations in gas prices, there is the issue of long-term trends. Will gas prices rise by 2%, 5%, 10%, or some other level over the next several years? I acknowledge this is a complex subject, with many contributing factors, but I would submit that no one knows with a high degree of confidence what the price of a gallon of gas will be two years from now.

Reliability of current technologies - I mention this because of what happened a year ago to Toyota. I don't think anyone knew ahead of time that floor mats and/or accelerator pedals on several Toyota models would cause such a crisis for the company. So, is there some component of a existing product built by another manufacturer that will trigger a major setback for that company? A friend who works at a Toyota competitor mentioned to me a couple of weeks ago, "What happened to Toyota could happen to us tomorrow."

Upcoming regulations - Café requirements through 2016 are known, but what about beyond it? Fortunately the federal and California governments recently agreed to simultaneously set requirements for post-2016 mileage levels, but OEMs need to know these thresholds as soon as possible. Will regulations in other areas, including safety, change materially in the near future?

Consumer acceptance of alternative powertrains - The OEMs are pouring huge amounts of resources into several different powertrains, including hybrids, plug-in hybrids, and pure electrics. Which of these will resonate with the consumer? Which will - over time - gain broad acceptance among drivers? I would suggest the fact that OEMs are simultaneously pursuing so many potential powertrain choices, which in and of itself is proof that no one knows which direction the market will go.

Availability of power for electric vehicles - How soon will a grid exist nationally so consumers feel comfortable spending $25,000+ on a vehicle that needs to be plugged in after 50-100 miles? There soon will be isolated small networks of charging stations, but what about nationally?

Reliability/ease of use of alternative powertrains - The reliability of all the upcoming powertrains except for hybrids is unknown at this point. There is no way of knowing typical repair records and costs of ownership when there have been no repairs and no ownership (again, other than for hybrids).

Geo-Political Landscape - Those of us who have worked in the industry when the Iranian Revolution occurred in 1979-80 know how a political upheaval can alter the U.S. automobile landscape overnight. Could that happen again? Given the current unrest in Iraq, Iran, North Korea, Tunisia, and Israel, among others, it seems that such a sudden major political cataclysm - with a potentially huge impact on fuel supply - is far from out of the question.

Management effectiveness of several OEM executive teams - The management teams at both Chrysler and GM are untested in the U.S. Mr. Marchionne has been successful in Europe, but he has no track record here in the U.S. Here, he is also dealing with six brands, of which three have struggled, one (RAM) is new, and the other two (Fiat and Alfa Romeo) have had poor reliability records when they were sold here many years ago. Mr. Akerson is a successful executive, but not in the auto industry. How will Mssrs. Marchionne and Akerson fare?

New technological developments - Who knows what technologies will be discovered in the near future that will impact the auto industry? Will an R&D arm of an OEM or a supplier discover a break-through technology that will revolutionize how a vehicle is designed, engineered, manufactured, sold, or driven?

Have I missed any?

Posted by Tom Libby, PolkInsight Advisor, Polk (02.07.2011)