What is the Future of the American Automotive Industry?

The financial crisis that dramatically altered the American auto industry through bankruptcy, ownership changes and governmental bailouts had a profound effect on consumers as well. With millions of Americans facing unemployment, mortgage problems and plunging credit scores, discretionary spending dropped, savings rates increased and cars sales plummeted.

A slow economic recovery seems to be underway. But, in the same way that companies like GM and Chrysler have fundamentally changed, consumer habits may never be the same either. While, for now, pick-up trucks remain two of the three top-selling vehicles in America, there are unmistakable signs that American automakers can no longer rely on these high-profit stand-bys to secure their futures.

With consumers forced by economic circumstances to demand lower costs for buying new cars and keeping them on the road, U.S. car companies must respond by putting themselves on kind of a diet and pushing back from a table ladened with the gas-guzzling behemoths that defined the industry for decades.

Collectively, the events of the past few years will lead American automakers to heed the words of comedian Steve Martin, who memorably told his audiences, “let’s get small.”

Fuel efficiency

Domestic and international events will both drive American car makers toward higher fuel efficiency. Already in 2011, unrest in the Middle East caused a spike in oil prices, with a resulting increase at the gas pumps. The last round of $4-per-gallon gasoline caused an increase in compact car sales, and a recent Cars.com analysis showed consumer interest in SUVs and crossovers dropping while compact and hybrid interest rose when gas prices surged this spring. What consumer demand doesn’t accomplish, the government will. Federal Corporate Average Fuel Economy (CAFE) standards mandate a 35 miles-per-gallon average across each company’s fleet of vehicles by the end of this decade.

Green technology

At the most fuel-efficient end of the spectrum, plug-in electric cars have extremely high ratings and can help bring down the mpg-average of a company’s entire range of models. GM introduced its Chevy Volt to much fanfare – a Super Bowl commercial and Motor Trend magazine’s Car of the Year Award. Later this year, Ford will start selling its Ford Focus Electric in 19 U.S. markets. While the vehicles are largely a novelty so far, the same was true of hybrid cars a few years ago. Prices dropped, acceptance grew, and Toyota recently sold its one-millionth Prius in the U.S.

Affordability

The new economic reality is that consumers don’t have as much to spend on cars as they did just a few years ago. These market pressures continue to drive the average cost of a new car down on a year-to-year basis.

The latest monthly sales figures confirm the trend toward more reasonably-priced cars. Sales on Nissan Sentras doubled over the same period last year, Hyundai’s small models saw sales increases of 55%. Meanwhile larger, more expensive models like the Chevrolet Traverse SUV and the Ford Taurus full-size sedan experienced drops in sales figures compared to the same month last year.

Re-definition

It is time to redefine what we have traditionally thought of as “American cars.” Is a Ford Edge that is assembled in Canada considered an American car? What about a Toyota Camry built in Kentucky? Is a Chrysler manufactured in Detroit still an American car now that the company is Italian-owned?

The fate of the entire American auto industry – regardless of where the corporate ownership of a given company is headquartered – is inextricably woven into the fabric of our economy. The manufacture and sales of all cars in America – whether they are from GM or Toyota, Ford or Hyundai, Chrysler or BMW – affect employment levels, family incomes, retail purchasing, savings rates and more.

The companies that adapt to economic events and the consumer trends that result will succeed, and those nimble, forward-thinking car companies will end up being the American auto industry. Whether the brands we consider traditional American automakers will be among them remains to be seen.