What to Expect From Autos in the Year Ahead

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What's up for the auto business in the coming year?

If ever it was a straightforward question, it sure isn't now. Think about what surprised in 2010: We knew Ford (NYSE: F  ) was primed for a good year, but that good? The deck was certainly stacked in General Motors' (NYSE: GM  ) favor a year ago, but the company's disciplined execution -- and sudden Wall Street favor -- was an unexpected development.

And what of last spring's Toyota (NYSE: TM  ) recall debacle? That was a remarkable series of epic-fail moments from a company whose execution had long been hard to fault, and the lingering effect on the company's sales was another big surprise.

Other trends, like the emergence of mass-market electric vehicles, were easier to predict. But this is a brutally competitive, fast-changing business that is going through several different historic evolutions all at once. Trying to predict the future is a fool's game.

But even though we might find this article pretty funny a year from now, this Fool is game for some crystal ball action.

Predictions? I've got 'em.
So what's in store for 2011? Here are a few of the themes I expect to be writing about in coming months:

  • Less dramatic gains for Ford. I think the Blue Oval's profit and overall sales will continue to grow nicely, but I think the sales growth will come from emerging markets and a rising global economy. The days of month-after-month market share gains in the U.S. and other developed markets seem likely to come to an end as heavyweight competitors like GM, Nissan, and Hyundai continue to gather steam.
  • More noise from Tesla. Silicon Valley's Tesla Motors (Nasdaq: TSLA  ) isn't slated to launch its maybe-mass-market Model S sedan until 2012, but I expect the company to continue to make headlines with big-name technology partnerships and, perhaps, new deals to supply components to established automakers. Tesla already has deals in place with Daimler, Toyota, and Panasonic (NYSE: PC  ) , and the company could do worse than to evolve into the world's electric-drivetrain supplier of choice.
  • Remember Chrysler? You will. It isn't getting a lot of attention yet, but America's number three automaker is quietly thriving in its arranged marriage to Fiat. CEO Sergio Marchionne's plan for the merged firm drew lots of skepticism when it was announced in early 2010, but the early results are stronger than expected. The companies seem to have discovered exceptional synergies, and the first jointly developed products (such as the new Jeep Grand Cherokee) have impressed reviewers -- and brought buyers back to long-quiet Chrysler showrooms. I expect to see more surprisingly solid products, much more visible marketing, and possibly even an IPO (but expect Fiat to increase its stake in Chrysler to 51% first -- it owns 20% now). Put another way, I won't be surprised if Detroit has three great turnaround stories to brag about at this time next year (maybe even four, if the Lions can stay healthy.)
  • Continued struggles at Toyota. CEO Akio Toyoda has acknowledged that the company needs to show that it has transcended the quality problems (and the lack of forthrightness) that led to the recall debacle. He has also acknowledged that the company and its products need to show more "passion for cars." For a long time, Toyota led quality rankings but its products were seen as dull. With its quality armor now dented, sales have suffered. Look for Toyota to make some strides on both fronts in 2011 -- but expect the company to struggle for a while longer, as these changes will be slow to appear.
  • Green is (still) the new black. Expect a lot of talk (again) about hybrids and electric cars -- starting with the concepts and new models that will make their debuts at the North American International Auto Show next week. Look for green-themed surprises from Nissan, Honda (NYSE: HMC  ) , Ford, and maybe others -- if not at the NAIAS, then later this spring as the auto-show season continues. They're here to stay, folks.
  • China's industry continues to mature. The world is waiting for a Chinese automaker to stride onto the global stage, but the most widely known candidate, BYD, seems not to be the world-beater that some investors (including two guys named Buffett and Munger) had hoped. Instead, I'd look for one or more of the country's established heavy hitters to expand into other emerging markets, perhaps in partnership with an established global big name. SAIC, which has both official favor and (big) joint ventures with Volkswagen and GM, is a name to watch.

One last thought: Keep your eye on the major auto shows, starting with one of the biggest, Detroit's North American International Auto Show, next week. The auto shows come with plenty of hype and pie-in-the-sky concepts, but they're also the places where it's easiest to see how the automakers view themselves and their idealized visions of their own futures.

I'll be looking especially carefully at GM's vision for its Buick and Cadillac brands, any new green or "infotainment" technology from Ford, future production models from Honda, and anything Hyundai shows. But I'll also be open to surprises, and the one prediction I can confidently make for 2011 is that this crazy industry will surprise us in ways we haven't imagined.

What are your predictions for the auto biz in 2011? Scroll down to leave a comment and let me know.

Fool contributor John Rosevear owns shares of Ford and GM. General Motors is a Motley Fool Inside Value pick. Ford is a Motley Fool Stock Advisor choice. BYD is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 03, 2011, at 4:31 PM, mattsmithsd wrote:

    I recently spent 3 days tagging along with my older brother and his wife while they were car shopping. We visited numerous dealerships (Ford, Mercedes, Jaguar/Land Rover, GM, Dodge/Chrysler/Jeep, and Lexus).

    I found that Mercedes was the busiest dealership while Jaguar/Land Rover had the least number of car shoppers. GM, Dodge/Chrysler/Jeep and Lexus were roughly the same. At the Mercedes dealer, most people were test driving vehicles priced in the 30-40k range which is generally their C-class. There were a handful looking at the SUV's which are in the 50-65k range and surprisingly enough, a gentleman purchased a Mercedes SLS for $200k the same day my brother was buying his ML550.

    The same went for all the dealerships. Most people were looking at the lower end vehicles that were cheaper and then there was a small group looking at SUV's and a tiny group looking at the extremely high end cars carried by the dealer.

    However, even though people were out buying, I definitely didn't see as many people looking at vehicles as there were in 2009. I think cars need to come down in price to really spark more purchasing. It's near impossible to get a decent car for under a $400.00 a month payment. Even a new Honda Civic will cost you approximately $420.00 a month to purchase for 60 months.

  • Report this Comment On January 03, 2011, at 5:22 PM, xetn wrote:

    Mattsmithsd: "It's near impossible to get a decent car for under a $400.00 a month payment. Even a new Honda Civic will cost you approximately $420.00 a month to purchase for 60 months".

    That is precisely why you should always buy used cars. To me, it is silly to pay a premium for a new car, which looses a lot of value the minute you drive off the lot.

    As for the "Green Cars" I don't understand why someone would pay $40000 for a Volt that will only go 100 miles. That $40 Gs will buy a lot of gas without the hassles.

  • Report this Comment On January 03, 2011, at 6:18 PM, mattsmithsd wrote:

    Xetn: I always buy used vehicles as well. A car is not an investment, rather it is a constant money sucking machine. I wish I lived somewhere with better public transit, but Southern California lacks a sufficient public transit system.

    Since I was 16 I have always believed in holding a car for typically 1 year and a max of 2 years. Everyone says I am crazy for changing cars so often, but I have been able to resell the car for the same price I paid for it. My only loss was generally the Taxes and sometimes Licensing; a small price to pay compared to losing 10's of thousands of dollars buying new!

    I've been able to move up from a 1973 Chevy Nova all tricked out to a 2006 BMW 3 series and haven't lost tens of thousands of dollars doing it.

  • Report this Comment On January 03, 2011, at 6:55 PM, baldheadeddork wrote:

    My predictions:

    1) Ford will finish 2011 with around a 4% gain in market share. Rising oil prices are going to help sales of the new Explorer and Focus, and I'm also expecting some big news on Sync.

    2) GM will struggle to hold on to it's 19% stake because of a lack of new product in 2011 - or they'll go back to the worst habits of the old GM and pile on the incentives to grow their market share.

    3) Ford will expand its lead as the most profitable automaker. Their gains in market share may be modest, but Ford is primed for an even stronger year in profitability thanks to a ton of new product in their lineup.

    4) The UAW negotiations with Ford will surprise a lot of old industry observers (and sadden anti-union hacks) for not being a repeat of the 1970's. The UAW is now a very large shareholder in Ford and an old-style fight over hourly wages and defined benefits doesn't help that or the UAW's larger goal of organizing the transplant factories. Look for profit sharing to be the #1 issue, and I think it's going to be one that the union and Ford agree on fairly quickly.

    5) Toyota will continue to flounder. Sales in their domestic market are projected to be abysmal in 2011, they're struggling in China, and buyers aren't rushing back in the US. They do have a new Camry later this year and that is a very big deal. Unfortunately, it was designed and developed before Toyota had their come-to-Jesus moment last year. If the market expects the Camry to be a turn-around car, they're probably going to be disappointed.

    6) What happens with Chrysler is anyone's bet. Their sales have been strong and they're getting a lot of refreshed product to market. But they've done more fleet sales than GM or Ford in 2010, and their refreshed cars are running head-on into a field of genuinely new product. They're also the most vulnerable to a rise in gas prices. Chrysler could be the superstar of 2011 or they could give up everything they gained last year. Either outcome is equally probable.

    7) I agree with John that green will continue to be the new black, but the difference between 2011 and earlier years is being able to deliver real products. With the Leaf and Volt in showrooms, and more electrics and advanced hybrids definitely coming soon from established makers, the public and investors will run out of patience for cars that may be built some day.

    Which brings us to...

    8) Tesla. Look for them to continue talking about all of this great stuff they're going to do with the powertrain of the Model S (this week: improved battery chemistry that will make the car profitable) - and not a peep about actually building the car.

    Their claim of a 2012 launch for the Model S defies every benchmark in the business. You have to road test a new model and if you know what you're doing it takes at least a couple of years to go from the first road tests to production. Tesla hasn't even started yet.

    9) China will plateau. The demand for cars isn't fading but the cities are becoming undriveable. The Chinese Auto Dealers Association said limits put in place by the government will cut sales in Beijing by 50% next year. If other boom cities like Shanghai are better it's only by a small degree. The limits on other cities may not be as severe as in Beijing, but I think it's very likely that these caps on new car sales will spread.

    Before the government began to cap sales analysts were already expecting sales growth to fall from 34% in 2010 to 10-17% in 2011. There are also ongoing questions about the stability of the Chinese economy. If the growth in real estate or the stock markets turn out to be a bubble, auto sales will take a big hit.

  • Report this Comment On January 03, 2011, at 7:49 PM, DDHv wrote:

    Support the new car business - buy used! ;-)

    An eye should be kept on AXPW.OB, they have a battery that would be ideal for the start-stop micro hybrids that are starting now.

  • Report this Comment On January 04, 2011, at 9:12 AM, Natador54 wrote:

    @ XTEN: I don't dispute your argument in favor of used cars, nor do I argue with the notion that the Volt is a little pricey. However, in the interest of accuracy thre3 things should be noted. 1) the price of the Volt after government support is more like 32K. Not cheap, but better. 2) the electric only range is about 100 miles, but the car will go much further than that with gas support. A "typical" commuter may go a long time only using electric assuming nightly charging. 3) 40K does buy a lot of gas (actually, carbon), and ships much of that money out of the US into the hands of people that don't like us very much nor treat us nicely. The use of electricity to propel a car favors US energy sources including renewable resources.

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