Fans of the auto industry got a treat recently with the 2017 North American International Auto Show.


In this week's episode of Industry Focus: Industrials, Sean O'Reilly talks with Motley Fool senior auto specialist John Rosevear about the most exciting plans he saw revealed at the show, and what they're going to mean for the big automakers in the next few years. Tune in to find out where Honda (HMC 0.51%) is focusing its efforts, how the cyclicality of this market is affecting plans, the surprising new areas Ford (F -0.59%) is directing its business model toward recently, the current state of self-driving and electric cars, and more.

A full transcript follows the video.

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This podcast was recorded on Jan. 19, 2017.


Sean O'Reilly: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. Today is Thursday, January 19th, 2017, so we're talking about energy, materials, and industrials. I'm your host, Sean O'Reilly, and joining me today via Skype is Motley Fool senior auto specialist Mr. John Rosevear. Good morning, John!

John Rosevear: Good morning, Sean! How are you today?

O'Reilly: Very good! How's it going over at the Rosevear house?

Rosevear: Everything is good, as always.

O'Reilly: Good. It's an odd question, but how many cars do you own? It just popped into my head.

Rosevear: As of this moment, my family owns two cars: my car and my wife's car. That number has been larger in the past, and will probably be larger in the future. [laughs]

O'Reilly: If John has anything to say about it, he's going to get his Ford Mustang if it kills him.

Rosevear: Uh, well ...

O'Reilly: Oh, you don't like the Mustang?

Rosevear: That's a whole 'nother podcast, actually. What Kind of Car Would John Buy?

O'Reilly: Oh, that's a fun one. We should do that. Maybe a spring show. Anyway. That actually lends itself to why I had you on the show today. You recently had the opportunity to attend the North American International Auto Show, which was held a few weeks ago in Detroit, Michigan. That particular auto show is held annually, and it's basically the Big Three's opportunity to not only showcase what they have in store for consumers, but investors as well, if they care about what cars are being made.

Rosevear: And they should.

O'Reilly: And they should. I'm anxious to have you share what you learned at the show with our listeners. But first, really quick, other than just being another auto show, what is the North American International Auto Show, exactly?

Rosevear: This is the big auto-industry party in North America; happens every year in January. It's where automakers in not just Detroit, but a lot of the global automakers, showcase models intended primarily for the U.S. market. One of the vehicles we'll be talking about, for instance: Toyota (TM -0.54%) showed off their all-new Camry.

This was last week, it was in Detroit. I was there for several days. One of the joys of this show for a media person is that all the auto executives are there and accessible. I had chats at considerable length with folks from Ford and GM (GM 0.08%) and a few of the other companies. I learned a lot.

A lot of the big action at the show happens away from the big showcase debuts, which you might see on TV or YouTube or something like that, where they do have the thumping music and the lights and the big video presentation, and they roll out the all-new car or the concept car or whatever. It draws most of the world's automotive media, as well as a whole lot of Wall Street analysts. We also see tech-analyst types more and more now, as tech and auto are blending together. You see a lot of people from publications like Wired or The Verge or something like that at the show, which is very interesting. And, also, a ton of car dealers who want to see what's coming and schmooze with the manufacturers.

O'Reilly: Yeah, it sounds a little bit like the Berkshire Hathaway annual meeting. You have the big show, and you hear Warren [Buffett] and Charlie Munger talk and everything, but really, the reason you go is for the side things, like at restaurants afterward.

Rosevear: Yes. There is a lot of that. There's also a ton of business done at the show. A lot of suppliers are there, and they may not be on the show floor itself. I was there for media days, but last weekend it opened to the public. They were off to the side somewhere, but they're having discussions, they sent a whole team to Detroit from -- who knows where? Germany, Korea, China -- different places where the suppliers might have their home bases, come to talk business with their contacts in Detroit. Not just Ford, GM, Fiat Chrysler (FCAU) -- but a lot of the auto industry has a presence, have offices, have design shops in southeast Michigan, because it's a global center of auto nerddom, auto expertise. It's where a lot of the experienced people are.

O'Reilly: It's interesting to me, you mentioned how increasingly there's tech analysts there. It might be just a happy coincidence that it was right after CES [the Consumer Electronics Show]. Did it feel like a tech show when you were there?

Rosevear: It has become really interesting. I didn't go to CES this year; we had other folks from The Fool who were out there. But CES -- the Consumer Electronics Show, which is in Vegas -- is also held usually the first week of January every year, has had more and more of an automotive focus. Ford CEO Mark Fields was out there. Mobileye and Delphi were demonstrating their new self-driving stuff out there. Fiat Chrysler showed off an electric concept minivan at CES. It's more and more focused on autos, future-tech autos.

Then the press days run up until Wednesday or Thursday of that week, and then everything starts in Detroit the following Sunday. It's just a couple days later; people fly straight in. This year, it was very notable -- it was almost as if that conversation was continuing on a separate track from the traditional show itself, where they're unveiling the latest minivan and all that kind of stuff.

We had John Krafcik, who heads up Waymo. Waymo is the company under the Alphabet (GOOG -1.30%) (GOOGL -1.21%) umbrella formerly known as the Google Self-Driving Car Project. John Krafcik was in Detroit; he gave a presentation on Sunday afternoon talking about the state of Waymo's technology and what they're doing to test it and so forth. He was clearly there talking to the auto industry, talking to the automakers.

Waymo seems to be in "Let's make a deal" mode right now. They showed off the test car they created with Fiat Chrysler, a Waymo-ized version of the Chrysler Pacifica minivan, which is already kind of futuristic and sexy-looking. It's kind of cool-looking; their self-driving sensors and stuff are much more smoothly integrated. You can still tell it's a test car, it still has this big thing on the roof. But it looks more like something you might see produced in the near future. They were running around with Toyota and Lexus and Audi test vehicles with stuff tacked on for years.

But anyway, to get back to the point, there was a steady discussion. Ford had a whole separate thing going on adjacent to the show where they had speakers on future mobility. Ford is trying to get into the business of helping cities come up with mobility plans as electric cars, self-driving, ride-sharing, and so forth become more prevalent and more affordable as technology advances. And this is a whole separate discussion that's going on throughout the show, aside from the traditional show itself, where automakers are showing off their new vehicles to the global media. It was really interesting, the way this is going. And there were several points in the show where I wished there had been two of me, because there were two things going on at the same time that I really wanted to attend.

O'Reilly: I have to hear about this Camry. I recently had the pleasure of getting a rental car, and I had one of those brand-new Fusions. They are amazing-looking. Those new Civics, I live in metro D.C. here, and there're Zipcars everywhere. For listeners who don't know, you basically rent a car for an hour for $10. There's a fleet of brand-new Honda Civics. These are incredibly attractive, sporty-looking cars. So, the Camry has been a best-seller for -- you tell me -- as long as I can remember.

Rosevear: Fifteen years, at least. [laughs]

O'Reilly: Yeah, 15 years for a four-door sedan. I have to ask, are they souping this puppy up? Because they're starting to get some very attractive competition out there.

Rosevear: It's interesting. Toyota did roll out an all-new Toyota Camry. The Camry -- I think most of us think of it as a midsize sedan -- it's a family car, it comes in beige, and it'll go 200,000 miles without any reliability problems. It's very safe, but it's not very exciting. Toyota CEO Akio Toyoda is looking to roll more excitement into Toyota's mainstream products. My comment about the all-new Camry is: It's like a Camry, only sportier. It still has the quirky Toyota styling, but it's lower and sleeker. You get inside and it almost feels like a sports car. There's a sports-sedan dash. There are two big gauges right in front of you, speedometer and tach, and it's almost reminiscent of Audi's layout, which is not a bad thing to find in a Toyota Camry. The seats are supportive. There is, as always, plenty of room in the back seat, cupholders where you need them, all this kind of stuff. It's still a midsize family car.

But Toyota is promising that this one will be more fun to drive. They talked at length about changes to the suspension: revamped suspension settings, rear suspension design is new, sportier handling is the goal. They're giving it a little more power, even in the hybrid version. They're trying to say, "This is a more interesting car than it has been in the past." It's still a Toyota. It still brings, presumably, all the Toyota virtues, the reliability and everything else, that people have been drawn to from the brand for years. But what we're seeing in the larger picture of the midsize sedan segment: Midsize sedan sales as a group have been shrinking, because more people are buying SUVs. I think Toyota is saying, "Hmm, this may lead some of our competitors to invest less in midsize sedans. We're the leader in this segment. Let's step up with something really compelling, and see if we can steal some market share."

O'Reilly: Got it, OK. Camry revamp is looking good. What else can you tell us about some interesting floor models? I hear a lot about the increasing popularity of these GM crossovers.

Rosevear: This is a big deal. I actually went to a press conference where Mary Barra talked about this at some length. This is a big deal for GM. They have these crossover models. I'm talking about the Chevy Equinox, the Chevy Traverse, the GMC Acadia and Terrain, vehicles like this that are bought as family-holders, as alternatives to where 15 years ago a family might have bought an SUV --

O'Reilly: Just call it what it is: They're buying them to go to soccer tournaments.

Rosevear: -- a truck-based SUV, or a minivan, and now they're buying these things, which are kind of in-between. These are good sellers for GM, they're very profitable, but GM's lineup had been getting quite dated. A lot of them dated to 2008 or 2009, when these were first rolled out. They've been updated a bit since, but it was time for all-new ones -- maybe a little past time, although sales had been good. And GM is in the process of rolling out this whole new fleet of crossovers.

At the show we saw the all-new GMC Terrain -- the premium GMC five-passenger model -- and the all-new Chevy Traverse -- the big seven-passenger mass-market model that they position as an alternative to a minivan. This joins four other all-new crossovers that they've rolled out last year -- the GMC Acadia, which is their little one; the Chevy Equinox, which is the huge-selling five-passenger Chevy; the Buick Envision, which is a premium version, kind of a step up from the GMC Terrain; and then the Cadillac XT5, which is their luxury model. These are huge-selling profits. The all-new ones will almost certainly sell at higher prices than the outgoing models, because they're very nice. They have new options packages so that they can be loaded up to higher trim levels that will improve profitability. Something like a GMC Terrain Denali priced well into the $40,000s -- that's a very profitable vehicle for a five-passenger crossover.

They're not sexy products. They're not race cars. They're not future technology. But they are super-important to paying the bills. And this is a thing that GM is doing that they think will improve their profitability and their profit margins over the next couple years, even if the U.S. market continues to stall, and maybe even slow down. They are giving a very bright forecast for 2017. And a lot of it is based on "We have these brand-new crossovers." [laughs] It's a big deal.

O'Reilly: Got it. So, when you say the U.S. market gets a little lackluster, do you mean the market for these cars? Or the car market in general?

Rosevear: Well, this is something we've been talking about on for a while, and a lot of my peers at other publications have been talking about it.

O'Reilly: This is the peak right now?

Rosevear: Auto sales are cyclical. The peak was probably a year ago. Sales were up a little last year, but we're at the plateau. It's not likely to go a whole lot higher from here. It could stay here for several years. An economic shock could drive sales down in a hurry. But the days of companies like Ford and GM coming out every month and reporting that sales were up 12% -- which we saw for several years in a row -- that's done. It might be up 6% one month and down 3% the next month. That's what you see at a peak or a plateau, and that's kind of the behavior we've had over the last year in the market.

O'Reilly: So, I understand that Honda revamped the Odyssey as well. That's the other car you need for going to soccer tournaments every weekend.

Rosevear: The Odyssey is interesting. Minivans used to be huge. Now they're less huge, but a lot of automakers, like GM, for instance, have turned away from making them. There are really three... well, four, that compete for the minivan market. There still is good demand for minivans. Toyota Sienna is the leader. Close behind is the Dodge Grand Caravan. Fiat Chrysler also has the new Chrysler Pacifica. Originally, the Pacifica was going to replace the Caravan, but they seemed to have decided to keep the Caravan around for a while. And there's the Honda Odyssey. The Odyssey was third in sales last year, behind Toyota and the Dodge, despite the fact that the outgoing Honda Odyssey is actually a newer model than either the Toyota or the Dodge.

But they've come out for 2018 with what they say is an all-new van, which is kind of surprising if you look at it, because it looks like a sleeker, touched-up version of the one they had. But there's a lot of new technology in this. It's a kid-hauler -- it's a deluxe kid-hauler. You can option it up to something really nice. My kids are older and out of the minivan age now, but I would have loved to have [had] something like this 15 years ago. It's got all these family-friendly features. It has Wi-fi, it has screens, it has different memory modes for the kids' entertainment; it has this microphone and video system where if you're in the front seat, you can see the kids in the back seat with the camera, and you can talk to them if they have their headphones plugged in.

O'Reilly: Wow! [laughs]

Rosevear: Yeah, I would have liked to have had that when my guys were little! And all these other things: They say in passing, "Oh, and this is new washable leather," for instance. Well, OK, you can see why a parent with a minivan is going to love that kind of thing. Again, this is a small segment, but the numbers are big: 100,000 sales a year or more for most of these big players.

Honda would like to gain some ground. The key competitor here will be the Chrysler Pacifica, which was all new last year. Chrysler is very good at the kid-friendly, family-friendly touches. They did a lot of the same kinds of things that Honda did in the new Pacifica. The new Pacifica has whizbang styling going for it. What Honda has is Honda. Honda has this impeccable reputation for safety and reliability that they bring in, whereas Chrysler has been up and down, not with safety so much, but reliability has been up and down over the years. It will be an interesting competition. In a very boring segment, yes, but again, the profits here are substantial.

O'Reilly: Cool. So, Mr. Rosevear, we've gotten the lowdown on a bunch of cars that got rolled out at the International Auto Show. But what about Ford?

Rosevear: That's interesting: Ford usually owns this show; it's in their backyard. They actually rent out Joe Louis Arena, which is the home of the Detroit Red Wings, and throw a big shindig in there, usually on the first press day, bright and early in the morning. They did that this year, and we all expected them to roll out some surprise new product, which is Ford's new trademark, but they did something different.

They talked about a bunch of things in passing, which we'll get to in a moment. And then they went into a presentation where CEO Mark Fields and some other folks talked about future mobility. This is a big part of Ford's business plan going forward. They're exploring a lot of business opportunities in and around ride-hailing, car-sharing, self-driving, electrification, and so forth. Ford is interestingly positioned to jump into some things -- we've written about this at some length on the site. Fleet management: If you want somebody to manage your fleet of autonomous cars, Ford would like to have that business.

O'Reilly: I can't believe they talked about it that much.

Rosevear: They did; it was kind of a surprise. It was also kind of a surprise because some of the things they talked about product-wise were really significant. The F-150, their most important product in the whole world, gets this big face-lift for 2018.

O'Reilly: That's the cash cow, obviously.

Rosevear: Oh my goodness, yes! As pickup sales go in the U.S., so go Ford's profits. I was talking to Mark Fields and he said the F-150 is the crown jewel -- or, the F-series, rather. It includes the Super Dutys. The F-series includes the heavy-duty trucks as well as the F-150. But they gave the F-150 a face-lift just three years after it was launched. It has a whole bunch of new front-end designs, keyed to each of the seven trim levels they have on this thing. It has a new, much more fuel-efficient transmission, jointly developed with General Motors, although Ford and GM each did their own programming and special sauce on it. The V8 engine is revised for more power and fuel economy. A bunch of new tech features.

They also came out and said, "Oh, by the way, we are, in fact, bringing back the Ranger and Bronco, as you guys have all been hinting at for a year and a half." This is now official confirmed info.

The Ranger is the midsize pickup. It went away several years ago; they still sell a Ranger in many overseas markets, but not here, haven't for a while. They will be building it -- we've heard a lot of talk from our president-elect about how Ford is sending the Focus to Mexico. My goodness, yes, because what they're doing is making room in that factory in Michigan to build the Ranger and Bronco, which are likely to be more profitable and higher-volume products put together. The Ranger will be the midsize pickup. There's a version of it being sold, as I said, around the world. The one that comes here will be a revamped version of the current version. If you look at Ford's European sites and so forth, you will see the Ranger; imagine that with a redesigned front end, and some more American premium features.

The Bronco -- there have been a lot of rumors around -- I had it confirmed from two very senior Ford execs that the Bronco will be all-new. They wouldn't give a lot of hints about it, but they said it would be in keeping with the name. Bronco, historically, was a two-door SUV that, in early versions, had a removable top, was kind of Ford's answer to what we now call the Jeep Wrangler. Ford seems to be thinking in that direction. Reports are that Ford's design chief is driving a vintage Bronco around Detroit the last couple weeks [laughs], so clearly this is on their mind.

O'Reilly: By choice? [laughs]

Rosevear: By choice, yes! Good time of year for it. [laughs]

O'Reilly: [laughs] Yeah, right?

Rosevear: They are in the very early stages of thinking this out. But there were rumors in some quarters, which I actually talked about. Ford sells a Ranger-based SUV in some overseas markets called the Everest. The Bronco is not the Everest. That was made very clear to me by no less than Ford's global product chief, Raj Nair. The Bronco is an all-new design based on the Ranger chassis, so you kind of have an idea what size it'll be, but it'll be in keeping with Broncos of the past.

O'Reilly: Got it. Really quick, before we move on to Volkswagen (VWAGY -0.17%), I need to know about the Mustang, because I do love when they shrunk it down a little bit, and I think they're beautiful cars.

Rosevear: Well, this is interesting. They didn't show the Mustang at that big shindig --

O'Reilly: No!

Rosevear: -- last Monday, but they did take a few media folks away from the show, apparently, to see it under wraps, and then they revealed it yesterday. In fact, they rolled it out yesterday morning --

O'Reilly: Why did they do it that way?!

Rosevear: -- at the show when the media was gone. It was a puzzling move. But, again, I can tell you what happened. The Mustang, which was also all-new for 2015, like the F-150, also gets a revamp for 2018. There's new front and rear styling. It's more aerodynamic. It doesn't look a lot different. The nose is a little lower and more shark-like, but it looks like a Mustang. Nobody is going to be surprised when they see it.

There's a bunch of new tech inside. They gave the EcoBoost four-cylinder engine option some more torque. The five-liter V8, like its sister engine in the trucks, got a revamp. They promise more power and torque. They didn't say how much more power. Also, it gets a performance version of that new automatic transmission. And what had been the entry model in the Mustang for years with the 3.7 V6 -- that's going away, the EcoBoost. That four-cylinder is now the entry, and you have a choice of that or the five-liter. This is in keeping with Ford's moves elsewhere to simplify offerings in models like the Mustang, because it lowers their costs.

O'Reilly: Got it. OK. Really quick: Volkswagen -- how would you describe their global standing right now. Tarnished?

Rosevear: [laughs] Yeah, certainly in the United States. The whole diesel mess has been a huge mess. I haven't tallied it up in the last week, but I think they're over $20 billion now into this thing, which is just humongous.

O'Reilly: When they showed up, did they do anything to be like, "Hi, we're sorry, we're doing good things now..."? What did they do?

Rosevear: Well, they showed off a couple of SUVs, which is actually important. They had not really had any competitive SUVs in the U.S. in a long time. They had been selling a German line in the U.S., and the headquarters had been driving this, and this "If it's good enough for Germans, it's good enough for Americans, too!" Well, Americans want SUVs. VW is now saying, "First of all, we hear that. We have SUVs. We're building them in Tennessee. They're American-made SUVs." That was a huge theme at the show, by the way, everybody talking about how they made their cars in America.

But they're also making a big point: They're spending a lot of money on electric cars. They won't appear for a few years. But they want 25% of the VW brand's global sales to be electric cars by 2025, so they're planning on rolling out a lot of them. And this was their show car. It was what they called the I.D. Buzz. I.D. seems to be their sub-brand for electric cars, or will be. We've seen a ton of show vehicles from VW in the last several years that are riffs on the classic Microbus that we all remember from the old days, the hippiemobile. This was the most blatant one yet. It's all-electric, dual-motor, 369-horsepower, claims a range of about 270 miles on the U.S. EPA test cycle. Very roomy inside. It had some show-car gimmick self-driving features. But the big question we all had was: "Are you guys going to finally build this?" And we don't know yet. [laughs]

O'Reilly: Wow. All right. John, thank you for your thoughts. I cannot wait to have you on again in the spring. We'll be able to talk about a few more models. We have to do another driverless update here really soon. But I can't thank you enough for your time.

Rosevear: Thank you. Take care.

O'Reilly: That's it for us, folks. Be sure to tune in tomorrow for the technology show with Dylan Lewis. Also, before we head out, we want to give some love to our producer, Austin Morgan. Today is his one-year Fooliversary! We would be lost without you, Austin; we couldn't be happier that you're a Fool. (He's giving me the thumbs-up.)

If you're a loyal listener and have questions or comments, we would love to hear from you. Just email us at [email protected]. As always, people on this program may have interests in the stocks that they talk about, and The Motley Fool may have formal recommendation for or against those stocks, so don't buy or sell anything based solely on what you hear on this program.

For John Rosevear, I am Sean O'Reilly, thanks for listening and Fool on!