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Annual ‘Car Wars’ Data Reveal Industry Challenges Ahead, Recovery in Sight

Bank of America recently unveiled its 30th annual Car Wars report – a proprietary study that quantifies industry product trends, measures competitiveness of original equipment manufacturers’ (OEM) product plans, and provides historical perspective. John Murphy, Bank of America Global Research’s lead U.S. auto equity analyst shared this year’s finding with MICHauto stakeholders, painting a picture of what is in store for the industry as it moves through and beyond the impact of COVID-19.

COVID-19 is driving a decisive downturn across the industry.
Globally, the industry is facing a 20% year-over-year decline in sales and production volume. Despite this globally synchronized decline, a v-shaped recovery – or return to pre-COVID-19 conditions – is expected by the mid-2020s. Companies are now forced to explore more aggressive cost-cutting measures. Murphy acknowledges that because the industry has been experiencing a boom in recent years, some discipline has been lost. These measures, though, will pay off by the mid-2020s, producing strong margins and renewed buy-in.

Product activity among OEMs will vary.
Over the next four years, 50% of vehicles will be launched as internal combustion with the remainder being alternative powertrain variants (electric vehicles, hybrids, etc.). Consumer pull and market dynamics are driving pricing and production of these alternative powertrain vehicles and autonomous technology in the U.S., as opposed to the regulatory influence seen in Asia. Differences in these production rates will stem from allocation towards traditional model launches versus alternative powertrain development.

The technological evolution underway poses both issues and opportunities.
Companies must remain diligent now in optimizing their core businesses. However, it is important to invest in future businesses to fortify their longer-term industry position. Projections show that volume levels will bounce back post-COVID-19 as electric and autonomous vehicle demand increases. These vehicles are being treated as a luxury technology in the U.S., so this surge of demand at higher price points will help support the U.S. market.

Ultimately, the report demonstrates that though the industry will endure a difficult few years, it will emerge stronger with increased production and advanced technology.