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The Future of North America's Automotive Industry: Trends and Challenges

18 April 2023

The automotive industry in North America remains a vital contributor to the region's economy, despite significant challenges in recent years. From production to sales, the industry has changed dramatically in the last decade: lower sales and rising prices, as well as changing consumer preferences and new technologies, have pushed the industry into a period of historical change.

North America's automotive sector now generates over $500 billion in annual sales and employs over 1.7 million people, according to the National Automobile Dealers Association (NADA). In terms of production, North America remains a major player, with over 17 million vehicles produced annually.

Source: The National Automobile Dealers Association (NADA).

In the first half of 2020, vehicle sales in North America were down over 30% compared to the same period in the previous year - to understand the reasons behind this one must go back to the COVID-19 pandemic. Production was also significantly impacted, with many plants shutting down temporarily to prevent the spread of the virus.The industry has shown toughness and seemed to recover to its former glory, but sales hit only 13.7 million sales in 2022, the lowest number since 2011 in the US.

Challenges Ahead

One of the most noteworthy shifts in the North American automotive industry has to do with changing consumer preferences. Over the last decade, there has been a growing appetite for larger vehicles such as SUVs and trucks, while sales of sedans and smaller cars have declined. This trend was thought to be driven by low gasoline prices, but even as inflation hit during the last two years, this shift in consumer preference remained unchanged; in fact, the first four months of 2022 saw record sales in SUVs and pickups. A desire for more spacious and versatile vehicles seems to still be the rule on the continent. 

In turn, the shift towards larger vehicles, alongside inflation, has led to an increase in the average price of new cars, which now stands close to $50,000 in the US, an historic high. This trend has made it more challenging for consumers to afford new vehicles, and many have been turning to the used car market. According to Cox Automotive, used car sales in North America reached a record high in 2021 with an approximation of 4 million vehicles sold. However, in 2022 sales volume dropped considerably, reaching a new low not seen since 2013. Surprisingly, this happened despite wholesale used-vehicle prices sliding for most of last year, undoubtedly related to the recession.

Diversified Investors

Particular to the current conjuncture is the fact of increased competition from foreign automakers. Japanese and Korean automakers such as Toyota, Honda, and Hyundai have become major players in the North American market, and they continue to gain market share. Chinese automakers are also attempting to break into the market. 

To remain competitive, North American automakers are investing heavily in new technologies. The shift towards electric vehicles (EVs) is the most conspicuous, with several major automakers, including Ford and General Motors, announcing plans to transition their fleets to electric power in the coming years. Bob Purcell, CEO of VIA Motors and EV pioneer with General Motors in the 90s, claims that “we have not seen such a fundamental transition in the auto industry since the very early days, so we get to live through one of the most exciting times in history. “ In addition to EVs, autonomous vehicles are also seen as a reality to be materialized in the years to come. While fully self-driving cars are still several years away, North American automakers are investing heavily in the technology and are testing autonomous vehicles on public roads. Peter Vaughan Schmidt, CEO of Torc - Daimler’s autonomous truck spin-off -  claims that “autonomous trucks will be available at scale by the end of this decade in America.” 

The Talent Dilemma

The fight for talent is one of the main challenges facing the automotive sector - a challenge ever more relevant across several industries. One of the most significant aspects of it is the shortage of skilled workers, particularly in fields like engineering and technology. Pat D’Eramol, President and CEO of Martinrea International, illustrates to what extent this is a problem, asserting that “in the U.S. we are now struggling to find specialized workers, so we are not bringing technology in to reduce heads but to compensate for the workforce gap.“ DaoAI is a company that focuses on AI robotics for the manufacturing industry, and its CTO, Xiaochuan Chen, tells us that they “are struggling to keep a balance because we have more orders than engineers.” Logically, this situation has led to increased competition for talent, as businesses try to attract and retain the best employees. In response, many companies in the automotive industry have been taking steps to improve their workforce and talent sourcing strategies by offering competitive compensation packages, flexible work arrangements, and opportunities for career advancement. They also partner with educational institutions to recruit and train new talent, or invest in training and development programs for their existing employees. Michigan Economic Development Corporation, one of the most notable North American automotive production hubs, launched the Talent Action Team, which  is MEDC's way of collaborating with OEMs and Tier 1 companies to understand how we can prepare the employees for the electrified future that is going to ensue.”Alongside the TAT, they launched  EV Scholars and EV Academy, which are “one of the largest mobility internship programs out there.” Michigan is a central state in all things auto-related, and MEDC’s move towards the development of a workforce shows that the industry is conscious of its importance. 

Production Hubs

Mexico has been emerging as a strong player in the North American automotive industry in recent years, and its workforce is one of its main assets. In Mexico, several major automakers are building new plants and expanding their operations. Most notably, Tesla’s plan to open a new gigafactory in Mexico, announced earlier this month, serves as a promising boost for the industry and the country’s economy. This comes about in the context of the recently signed free-trade agreement between Mexico, Canada and the United States, the T-MEC. This agreement is already proving beneficial for the Mexican automotive industry as it increases exports to the United States and Canada, encourages more investment, modernizes trade rules, and provides access to new markets. The agreement's updated rules of origin, labor provisions, and environmental standards are expected to create a more predictable and stable business environment, while opening up new opportunities for Mexican automakers and parts suppliers to expand their businesses.  With the agreement, and bearing in mind Mexico’s proximity to the United States, its relatively low labor costs, and its skilled workforce, the automotive industry enjoys strong tailwinds.

Canada, on the other hand, has a long history in the automotive industry and is home to several major automakers and suppliers. In recent years, the country has been working to strengthen its position in the industry by investing in research and development, expanding its production capabilities, and attracting new investment. Stellantis and South Korean LG Energy Solutions (LGES) announced last year that they will invest $3.5 billion in building a large-scale battery manufacturing plant in Windsor, which is  expected to be operational by 2024 and will create more than 2000 jobs.

Today, both Mexico and Canada are essential players in the North American automotive industry - a tendency that is only set to grow in the years ahead. The three countries, united by the T-MEC block, promise to be stronger than ever to face the challenges we referred to earlier, bringing a new decade of innovation to the market.

Our upcoming special report on the Automotive industry in North America, coming out in June 2023, will dive deeper into these challenges as well as the opportunities that lie ahead, for the entire automotive supply chain.

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