See the complete list of trends that we analyze.

1. Automobile Industry Introduction

In the U.S., the recession that started in late 2007 had a profound impact on the automobile industry. America’s car and light truck market dropped dramatically in 2008, to approximately 13.2 million units for the year, down by about 2.9 million from the number of units sold in 2007. In 2009, the market was much worse, with sales for the year expected to total about 10 million units. About 690,000 of those sales were made with the stimulus of a “cash for clunkers” program paid for with federal dollars. This was easily the worst year in decades for the car business, with two giant manufacturers filing for bankruptcy, GM and Chrysler, while a large number of dealerships, suppliers, parts manufacturers and other auto-related businesses also failed.

Globally, Scotiabank Group estimates that about 52 million new cars and light trucks were sold in 2008, down from nearly 55 million the previous year. In May 2009, analysts at R. L. Polk & Co. forecast 2009 global sales of cars and light trucks at 55.2 million, while they expect 2012 sales to reach 71 million.

By early 2009, the global automobile industry was in a deep slump. Sales were dropping substantially. Auto makers were short of cash—some, including Saab, took bankruptcy. GM and Chrysler received a combined $17.4 billion in U.S. federal aid, which was tied to a requirement that the firms develop specific plans for staying afloat. Those plans included concessions from labor unions, fewer workers and fewer plants. In May 2009, GM announced that it would close about 1,100 dealerships over the near term, which will leave it with about 3,600 dealerships selling the Chevrolet, Cadillac, Buick and GM brands. It also expects to eliminate about 470 further dealerships by selling its Saab, Hummer and Saturn units, and by June 2009 it had found likely buyers for those brands. As widely expected, GM filed for bankruptcy in mid-2009, and was promptly put back in business by a massive federal bailout.

Chrysler’s significant financial problems led it to file for bankruptcy protection in April 2009. The company secured a large federal bailout and new financing from the U.S., Canadian and Ontario governments. This enabled it to quickly emerge from bankruptcy in a new structure with help from Italian carmaker Fiat, which initially owns about 20% of Chrysler. Fiat will have the right to earn additional shares in the company if certain goals are met, which could lead to Fiat owning a controlling stake. Labor, in the form of the United Auto Workers union, owns about 55% of the post-bankruptcy company. The U.S. government owns about 8%, while Canadian governments own about 2%. In May 2009, Chrysler announced plans to close 789 dealerships, which will reduce its dealer network by about 25%.

Outside of the U.S., Toyota received some financing from the Japanese government, and car makers throughout Europe and Asia were seeking concessions and/or financial aid.

Analysts at Scotiabank Group, as of September 2009, expect 2009 sales to total a very weak 10.2 million units in America (including 5.0 million light trucks and 5.2 million cars). They projected Canada’s sales at 1.44 million for the year.

The biggest upward trend in auto sales for 2009 is in China, where government stimulus may help to sell as many as 11 to 12 million units for the year according to the National Development and Reform Commission of China.

Worldwide, automobile consumers have encountered great difficulty in obtaining financing when they want to purchase a new car, due to the global credit crisis. Meanwhile, the consumer’s best friend is an old, paid-for car, and most consumers are reluctant to purchase an expensive new vehicle while they are concerned about job security or mortgage problems.

On a positive note, winners in the current environment may include China, Korea and Mexico. In Mexico and Korea in particular, auto making plants are modern, quality is good (actually quality is world class in Korea) and currency values in those two countries fell to the extent that cars and parts made in those two nations are now extremely competitive on a global basis.

There are approximately 250 million vehicles in operation in the United States. Around the world, there were about 900 million cars and light trucks on the road in 2009. That number will soon reach 1 billion.

The years of 2004 through 2006 will long be remembered as a pivotal period in the automobile industry. It was a period during which high gasoline prices finally created significant demand among U.S. consumers for fuel-efficient vehicles. Gasoline prices of approximately $2.00 per gallon started taking a huge bite out of family budgets in 2004, and many middle-class consumers who owned fuel guzzling SUVs and pickup trucks began to wish they had vehicles that were much less expensive to operate. By 2005-2006, with gasoline prices in the $3.00 range, the party was over for large SUVs and family trucks.

Retail gasoline prices of more than $4.00 per gallon for much of 2008, combined with a powerful recession, literally put the brakes on new car sales—it was a dismal year for the car industry as a whole. 2009 saw retreating gasoline prices, but the economy was in such poor condition as to make the automobile industry suffer even more greatly.

One result of high gasoline costs and frugal consumers has been strong demand for Toyota’s Prius gasoline-electric hybrid car over recent years. Toyota made investments in its Georgetown, Kentucky plant to enable it to manufacture hybrid Camrys. There has also been good demand for Toyota’s Lexus RX hybrid crossover. Ford launched its hybrids, and other carmakers, including GM, were greatly encouraged in their own efforts to bring more hybrids to the market. However, consumers generally aren’t as impressed with U.S. hybrid technology as they are with that of Toyota models, and actual mileage results on the road are often disappointing, largely due to driver habits such as quick acceleration which uses more fuel. Over the mid-term, many hybrids will be available from a wide variety of makers, and technology will steadily improve.

One of the most important trends will be rapid growth in plug-in hybrids (PHEVs) and electric vehicles such as GM’s Volt (scheduled for a 2010 debut), a car that will include a gasoline-powered generator capable of charging up the batteries for those occasions when it is not convenient to plug in. Tremendous improvements in battery technology will soon come to market, further enhancing this trend. Nissan will offer strong competition early on in the electric vehicle sector, with its 2010 launch of a model called Leaf.

Consumers and emissions regulators are taking a renewed interest in advanced automobile technologies. Clean diesel engines, like those offered in new cars from BMW, Volkswagen and Mercedes-Benz, offer exceptional performance and fuel economy while providing the quiet, vibration-free running associated with gasoline engines. Clean diesel offers a particularly attractive alternative over hybrid technology in the U.S. market, and is already widely used in passenger vehicles in Europe. The use of ethanol as a gasoline additive in America has grown rapidly, regardless of whether it makes any environmental or economic sense, thanks to requirements enacted by Congress.

Meanwhile, sales of heavy SUVs have lagged miserably, and automakers such as Chevy, Hummer and Cadillac offered large dealer incentives and rebates in an effort to move these vehicles. Ford cancelled production of its larger-than-life Excursion SUV in which some owners reported getting as little as 11 mpg in the city, and GM cancelled production of the massive Hummer H1 model.

Car consumers outside the U.S. made history as well. The rising affluence of consumers in China created both huge opportunities and huge problems. China has become one of the world’s largest importers of petroleum products, largely to fuel its burgeoning fleet of cars and trucks. Streets and highways are clogged with new cars, to the extent that traffic and smog are a nightmare. Automakers from all nations have raced to establish plants and partnerships in China to produce cars both for domestic use and for export. In fact, low labor costs and increasing product quality in China threaten auto plants located in high cost nations such as the U.S. China has become one of the world’s largest car markets. One of the few bright trends for GM in 2009 was its great success in selling cars in China.

India has also seen significant growth in its automotive sector. During 2009, local industrial giant Tata launched a no-frills car called Nano, at a price equal to about $2,500 U.S dollars.

Not to be overlooked are the vast changes taking place in automobile manufacturing. Flexible factories have reduced man-hours and costs per car, while offering a much wider range of choices for customization to consumers. Today, more than ever, car manufacturers and their suppliers are cooperating in the design and manufacture of new cars in ways that are revolutionizing the entire process.

Inexpensive cars manufactured in China will soon be on the market in the U.S. The question is not whether China will export cars and trucks, but whether consumers will be convinced that they offer safety and reliability. Meanwhile, U.S. automakers are making intense demands on their component suppliers for lower prices—these suppliers are, in turn, looking to low-cost production in China. The Big Three (American automakers GM, Ford and Chrysler) face difficult futures at best. The Detroit companies are under intense competitive pressure from foreign-based firms while enduring high labor costs at home. The Big Three are struggling to reengineer all parts of their operations, from design to manufacturing to marketing in order to cut costs and regain market share.

The parts manufacturing business in the U.S. is equally dismal. Delphi Corp, the giant supplier that was part of GM until 1999, lost nearly $4.6 billion in 2004 alone and declared bankruptcy in 2005. The company had been unable to find financing to enable it to exit bankruptcy as of mid 2009.

Asian car manufacturers such as Toyota and Honda have felt the global economic pain along with the rest of the industry. South Korean makers Hyundai and Kia have established themselves as true, high-quality manufacturers with a growing global customer base. They will give the Japanese and Americans very tough competition over the long term.

European manufacturers are facing challenges of their own. High costs, tough labor laws, daunting government regulations and a few disappointing model designs have hampered recent results. Meanwhile, European markets are suffering from a general economic slowdown, leading to poor automobile sales results.

The Progressive Insurance Automotive X PRIZE is offering $10 million in cash to the first competitor able to create a viable passenger vehicle capable of operating at the equivalent of 100 miles per gallon. The competition is in conjunction with the X PRIZE Foundation. In June 2009, initial judging began on the 136 cars that have entered the competition.