Advanced Technology Expected to Drive Up Vehicle Prices

“Vehicle affordability will increasingly become an issue,” says Michael Robinet of IHS Automotive.

Steve Finlay, Senior Editor

December 2, 2010

2 Min Read
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DETROIT – Although auto sales will increase, higher sticker prices may scare off some prospective new-car buyers, say forecasters from the consultancy IHS Automotive.

“Some people will be pushed out of the market,” says Michael Robinet, IHS’s director-global production forecasts. “Vehicle affordability will increasingly become an issue.”

Transaction prices already are increasing because auto makers, by constraining production, offer fewer and less-generous incentives, he tells the Automotive Press Assn. here.

He predicts today’s lower incentive rates will be followed by manufacturer suggested retail prices going up.

That’s in part because vehicles will cost more to build as auto makers install advanced technology required to meet government-mandated regulations for lower emissions and better fuel economy, say Robinet and colleague Eric Fedewa.

“Think of all the technology needed on a vehicle to ensure that what comes out of the tailpipe is clean,” says Fedewa, IHS’s director-global powertrain and component forecasts. “It’s an incredible amount of technology.”

And incredibly expensive, he says in predicting auto makers worldwide by 2020 will spend $526 billion on powertrain technology and $275 billion on electronics required to meet government mandates.

“A lot of work will need to be done” to decrease emissions and boost fuel economy, Fedewa says.

Governments are pushing auto makers to invest in new technology and alternative-fuel sources, he says. “It is billed as saving the planet, which is great, but it really is about energy security and using resources within your economy.”

Global vehicle sales will increase from 63.7 million units last year to 70.8 million this year, according to IHS.

Hot markets are China, India and Brazil; “Russia is interesting to watch;” the U.S. market has stabilized; and “Western Europe still is a challenge,” Robinet says.

He foresees auto makers that do well in their home markets will expand or increase sales abroad.

IHS predicts U.S. auto sales will reach 11.5 million units this year, 12.8 million next year and 14.8 million in 2012.

The nation’s light-vehicle sales will hit 17 million by 2016, a level that would match the record early years of this decade, Robinet predicts. “It will be a robust market.”

Driving the sales increases are pent-up demand; additional products; a greater availability of credit; lower loan rates; and an infusion of new drivers, as the U.S. population is expected to increase by 25 million in the next 10 years.

Besides rising prices, negative factors affecting auto sales include the usual culprits: an unemployment rate that has stubbornly stayed at about 10% and chronically soft housing values, Robinet says.

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