Predicting the Future for Drivers

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The U.S. auto industry has closed the books on one of its worst years since the Great Depression. Now what?

Forecasting the future feels about as accurate as fortune-telling these days. But let's try it anyway. There are a lot of issues that car owners, buyers and makers will be watching this year, such as whether deep discounts will continue and how people can use their iPods more safely while driving. Here are some questions we put to our Eyes on the Road Magic 8 Ball.

Will Americans learn to love small cars?

Signs point to yes—although "love" may be too strong a word; better to say "accept" or "appreciate." It's clear that the U.S. car market is shifting toward smaller vehicles with four-cylinder engines. In 2000, small-car sales represented 15% of total vehicle sales in the U.S., according to Ford Motor Co. sales analyst George Pipas. By 2009, small cars accounted for 21.6% of the total—up from 2008 despite a gas-price collapse.

The most dramatic turnabout is in the sport-utility vehicle segment. In 2000, the best-selling SUV in America was the Ford Explorer, a vehicle built on a rear-wheel-drive, pickup-truck-style chassis and outfitted with either a six- or an eight-cylinder engine. In 2009, the best-selling "SUV" was the Honda CRV, which is built on a compact, carlike front-wheel-drive chassis and powered by a four-cylinder engine.

Large vehicles accounted for 39% of U.S. vehicle sales in 2003, but fell to 33% of sales in 2008, Mr. Pipas says. He predicts that number will be 28% by 2013. Regulation will drive a lot of the shift, as new U.S. fuel-economy rules kick in to mandate that vehicle makers hit a fleet average of 35 miles per gallon by 2020. Also, many buyers will opt for less-expensive vehicles as they adopt financially conservative lifestyles in the recession's aftermath.

Will there be cool new gadgets in 2010 cars?

You may rely on it. The Consumer Electronics Show in Las Vegas that starts this week will highlight in-vehicle technology, and Ford Chief Executive Alan Mulally is the keynote speaker. Never mind worries about distracted driving. The electronics industry is promoting in-car digital TV, mobile broadband, gaming consoles, and digital music machines of every description.

The most useful and attractive innovations you will see are systems that make it easier for you to use gadgets you already own—iPods, BlackBerries, navigation systems and the like—safely and legally while driving. The success of Ford's Sync system, which lets motorists operate their digital devices with voice commands, is likely to encourage other companies to adopt the Ford strategy of launching new technology on affordable, mainstream models, instead of reserving it for luxury cars and trickling it down. (Ford is looking to expand the Sync franchise with add-ons such as HD Radios that let you "tag" a song you like and later buy it through Apple Inc.'s iTunes.) Meanwhile, the industry is going to spend a lot of capital on new technology you won't likely see or touch—mainly systems designed to improve fuel efficiency.

Will electric cars have real juice?

Reply hazy, try again—in about two years. But if cars that don't burn petroleum are ever going to be mass-market items outside of golf courses and retirement communities, now appears to be the time. In two to three years, we should know if the market extends beyond wealthy environmentalists and technophile early adopters. Jeff Schuster, executive director of global forecasting for J.D. Power & Associates, says that by 2012 or 2013 there could be as many as 30 all-electric or plug-in electric vehicle models on the U.S. market. But he expects total sales to be only around 100,000 vehicles a year by that time—equivalent to about 1% of today's market. Electric vehicles are still "more buzz than substance," he says.

The move toward small cars such as the Smart car is likely to continue.

Still, there's a lot of buzz. At next week's North American International Auto Show in Detroit, Dow Chemical Co. will sponsor a 37,000-square-foot exhibit called "Electric Avenue" to show off electric vehicles and related technology.

As electric cars shift from auto-show eye candy to consumer product, car makers will need to answer questions such as: What happens if the batteries die or lose their juice? Car makers are wrestling with these questions now, says Xavier Mosquet, leader of the global automotive practice for Boston Consulting Group. Among the ideas that may be tried, he says, are deals allowing electric-vehicle buyers to turn in cars at a set price, or warranty packages assuring owners that they won't have to pay for battery replacement for a lengthy period, such as 10 years.

Are the auto makers going to keep running fire sales?

Outlook not so good. So you decided to take a pass on cash for clunkers or General Motors Co.'s year-end $7,000-a-car liquidation sale at Pontiac and Saturn? Those may have been good choices. But don't expect those kinds of deals this year unless something very bad happens to the economy.

The auto industry is going to try very, very hard in 2010 to avoid such giveaways. The sales collapse in late 2008 caught car makers with heavy supplies that they spent much of 2009 selling off. This year, forecasters expect U.S. vehicle sales to rise by one million to two million vehicles to between 11.5 million and 12.5 million cars, minivans, crossovers and pickups. You care as a potential car buyer because if the car makers show discipline and build to that forecast—and then demand surges—then the most desirable models could be in short supply. Scarcity would make it easier for auto makers to cut back on the discounts.

For buyers of European luxury cars, there's an added issue: China. If U.S. luxury-car demand stays weak, the European brands could send more of their production to Shanghai or Hong Kong.

Will the government make my commute more expensive?

Better not tell you now. Ask again sometime after Nov. 2. Many in Congress and the Obama administration would like to find a way to raise more money from motorists to finance the next six-year program of highway and mass-transit improvements. The 18.3 cent-a-gallon federal gasoline tax isn't generating enough money to pay for the transportation projects that members of Congress say are necessary. Americans are driving less, in part because so many have lost jobs. Raising the gasoline tax looks like a nonstarter in an election year.

Proposals to start taxing motorists based on the miles they travel are still under serious consideration, but are viewed as long-term answers. But this is one case where the business community actually supports higher taxes.

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