Quarter 1, 2011
North American Engine and Transmission Forecast COMMENTARY
Industry Observations Light vehicle sales in 2011 are on pace to exceed sales in 2010. Even with the supply shortages due to the earthquake and tsunami in Japan, we expect light vehicle sales to reach 13.0 million units this year, up from only 11.6 million units in 2010. We may domestic, Korean and European OEMs gain market share at the expense of the Japanese OEMs. Production also looks robust, and Japanese OEMs may increase production in the US to compensate for problems in Japan. However, parts shortages in Japan are also affecting US production in the short term. Our production forecast for 2011 remains at 12.8 million units. Whatever shortfall in production in Q2 will be made up in the second half of this year.
Earlier this year, the EPA and NHTSA formally agreed on a final ruling for CAFE standards from 2012 to 2016. In the final ruling, there are different standards for passenger cars and light trucks. The EPA and NHTSA rulings combine miles per gallon targets and C02 targets. For example, the 2011 model year target is 325 grams of C02 per mile which equates to 27 mpg. There are also targets for other greenhouse gas (GHG) emissions; the N2O target is 0.01 g/mile and the CH4 (methane) target is 0.03 g/mi in MY2016. Cars and light trucks each have a separate “S-curve” whereby a certain mile per gallon (mpg) target is required according to the footprint of the vehicle. The footprint is the wheelbase multiplied by the average track width in square feet. For passenger cars, the lower constraint is 41 sq. ft. and the upper constraint in 56 sq. ft. Larger footprint vehicles have a lower mpg target than smaller vehicles. For light trucks, the lower constraint is still 41 sq. ft. but the upper constraint in 66 sq. ft. In order to reach the MY2016 fuel economy standard, the fleet average fuel economy needs to improve by 4.3% per year from MY2011 to MY2016. Passenger cars are expected to have a fuel economy of 39 mpg while light truck fuel economy will be around 30 mpg. If we take some specific examples by vehicle, a Honda Fit which has a 40 sq. ft. footprint would be required to have a fuel economy of 41.1 mpg in MY2016. By comparison, the average fuel economy for the MY2010 Fit with an automatic transmission is 30.5 mpg. Currently, only hybrids such as the Toyota Prius and Ford Fusion hybrid achieve more than 35.5 mpg combined. Does this mean that all light vehicles will have to be hybrids in 2016? Not really. But we do expect hybrid sales to increase significantly over the next seven years, and the share of diesels, gasoline direct injection vehicles, and turbocharged vehicles will also increase to help meet the new fleet average without making too many sacrifices in terms of power and comfort. CAFE Standards by Model Year 2012 - 33.8 mpg for cars, 25.7 mpg for trucks. 30.1 mpg fleet average. 2013 - 34.7 mpg for cars, 26.4 mpg for trucks. 31.1 mpg fleet average. 2014 - 36.0 mpg for cars, 27.3 mpg for trucks. 32.2 mpg fleet average. 2015 - 37.7 mpg for cars, 28.5 mpg for trucks. 33.8 mpg fleet average. 2016 - 39.5 mpg for cars, 29.8 mpg for trucks. 35.5 mpg fleet average. It remains to be seen how much all these changes will cost. We have already seen average light vehicle prices jump from around $26,000 before the economy collapse to about $28.000. The average vehicle is likely to cost over $30,000 in the next few years, which could depress the market overall regardless of what the fuel economy standards are.
CO-1 Copyright © 2011 J.D. Power and Associates, The McGraw-Hill Companies Inc., All Rights Reserved