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Automotive trends to watch in 2019


Overall vehicle sales leveled off by the end of 2018, but investments in autonomous technology and the electrification of vehicles are providing the industry a look at what could be expected in the future. Regulations on emissions standards are putting pressure on manufacturers, adding to production costs that rose with the advent of tariffs on steel and other commodity components.

New mobility business models such as ride hailing and car sharing are poised to disrupt car ownership, personal mobility and goods logistics. The timeline for SAE-level 4 and 5 autonomous vehicles keeps accelerating as economics and technology fall into place, although local safety regulations may slow their rollout. Artificial intelligence offers almost limitless possibilities, while connectivity-enabled technologies are reaching mainstream application. Momentum for electrification is building among OEMs due to increasing emissions regulations pressure and accelerating technology advancement.

Following are highlights of what automakers and suppliers can expect in the next 12 months.


Vehicle sales fell in 2018, closing out the year lower overall than 2017. According to Trading Economics, U.S. vehicle sales for December came in at 17.5 million, slightly higher than the same period in 2017 but well below the high of about 18.2 million in September of 2017. By November, light trucks led auto sales by about 3-to-1 in the United States,1 a trend likely driven by crude oil prices that have dropped more than 50 percent in the last five years.2 Total vehicle sales are projected to trend around 17.3 million in 2020. Orders for trailers, however, set a record pace in November, which saw the highest growth for orders since 1994.3 This trend is expected to continue well into 2019.

The leveling off of vehicle sales was due in part to the continuing rise in the use of ride sharing and ride-hailing services such as Uber and Lyft. Revenue for these services is expected to show an annual growth rate of 11 percent by 2023, according to Statista. The United States is second only to China in market volume for ride hailing.

In addition, the rising cost of producing vehicles is having an impact on overall sales. In 2018, the average transaction price for light vehicles in the United States increased 2 percent over 2017.4 Domestic automakers are also seeing a significant reduction in their global growth potential due to lower consumer spending overseas, particularly in China. Tariff uncertainty has OEMs adopting increasing prices, closing down production or shifting production to more favorable locations.

The automotive revenue pool will significantly increase and diversify toward on-demand mobility services and data-driven services. Despite a shift toward shared mobility, however, vehicle unit sales will continue to grow, but likely at a lower rate of about 2 percent per year. New mobility services may result in a decline of private vehicle sales, but this decline is likely to be partially offset by increased sales overall. The remaining driver of growth in global car sales is the overall positive macroeconomic development, including the rise of the global consumer middle class.


While U.S. automakers are expected to see a decline in growth over the next few years, investments in autonomous technology and the electrification of vehicles could point the way toward future growth. This will be a long-term strategy, with regulatory hurdles to overcome for autonomous vehicles. The emergence of software as a key differentiator will make many existing competencies obsolete and create more intensive competition from new tech players.

The lack of regulatory consistency across the United States, however, coupled with some push-back by a cohort of workers that may see their jobs being taken away, suggests that the arrival of autonomous vehicles as a ubiquitous presence on the nation’s highways may still be years off.

Regulations mandating lower emissions standards also may drive investments in electric vehicles. Emissions standards at any level will have little effect on EVs driven by their fuel cell powertrains, that is, their rechargeable electric batteries. That said, lower gas prices have pushed sales of SUVs and other large, gas-powered vehicles. Beyond emissions standards, however, fuel prices are cyclical and historically have a way of rising as well as falling, a trend that OEMs may be counting on to justify the long-term investments in EV development. Investment in EV technology will also help maintain the global competitiveness of U.S.-based OEMs.

Moreover, auto manufacturers and suppliers also have a unique opportunity to increase their research and development tax credit by considering an underutilized provision associated with tooling costs. These new tooling costs may be claimed in addition to other qualified supply expenses resulting from new product development, product improvement and process improvements. The inclusion of tooling costs has the potential to greatly increase an R&D credit.

In any case, if suppliers are to stay ahead of the curve, they will need to make strategic investments in technology R&D, either on their own or through joint ventures. Some suppliers may need to expand their portfolios, investing in noncore types of businesses in order to manage their margins and profitability. Ultimately, the industry may see some consolidation.

Tariffs, trade and regulations

According to the OESA Automotive Supplier Barometer, government trade policy changes continue to be the greatest industry threat. With so many levels of compounding uncertainty—prompted by steel and aluminum tariffs that effectively add more costs to the supply base, and the uncertain future of the USMCA agreements—suppliers are delaying investments and cutting R&D. This, in turn, could have an impact on jobs and making suppliers far less competitive. Suppliers may have to reconsider sourcing their supply chains domestically, if possible, and some may have to shift production outside of the United States.

The impact of tariffs, customs and duty taxes, and value-added taxes is undoubtedly felt by suppliers on every tier. But some tiers will be affected more than others. Tier 1 suppliers suppling OEMs with complex component parts will likely have opportunities to renegotiate contracts with OEMs to maintain profitability.

A volatile tariff and tax environment may hit Tier 2 and 3 suppliers hardest. These companies, running on thin margins, may be more exposed to risk, and their profitability metrics may put into question the long-term viability of their businesses. Without tariff relief or rate reductions, some suppliers may consolidate with others; some may disappear entirely.

Operations and costs

The valuation multiples of suppliers are on average about twice the level of OEMs. For OEMs, there is a risk of market share loss brought on by new competition from technology companies entering the industry space. There is also a risk of profit share loss to companies that are evolving as they begin to offer technology and software products. Investors note this disruptive environment and value the automakers accordingly.

But supplier valuations, on average, may be less affected by this disruption. The demand fulfilled by those that supply complex components will still exist regardless of the automaker producing the vehicle. While this may be good news to supplier management and their shareholders, it may also put suppliers at risk of being acquired by private equity investors.

The potential downswing of valuations for commoditized suppliers, however, might support growing investor pressure to increase shareholder value. These suppliers face greater competition; lower profitability and decreased valuation put their access to capital at risk. Banks will be less inclined to offer loans at attractive rates if value and profitability are down. Terms will change and interest rates will go up. To survive, these suppliers may need to rethink their business models.

Suppliers will need to continue to assess and monitor required investments in technology, the impact of regulatory emissions requirements, costs associated with changing model designs, tariff and other costs to produce.  Balancing these investments and costs in the global competitive landscape will have a critical impact on the long-term valuation multiples of suppliers.


With the decline in sales, automakers are being more proactive in their strategic decisions than they may have been in 2008 when many were on the brink of bankruptcy. To avoid that scenario, a number of major OEMs have made headlines as they have idled plants or cut thousands of jobs worldwide. The writing on the wall says there is more idling and cutting to come.

While closures and cuts may be due to changing consumer demands, education and retraining are often the go-to solutions for workforce personnel who suddenly find themselves out of a job. Some OEMs and suppliers may bring previously outsourced operations back in-house, allowing the company to retain some of its workforce and ensuring some consistency and knowledge retention. This may work for some percentage of the workforce, but another segment may not be able to afford to wait to acquire a new degree or skills. Not everyone can be an engineer.

Those who are hiring are finding it difficult to find the right talent. OEMs are building up their capabilities around new technologies, increasingly fighting with the IT and consumer electronics industries for software and engineering talent. A new culture may be necessary to successfully integrate these new competencies.

1 “United States light vehicle sales in November 2018, by type” Statista.com.
2 Macrotrends.com
3 “Trailer Orders Stay High in November” (Dec. 17, 2018) Truckinginfo.com.
4 “Average New-Car Prices Rise 2 Percent Year-Over-Year” (Oct. 2, 2018) Kelley Blue Book.


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Lawrence Keyler
Global Automotive Sector Leader



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