The Auto Industry Faces Danger Ahead

Apr 12, 2016 11:20 PM EDT | Victor Thomson

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According to experts, the U.S. auto industry might face some dangers ahead. Increasing competition will force automakers to become more creative in differentiating their brands.

Last month in the United States a third of the vehicles sold are on leases. This kind of situation in the auto industry has happened before, in the mid-1990s. Since the year 2009, this has become again a long-term trend.

Because the customers will ultimately return the leased cars after the lease terms are over, this means deflation for dealers and hefty losses for the automakers, as reported by Zero Hedge. Back in the 90s, after the expanded use of leasing helped boost auto sales, the resale values went down. Having to sell the vehicles with much less than anticipated, the auto lenders ended up with heavy losses.

According to Car And Driver, in the present circumstances, Renault-Nissan has pushed hard to grow U.S. market share to 10 percent by the end of 2017. Dealers have complained that the company's stair-step incentive program makes them selling cars at a loss and that the target goal of Renault-Nissan is unrealistic.

After the French government moved to take more control of Renault, the company's chairman Carlos Ghosn had to make efforts to preserve the Renault-Nissan partnership.  Nissan and its profitable U.S. sales have to make up for the meager earnings from Renault's low-margin markets.

Another danger faced by the North American auto market is its increasing atomization. For instance, by the year 2020, there will be 357 light-vehicle models for sale in the United States. This atomization of the car market will make it difficult for any brand to stand out from the crowd.

European brands such as Mercedes and BMW have flooded the American market with new models. The increased competition will push automakers to focus more on styling and product differentiation. As more models arrive, both from some new startups and from traditional brands, safety and quality become commodities.

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