Automakers need balanced revenue mix across four “super segments” to maximize stability and growth potential
TrueCar, Inc. (NASDAQ: TRUE), the negotiation-free car buying and selling platform, finds that the post-recession recovery in U.S. auto sales volume is being outpaced by revenue growth, which appears headed toward record territory.
As the auto market moves beyond a return to “normal” volume, John Krafcik, president of TrueCar, gave a new framework to assess industry sales and segment mix in an Automotive Press Association presentation today in Detroit. TrueCar forecasts sales this year will reach 16.4 million units, the best since 2007, and could reach 17 million in 2015 if the economy continues to improve and OEMs increase incentive spending. TrueCar has raised its sales forecast for 2015 from 16.5 to 16.7 million vehicles.
TrueCar’s industry revenue and segment forecast comes on the heels of predictions by some forecasters that auto demand has nearly reached a volume peak. In comparing the auto industry to other industries, Krafcik noted that the automotive industry typically is focused on counting units as a growth measure when it should be focusing on total revenue. In transaction revenue terms, autos should generate $521.5 billion this year compared with $292 billion in 2009, based on TrueCar data.
Evaluating the industry on a total revenue basis, and looking at four specific revenue streams associated with four distinct product categories or “super segments” – mass-market cars; mass-market utilities; pickup trucks; and premium brand vehicles of all types – reveals several key observations:
- From 2009 to 2014, total U.S. auto industry revenue growth of at least 79% is outpacing the 58% unit growth forecast for the same period.
- That trend should continue into 2015 as economic growth continues and the price of fuel remains relatively stable.
- Looking solely at industry volumes without factoring in the richer margins and revenue generated by three of the four vehicle segments masks how truly robust the industry is.
- During the 2009 to 2014 period, pickups and mass-market utilities, which deliver higher transaction prices and margins than mass-market cars, increased their share of industry revenue to 50% from 44%.
- Industry trends point to stabilization in revenue mix, though not unit mix, comprised of 30% mass-market car (“three-box’’ vehicles); 30% utility (“two-box’’ vehicles); 20% pickup; and 20% premium vehicle.
“For individual automakers the revenue mix across the four super segments varies considerably,” Krafcik said. “Some are overly reliant on mass-market cars — notably Volkswagen Group and Hyundai-Kia — while others are significantly overweighted in pickup and utility segments, such as Fiat Chrysler. Remarkably, no automaker has a revenue mix even close to the consumer-driven industry mix.”
This suggests there is economic opportunity for each major player to broaden its portfolio, and obvious M&A opportunity to create more revenue-balanced OEM groups. In his presentation, Krafcik also suggested hypothetical automaker combinations that could provide an ideal revenue mix and potential for long-term financial stability even as consumer preferences shift.
