31st Annual Automotive Insights Symposium | 2025 Auto Industry Outlook

KRISTIN DZICZEK: So did you learn something? I'm often surprised how many of my friends don't really know what the Fed does. So I want to echo Rick's comments that the huge shout out to the Detroit and Chicago Fed teams that do all the work that make this event one that you all want to be part of. I may be the one here up in front of you, but I couldn't do what I do without this fantastic team of people. And I want to echo Rick's appreciation for these great folks and give them a round of applause if we can.

[APPLAUSE]

As Rick said, I'm Kristin Dziczek, and I'm the automotive policy advisor here at the Chicago Fed. And a lot of people I meet out in the world, such as at a conference or on yesterday's Toyota Tour, are surprised that the Fed has an auto advisor. And when I go out and they say, well, why is the Federal Reserve at this conference? Why are you here?
And I say, well, is what you're doing affecting the economy? So they always say yes. And then I say, well, we need to understand what you're doing so we can better understand the economy. And advisor is really a good word for what I do. I tell people what's going on in the auto-- here in the Fed and here at this event. But advisors are not decision makers or spokespeople. So I must lead with my disclaimer, which you'll hear many times during this conference from our Fed staff.

These are my thoughts, not those of the federal reserve, my boss President Goolsbee, who will be speaking later this afternoon, or Chair Jerome Powell, or anyone else here at the Fed. This is just what I'm thinking. And I'd also like to echo on that video to clear up a common misperception that the word Fed means that we're federal government employees. There's 12 regional banks and Chicago is one. We are .org. Jerome Powell's group and the Board of Governors, they are .gov. We're .org, so that's a little different.
And as the video explained, the Fed has just two policy jobs-- stable prices and maximum employment. And we stay in our lane. In light of the many proposed policy changes from this current administration or any administration or congress, not just this one, many of which will be discussed by panelists at the event today, it's important to note that we, the Fed staff, are not going to comment on the actions themselves. But we, of course, are keeping close tabs on all of it and how those changes may impact the economy.
And to do all of this, we here at the Fed look at a lot of data-- lots and lots of data. So much data. And in this presentation I'm going to show you some of the data that I've been watching. But we all know that data doesn't tell the whole story. And when it does, it's often after the fact.

So right now, I'm inviting all of you who are in the auto industry-- auto companies, suppliers, you work in an automotive adjacent business-- to share your views with us on how economic conditions are impacting your auto business. So if you're interested in contributing your views to monetary policy work, please make sure to connect with either myself or my colleague, Principal Business Economist Martin Lavelle, who will lead the next panel sometime today or tomorrow, or get our card and follow up with us.
 
So the theme of this conference really is about-- about uncertainty and disruption. And we've certainly had a lot of that in the last few years. And one thing that's been solid, however, is the economy. Fed Chair Jerome Powell, last week's FOMC press conference said, "The economy is strong overall and has made significant progress toward our goals over the last two years." And here are some of the evidence.

We've seen strong growth. GDP has been very strong, and the Blue Chip forecast is for over 2%, 2.2% to 2.6% going forward. The FOMC economic projections for December showed 2.5% growth this year, 2.2% growth in 2026. We've had very low unemployment, about 4.3% in the most recent read. And personal consumption expenditures, which is the Fed's preferred measure of inflation, Core PCE, that's minus food and energy, that was down-- that was 2.8%, so down from a smidge from 2.82% in November. Still not where the fed wants it to be, so we will continue to monitor and work to get to that 2% target.

So the light vehicle sales production are still recovering from these COVID shocks. We see production, inventory, sales are just not back up to the five-year average before that event rocked the world. And it's a little bit coming back up, some things faster and closer and others not so much. Inventory is certainly well below where it was.

I'm going to leave it at that point looking backwards. And where do we go from here is the subject of that next panel driving into 2025, that Martin will chair with three experts who are far more expert than I am on what the future may hold. I'll let that great group of folks tell us what they see in their crystal balls.

On the employment side, however, the industry is well above the five-year pre-COVID average. Given that production isn't quite back yet, you might think there's maybe a productivity story here, and maybe there is. But remember, it often takes more people to work out the kinks of doing something new. And this industry is doing a lot of things that are new.

And many factors impact labor productivity-- capital and labor ratios, outsourcing, new work, and automation. And we'll address some of those issues in today's last panel with my colleague Kristin Brody, on how automation might impact future auto industry competitiveness.

This is a series from the New York Fed that measures the supply chain disruptions in all industries, not just auto. And you can see we hit peak supply chain craziness in December 2022. But it's been much more normal since early 2023. We'll hear more about supply chains from our Federal Reserve Bank of Chicago President Austan Goolsbee in his speech this afternoon.

There's some data from manufacturers on reasons why they may not be able to run at capacity. And that's really telling, too. From these charts, you can see that transportation equipment manufacturers experienced quite a bit more volatility-- there, the blue line-- then manufacturing as a whole. And they've also had bigger issues with getting the labor and materials that they need to continue to produce.

There is so much change and uncertainty and disruption. We have innovation in product design and offerings. We have a range of fuels, from gasoline and diesel to hydrogen and electricity-- gas stations for sure, but also charging networks. Then there's AI, and automated driving, and connectivity, and safety and more.
 
100 years of building vehicles, and we're still inventing new ways to do it. Many of you saw on the tours yesterday-- and we'll hear about in both the automation panel and the last panel tomorrow-- some of how those changes in manufacturing are coming about. And all of this is altering supply chains, as are global trade developments and geopolitics. We'll talk more about the supply chain implications of simplifying the manufacturing in a panel I hope you'll stick around for-- the anchor panel tomorrow afternoon on supply chains. I promise you it will be worth it.

So not just trade rules are changing, but also fuel economy, emissions, safety, and automation regulations, and more. And with all of these changes come big investments and the automotive industry's big bets measured in tens of billions with a B. And all the while, in this country people need a car to get around. We're big country.

And many of those changes, and some of the broader economic changes, have made it very difficult for people to own and drive a car, CV, SUV, van, or truck. Very difficult. And automakers and suppliers face huge challenges bringing costs down to make those vehicles affordable.

Programs, as Rick mentioned, take years to develop. This is an industry that thrives on certainty and lives in uncertainty. It's very hard to make changes for vehicles that are in current production or are about to be in production for the next few years, especially when one administration's direction is substantially different from the previous president's leadership. It can be hard to steer a clear and profitable path through these changes.

These changing rules have statutory requirements, too, which we'll explore in the panel this afternoon on automotive policy and regulatory outlook, with three of the best speakers I could find to help guide us through the changes that we're anticipating stemming from President Trump's executive orders that will affect the auto industry, including trade. Of course, one area where those policy swings are evident is in the EV space, and we've seen some developments in the EV market.

This is the global share. It's for 2023. We don't yet have the 2024 data. But you can see, overall, global electric vehicle adoption is growing. So we have an industry that has invested billions. In the US, it's been about 188 billion of EV and battery investments since 2020, according to Atlas Public Policy. But they could be out over their skis if consumer acceptance here in the us fails to materialize-- fails to materialize, slows, or expand due to these regulatory swings that make it difficult to compete.

Running a business and planning in such a disruptive and uncertain environment is beyond challenging, and I'm really glad I don't have to do it. So there. This is just the US, and you can see there's been big shifts and growth in electrification overall, including growth of the hybrid share, that dark blue share. If you look at them over time, the blue line is the BEVs only, and then the red line or orange line, I guess, is all electric vehicles. So BEV growth was more than three times faster than the overall market growth last year with all the headlines of slowing EV adoption.

We'll talk a lot about costs and innovation again in that last panel that I'm encouraging you to stick around for. But for now, let's look at the competition. And it is fierce. This chart represents global shares in the OM market, so China sales in China, for example. It only goes through 2023, but you can see that China is on the rise. And other markets that were large and largest in the world lost that leadership. The US lost that leadership in 2009 and Europe in 2010.
 
Chinese produced vehicles are over 40% of global sales, and that includes those that are made in China by the joint ventures and Tesla. And you may have seen news that Chinese built vehicles are over 40% of the global market. This chart represents by brand, regardless of where they were produced. It gets really messy with the JVs and such, so this is just by brand.

I grouped Ford, GM, and Stellantis together as the historic Detroit Three. It's kind of hard for me to do this with the data I have to separate the Stellantis products from the European divisions. But that said, those three companies have lost 5.8 points of market share in five years. One point of market share last year was 835,000 vehicles.

Other US firms-- Tesla, Rivian, have gained 1.9% of global share. The EU brands are down, and we're starting to see deindustrialization take hold in Europe as European automakers seek to close plants and rationalize their footprints to match their share. And China's gained 10.6 points of share in the past five years, with a real acceleration, you can see, in 2019.

I want to thank my colleagues Bart, Jing, and Jim back in Chicago for this analysis on the aggregate motor vehicle bodies and trailers and parts industry. There's a caveat here. This is all of them together. And this is personal consumption, so that doesn't include everything. But it does include aftermarket parts, so not just the inputs to production. And it could reflect greater localization of production for some producers here in the US, but it's really hard to discern that from the data because the codes are different and all sorts of other things.

But what do you notice here? We're kind of back on track on the chart that's on the left, but that sourcing has really taken a rise in Mexico. A lot of vehicle, body, and trailer and parts and port shifted to Mexico in recent years. But with the uncertainty of new tariffs potentially impacting both Mexico and Canada, those shifts may start to slow or reverse. We're going to dig into this much more deeply tomorrow morning in a session that my colleague Thomas Kelleher is leading, "The Forces Shaping Automotive Trade Geography.

So now let's turn a little bit to the affordability question, and this is the topic of Rick's panel tomorrow. Sometimes data isn't at the level of aggregation I like, but this is a level above the last chart, showing PPI or producer price inflation for transportation equipment. So that includes snowmobiles, and tractors, and things like that, motorcycles.

The producer price index inflation for those imported goods has remained relatively low. That bottom line is pretty flat. While we continue to see inflation in the domestically produced services, that top line into the transportation equipment manufacturing sector, all of that inflation feeds into rising prices for consumers. And while we've seen real price inflation-- this as average transaction price has slowed-- the level is still quite high for many consumers. And incentives are starting to creep up, but they're nowhere near what they were before the pandemic.

And here you see the CPI for new vehicles is below that for all vehicles, for all items. But maintenance, repair, and insurance inflation is outpacing overall inflation, and gas prices and vehicle prices are starting to turn up at the end. Average monthly loan payments were $756 in December 2024, up 3.3% year over year and 28% over five years, according to Cox Moody's Index.
 
And a big part of that high monthly payment is interest. And while the Fed has lowered the rates that we charge banks, banks and other lenders decide what rates they will charge consumers. In auto lending, we do see a little tight tick downward since last January but it may not be enough. Because consumers remain fairly pessimistic.

The U of M survey of consumers shows that consumers haven't thought it was a good time to buy a car-- that green line-- in some time. The dotted blue line represents the overall consumer sentiment. So motor vehicle buying conditions are rated much worse than overall consumer sentiment. I'm going to make a little bit of a grind the gear shift here to get a little perspective on some recent automotive trade data.

Trade really is the DNA of this industry, and it has been since the US automakers' earliest days. Ford, for example, has been continuously producing vehicles in Mexico for over 100 years. I was tracking these big roll on, roll off ships like crazy with all the shipping disruptions and the Baltimore bridge collapse. These are incredible boats that we don't see here on the Detroit River.

It's very difficult, I think, for average Americans to see the impact of trade in this industry when a Honda, Toyota, or Mercedes could just as easily have been made in Ohio, Kentucky, or Alabama as Japan or Germany, and a Buick, a Lincoln, or a Polestar could have been built in Shanghai, Hangzhou, or Liuchow, and the vehicles with the highest US and Canadian parts content could be made by a US or an international automaker. The global rise of Chinese brands is much more apparent when you leave this country, if you go to Europe, South America, or even Mexico.

So these are the shares in the US and Canada, and you can see not much of China just yet. In Mexico, you see China. One in five vehicles in Mexico sold last year were made in China. Only a handful are EVs, so that confluence of China and EVs is true, but it's not everything. And just 18% of that was Chinese brands. 9% were the South Koreans, 22% Europeans and UK, and over half were Americans, US brands.

The Chinese brands recently overtook us brands in terms of China market share and that US capacity in China-- fairly new factories-- is turning to export markets like Mexico, where producers who form joint ventures are now competing with themselves back in these lower cost markets. Chinese automakers are also expanding their manufacturing footprint across the globe, and they're currently looking for a production location for this vehicle.

Can you push the play or do I do it? Nope. I'm sorry. I had a cool thing in here that played the shark music. Dun, dun, dun, dun, dun, dun, dun, dun. OK. So this is the BYD SHARK, which we saw yesterday at Carahsoft. BYD has not announced any intention to sell this vehicle in the US, but they have been looking for a plant outside of China to build it. It's a pretty impressive extended range hybrid truck with 500-mile range.

BYD sells it now in Australia, and Brazil, and Mexico-- places where US and other global pickup producers compete. And in Mexico, it's got about a $44,000 price tag, which is pretty attractive vis a vis other hybrid and electric trucks, and very competitive with internal combustion engine vehicles in those markets, too. So will this truck be on the market in the US? The answer to that question may not depend as much on market factors as on US federal government policy.

And many have described that very predictable and entirely expected swing in policy and regulations from administration to administration as a pendulum that swings back and forth. But a pendulum is not quite right. Pendulums eventually come to a stopping point in the middle. We don't stop in the middle, and that never, ever happens.
 
So I've struggled with a metaphor for a while, and I've decided it's ping pong. And while that isn't great to be the ball getting hit back and forth, the industry has survived many swings and the ball has remained in play so far. But if one side swings hard, the ball can certainly fly off the table. And I don't know how to keep score in this game at all. But the potential for automotive losses with hard policy and regulatory swings in either direction worry me. And if you know my kid, you know he's going to tell you, well, she's just a big worrier. But that's my job. I worry.

And my point is, no matter how resilient our automotive supply chain is-- and it's so much more now because of each new disruption teaching us new lessons-- there are just no sources, and certainly no domestic sources that are large enough or can ramp up quickly enough to fill any gaps in the supply chain that may result as a-- come as a result of these hard shifts. To put it mildly, we are in uncertain times.

And it's a heck of a week to have an auto conference. Huh? I thought it was going to be way more exciting, but it's still pretty exciting. You know, I started this presentation by enumerating the strengths of the 2024 economy, reminding us that last year was the best year for auto sales since the pandemic. And it sure feels, to me, like we're about to step onto a roller coaster with many twists and turns ahead.

And I read just yesterday that there's a new crazy roller coaster at Cedar Point in Ohio that I'll probably have to ride this summer, but I'm not looking forward to that. And I'm really not looking forward to this. So for the next two days, we're going to examine many of those issues that will determine the auto industry's fate in 2025 and beyond. And hopefully, we all leave the Fed tomorrow a little smarter and a little more prepared for whatever 2025 will bring us.

And with that, I'm going to thank you very much and pass to my friend and colleague, Principal Business Economist Martin Lavelle and his great panel, to give us a sense of what 2025 might have in store.

[APPLAUSE]