There’s no end to talk about electric and self-driving vehicles in Silicon Valley, but most of the country seems perfectly happy continuing to buy traditional cars. In fact, new cars sales in the U.S. will probably surpass 17 million units in 2015. The last time we saw those kinds of numbers was back in 2005, says Max Zanan, a longtime New York-based automotive retail expert whose job it is to help car dealers make more money.
What’s going on, exactly? We talked with Zanan recently for his take on things.
TC: Car sales have been soaring this year. Why?
MZ: There are several things at play. We finally came out of the financial recession started in 2008 and there was a lot of pent-up that people are now acting on. The price of oil has collapsed and is half what it was a year ago, making it more affordable to own a car and giving people more disposable income. And money is cheap. With interest rates still at an all-time low, it isn’t hard to get a car loan with an extremely low rate, which make shopping more affordable.
TC: Which hybrid models are selling the fastest?
MZ: Prius is still the market leader in hybrids. Customer are accustomed to it and trust the brand. When it comes to electric models, there’s only one player right now and that’s Tesla. The Model S and Model X are out of the price range of most consumers, so I think the true test for the company will come in three years when it releases its Model 3 for $35,000. Then we’ll see what impact it will have on regular, combustible engines and on hybrid sales.
TC: What percent of the market is made up of hybrid sales currently?
MZ: It’s not high. The best-selling car year over year is the Ford 150 [full-size pickup truck], followed by the Toyota Camry.
[Editor’s note: According to Edmunds.com, EVs and hybrids accounted for just 2.7 percent of all new car sales in the first quarter of this year, down from 3.3 percent during the same period last year. The share of SUVs, meanwhile, increased from 31.8 percent in the first quarter of 2014 to 34.2 percent in first quarter of this year. Really surprisingly — to us at least — about 22 percent of people who traded in their hybrids and EVs in the first quarter bought a new SUV.]
TC: Volkswagen is now embroiled in that emissions scandal, but it’s still expected to produce an electric Audi and Porsche, and there are other electric-car entrants. Do you think anyone can catch Tesla?
MZ: That Tesla is successfully marketing, producing, and distributing its cars was a real wake-up call for the automotive industry, and everyone is playing catch-up. It’s not just that Tesla has the first mover advantage and doesn’t rely on a franchised sales model but it produces all its own software and hardware, whereas traditional manufacturers like Ford and Audi rely on multiple suppliers. That vertical integration, akin to what Apple does, is hard to replicate.
TC: Do you see traditional car companies trying?
MZ: Do they want to do everything in-house? Probably. But for the last 80 years, things haven’t worked that way and it’s very hard to change the corporate culture and processes or a multinational corporation.
TC: As someone in the trenches, how do you see things playing out for car owners and car dealers over the next five years?
MZ: Like everyone else, I think there will be a natural progression toward self-driving. We’ll keep buying cars to go to work and go shopping, then, over time, more people will realize that hey, maybe I don’t need a car; maybe it’s cheaper to use on-demand transportation. Then in another five years, we’ll realize we maybe don’t need the drivers.
TC: What happens to all these car makers? Will there be one? Will there be many?
MZ: Carmakers understand that the future will be autonomous vehicles, and that most likely, they won’t be owned by you and I. They’ll want to be in on the distribution model, though. Say you’re Audi and you’re producing hundreds of thousand of A4s. You might have your own fleet and charge per trip, using an algorithm to ensure that your cars are being used almost all the time.
TC: You think users are going to wait around for an Audi to pick them up when there’s another model closer by?
MZ: I envision a lot of apps, where you’ll decide if you want to go through the Mercedes Benz network or, if you’re just going to the supermarket, it’s okay to grab a Camry.
TC: Do you think car dealers share your vision of the future?
MZ: Dealers don’t really believe this disruption is going to come quickly, so they’re comfortable. They feel that business is great and should continue next year and the year after. It’s very difficult to have this conversation with the car dealer and explain that this disruption component is completely unpredictable. I’m sure if you told travel agents 10 or 15 years ago that they’d be replaced by websites, they wouldn’t take you seriously either.