Rush to new segments could backfire, Ross says
Photo credit: JOE WILSSENS
DETROIT -- The big profits now being generated in North America are beckoning many automakers to find incremental ways to increase sales.
But Wilbur Ross, the billionaire private-equity investor, says rushing into new segments could backfire, eroding profits instead of bolstering them and resurrecting some of the overcapacity problems that companies spent years working to resolve.
"Everybody seems to be expanding their product line, and you wonder if that isn't going to lead to problems," Ross, CEO of private-equity firm WL Ross & Co., told the Automotive News World Congress. "It may lead to some more volatility in market share, and it may lead to, in effect, overcapacity in particular segments."
Ross did not name any examples, but at the Detroit auto show, several automakers are showing vehicles in segments where they currently do not compete.
Volkswagen, which is targeting a big increase in U.S. sales in the years ahead, unveiled a crossover concept called the CrossBlue. Kia Motors America introduced a premium sedan, the 2014 Cadenza, following its affiliate Hyundai Motor America into the luxury-car segment.
Ross, 75, who also is chairman of the supplier International Automotive Components Group, said he expects U.S. auto sales to reach at least 15 million vehicles this year, which is in line with many projections by analysts and economists. That would represent an increase of roughly 500,000 units.
In contrast, he said sales in Europe will continue to slide, falling perhaps 400,000 units in 2013. Sales last year in Europe totaled 12.05 million, the fewest since 1995.
In other comments, Ross said:
Hybrid cars will eventually become "unnecessary" as electric and natural gas-powered vehicles get cheaper. Because they have two powertrains, hybrids will end up carrying higher costs than more efficient alternatives, he argued. "Technology eventually will overcome the problems of price, range, weight, bulk and recharging that electric cars are burdened with now," Ross said.
Traffic congestion may curb auto sales in China, India and other emerging markets. But he sees the economy in China growing faster this year after a slowdown in 2012, which he attributed to its government's efforts to control a real-estate building boom.
Short-term car rentals, such as those offered by Zipcar, could provide more revenue for dealers. Residents of many urban areas, particularly younger people who increasingly elect not to own a car, have fueled rapid growth for Zipcar, which is being acquired by Avis. "Dealers have large inventories of vehicles and are open on weekends," he said. "That might provide them with ancillary income at relatively low cost."
You can reach Nick Bunkley at email@example.com. -- Follow Nick on