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Over the last few years, the world had become accustomed and perhaps too comfortable with $100 per barrel oil. Today, however, the price of oil is recalibrating to the new realities of supply and demand brought about by the surge in production and weaker growth in the world economy. What does the price collapse and subsequent rebalancing mean for the auto industry whose products constitute the single biggest market for oil products?

  • Prior to the price rout, IHS expected world light vehicle sales to rise by 760 million units between 2014 and 2021. Now we anticipate a gain of another 5 to 7 million vehicles.
  • The impacts will vary widely among markets. The greatest influence will be in the United States, where motorists are most exposed to swings in the price of oil owing to the relatively low level of taxation. The result will be a shift towards larger, more thirsty vehicles. High levels of taxation or subsides insulate motorists in many other countries from the changes in oil prices.
  • Alternative fuel and electric vehicles will be more challenged in the marketplace.
  • Costs for some energy-derived inputs such as plastics will decline, giving a minor boost to automaker and parts supplier margins.
  • In the U.S. market, the “return on investment” for higher fuel efficiency will be drawn out far beyond buyers’ frame of reference, possibly forcing reconsideration, or at least a renewed battle, over more stringent fuel efficiency regulations.
  • Sustained lower than had been expected oil prices will make it harder to reconcile increasingly stringent low fuel consumption/CO2 regulations in the major markets as consumer demand would be spurred for larger, higher fuel consumption vehicles.
  • At the same time, the overall market boost provided by the lower cost oil will obscure some underlying challenging market developments in resource-based economies
Impacted Factor High Oil Price Low Oil Price CO2/fuel consumption compliance In line with market demand Contrary to market demand Preferred vehicles Smaller Larger Energy-based inputs Higher in cost Lower in cost Alternative fuel economics Potentially attractive Relatively unattractive

Read our white paper Globally Low Oil Price, Regionally Different Auto Industry Impacts.
Posted by Phil Gott, Senior Director, Long-range Planning, IHS Automotive
Posted 10 February 2015

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