TPT July 2016

G LOBA L MARKE T P L AC E

› Given the replacement rates of Korean and European carmakers (76 per cent and 70 per cent, respectively), Mr Murphy believes that their “slower product cadence and lineups,” with fewer trucks, put them in a weaker position vis- à-vis their US rivals. • So when will this famously cyclical industry see its next slowdown, Mr Murphy was asked in Detroit.

The auto industry in the US can be expected to remain healthy through the rest of the decade Because carmakers go to great lengths to keep their plans under wraps, the annual “Car Wars” report from Bank of America Merrill Lynch is eagerly awaited and closely perused in the auto industry. In addition to previewing upcoming products, the comprehensive study assesses the strengths and weaknesses of individual producers over the next four model years. The latest installment of “Car Wars” was presented on 11 May by Merrill Lynch senior auto analyst John Murphy to an Automotive Press Association audience in Detroit. As reported by Greg Gardner and Brent Snavely in the Detroit Free Press , Mr Murphy is more optimistic than his Wall Street peers, most of whom see the North American auto market as at or near a cyclical peak. He expects automakers, flush with cash from rising sales, to launch some 58 new cars and trucks annually in the US over the next four years – well above the historical average of 38 vehicles per year. Mr Murphy expressed confidence that the US auto industry will be selling more than 20 million vehicles annually by 2018, eclipsing last year’s record of 17.5 million, which itself surpassed the prior record of 17.35 million sold in 2000. He cited, as encouraging signs, steady job growth since the recession of 2008 and 2009, together with stronger consumer confidence and a sharp spike in total mileage. (According to data from the US Federal Highway Administration, Americans drove 3.15 trillion miles last year, more than ever before, for the largest uptick [3.5 per cent higher than in 2014] in more than a decade. The previous record, around 3 trillion miles, was set in 2007.) T RUCKS , SUV S AND CROSSOVERS WILL DOMINATE The Free Press reporters noted that the main objective of “Car Wars”, which Merrill Lynch introduced in 1991, is to gauge the relative competitiveness of the automakers. The thesis is that those able to develop and launch the freshest lineups are likely to take market share from their rivals and, ultimately, post higher profits. Some specifics from this year’s “Car Wars” forecast: › By 2020, 88 per cent of General Motors sales will come from newly launched products, slightly ahead of the 86 per cent estimate for Ford. Honda (85 per cent) and FCA (Fiat Chrysler Automobiles), at 84 per cent, follow. At 79 per cent, Toyota almost reaches the industry average of 81 per cent, with Nissan close behind at 76 per cent. › Trucks, sport utility vehicles and crossovers will come in for most of the attention over the next few years. FCA will release what senior editor Greg Migliore of Autoblog calls “a critical salvo” with a new Ram 1500 in 2018; new generations of the Chevy Silverado and GMC Sierra are expected in 2019; and a new Ford F-150 in 2020. Mr Murphy suggested that GM might speed up the production schedule for its trucks, prodding Ford to respond.

The answer: “Sometime in the next three to five years.”

The ai r lanes An acute shor tage of pilots looms for the US airlines industry

Kate Murphy is a Texas-based commercial pilot and journalist who writes frequently for The New York Times . On 16 April the paper published her article “Plenty of Passengers, but Where Are the Pilots?” Ms Murphy began by noting something that goes unnoticed among the many exasperations of air travel in the US. “The gate agent may not tell you that’s why you’re grounded,” she wrote. “But a dearth of qualified pilots is disrupting, reducing, and even eliminating flights.” She cited as evidence at least 29 communities from Modesto, California, to Macon, Georgia, that have lost air service since 2013, together with hundreds more that had their number of flights reduced. And airports that have not lost service are unable to get the additional flights needed to pace local economic development. “We’ve had $5 billion of new industry come to our area, and the airlines say they can’t grow us because there aren’t enough pilots,” Mike Hainsey, executive director of Golden Triangle Regional Airport, which serves three small cities in Mississippi, told the Times . The main reason for the pilot shortage is, of course, the surge in the number of passengers. According to the US Department of Transportation, domestic airlines carried a record 895.5 million passengers last year, up 5 per cent from 2014. To meet growth over the next 18 years, Boeing forecasts that the global industry will need more than half a million new pilots. Next, Ms Murphy pointed to the roughly 18,000 pilots in the US who will age out by 2022. She calls this “a can Congress kicked down the road in 2007” when it raised the mandatory retirement age to 65 from 60 to delay the exit of military pilots who moved to commercial airlines after the Vietnam War. The bottleneck in the supply of new pilots also derives from federal legislation passed after the 2009 crash in Buffalo, New York, of a regional airline plane, attributed in part to errors by the flight crew. As of 2013, all entry-level first officers (co-pilots) on commercial carriers must now have at least 1,500 hours of flight time – up from a previous minimum of 250 hours.

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J ULY 2016