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Forecast 2017 Q&A: U-M’s Martin Zimmerman on autos

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Martin ZimmermanMartin ZimmermanIt's been a heady couple of years for automotive companies as sales have soared to record levels, particularly sales of profit-rich pickup trucks and SUVs, as gasoline prices have fallen. But that's come with a bit of a price. A higher mix of less fuel efficient vehicles means it will be more difficult to meet legislated fuel efficiency targets.

Martin Zimmerman, former chief economist at Ford Motor Co., and a clinical professor of business economics and public policy at the University of Michigan's Ross School of Business, takes a look at three stories to watch in 2017: slowing sales, the fight over fuel standards and new alliances to develop driverless vehicles.

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Q: Industry watchers seem to think light vehicle sales may have peaked. What do you see happening in 2017?

Zimmerman: Overall economic conditions suggest that auto industry sales will remain strong in 2017. Unemployment is low and expected to remain low in the coming year. Wages are beginning to improve. Interest rates, however, are rising in anticipation of stimulus from expected infrastructure spending and lower taxes as proposed by the new administration. It will take time for the spending and tax changes to be implemented so, on balance, in 2017 we are likely to see sales strong, but off a bit from the record levels of the past two years.

Q: With a new administration taking office with its party in control of Congress, do you expect any changes to Corporate Average Fuel Economy (CAFE) rules? Will this affect product planning?

Zimmerman: The auto companies point out that low energy prices have increased the demand for less fuel efficient vehicles. This will make achieving the fuel standards tougher. The U.S. Environmental Protection Agency and the National Highway Transportation Safety Administration argue technology improvements make the standards feasible. At the end of November, the EPA formally proposed that the 2022-2025 standards remain unchanged and set the stage to implement that ruling before the new administration takes office. That action will make it more difficult for the new administration to change the standards, though there will be continuing pressure for some modification, perhaps extended deadlines.

What developments might we see in the way of driverless cars in the coming year?

Zimmerman: I think we will see continued progress and technology developments, and some new alliances as well as more pilot programs. We are still somewhat away, however, from fully driverless cars for the mass market or even widespread use in the taxi market.