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Shifting Gears


Brandon Ruiz
Analyst
IBISWorld

The Automobile Transmission Manufacturing industry hit a bumpy road during the recession, but due to the resurgence in demand for cars and light trucks in recent years, automobile transmission sales have started to trend upward. Because transmissions are a key input for automobiles, the industry ebbs and flows with the Car and Automobile Manufacturing industry. As such, transmission sales are sensitive to fluctuations in new vehicle sales, consumer confidence, unemployment and interest rates. However, US environmental regulations have helped to vastly support industry revenue by spurring technological innovation within the industry.

During the economic downturn, the automotive sector struggled. Because of rising unemployment and declining consumer confidence, consumers cut big-ticket purchases, such as automobiles. According to WardsAuto, a leading automotive publication, US vehicle sales plummeted 18.0% and 21.4% in 2008 and 2009, respectively. As such, New Jeep 9-speed automatic transmissionautomakers cut back on vehicle production, adversely affecting upstream suppliers, such as automobile transmission manufacturers. Consequently, IBISWorld estimates revenue for the Automobile Transmission Manufacturing industry dropped 21.9% and 14.7% in 2008 and 2009, respectively.

Nevertheless, the US economy has gradually recovered, and demand for automobiles has rebounded, bolstered by falling unemployment and rising consumer confidence. Low interest rates have also incentivized automobile purchases, because financing has become more affordable. Because of renewed auto demand, the Automobile Transmission Manufacturing industry is expected to grow at an annualized rate of 5.9% to $35.7 billion in the five years to 2013.

CAFE Provides Impetus for Transmission Innovation
The rising trend of eco-friendly initiatives, such as Corporate Average Fuel Economy (CAFE) regulations, is increasingly pushing automakers to improve the average fuel economy of cars and light trucks. Therefore, automakers are relying on upstream suppliers, including transmission manufacturers, to develop innovative products to meet annual CAFE benchmarks. For example, under CAFE standards automakers are expected to produce passenger vehicles that travel 45 mpg by 2018, which is better than the 37 mpg in 2013. This will support industry growth as automakers look to transmission manufacturers for innovative solutions to increase fuel efficiency. It is interesting to note that because CAFE figures are generated in such an arcane fashion the 45 mpg figure for 2018 equates to an EPA window sticker number of 34 mpg and the 37 mpg requirement for 2013 equates to an EPA window sticker figure of 28 mpg. Of course, your mileage may vary.

Some transmissions supp2014 Range Rover Evoque with ZF 9-speed automaticliers have already started shifting gears to develop fuel-efficient and low-emission transmissions. For example, German transmission-supplier ZF Friedrichshafen AG designed eight-speed and nine-speed automatic transmissions to improve performance and fuel economy in vehicles debuting in 2008 and 2013, respectively. At the 2013 Geneva Motor Show, Land Rover announced that ZF’s nine-speed gearbox, the world’s first with that many forward speeds, would be used in the 2014 Range Rover Evoque with four-wheel drive. The unit for this application is being built in a new transmission manufacturing facility ZF has opened in Laurens County, SC. Chrysler is also using a version of the ZF nine-speed in the 2014 Jeep Cherokee, but this unit is being built in a Chrysler transmission plant in Kokomo, IN.

Original equipment manufacturers, such as Ford Motor Co. and General Motors Co. (GM), are also developing transmissions with more gears to improve fuel economy and lower emissions. Ford and GM entered into a joint venture to develop nine- and 10-speed transmissions for use in cars, crossovers, pickups and SUVs. This collaboration is expected to speed up the development process and ultimately get products to the marketplace faster and cheaper than an individual automaker could do on its own. These new transmissions are expected to not only reduce fuel consumption, but improve performance and quality, as well. The Hyundai Motor Group and Volkswagen are also rumored to be jumping on the 10-speed bandwagon.

Is Nine Enough?
The race to add performance-improving gears, however, may be reaching the point of diminishing returns. According to Stefan Sommer, CEO of ZF Friedrichshafen, if a2014 Jeep Cherokee with 9-speed automatic tranmission transmission has more than nine speeds, it only increases the weight and complexity of the vehicle, which leads to diminishing returns in fuel efficiency. Nonetheless, automakers are still attempting to test how increasing the number of gears can improve performance and efficiency.

IBISWorld forecasts the Automobile Transmission Manufacturing industry will grow at an annualized rate of 2.4% to $40.2 billion in the five years to 2018, because of rising vehicle sales, increasing consumer confidence and falling unemployment. Additionally, CAFE is expected to continue supporting demand for transmissions that improve performance as automakers seek alternative ways to meet annual fuel economy benchmarks. It remains to be seen, however, if industry operators’ quest for adding gears is driven by a desire to further increase vehicle fuel efficiency and performance, or if it is merely a marketing tactic to increase sales. Nevertheless, CAFE has ultimately driven the industry to develop new products that will help propel revenue and aid industry operators in differentiating themselves from competitors in coming years.

This article was first published in the 2013 edition of the Motorized Vehicle Manufacturing Yearbook.


Published Date : 11/13/2013

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