Forecasting Challenge – How About SUVs?

Forecasting is never easy under the best of circumstances, as the generally mediocre level of forecast accuracy in most industries and countries attests. But some challenges are worse than others. How would you like to be a demand planner at GM or Ford or Toyota these days?

Large SUVs and trucks powered the top and bottom lines of auto OEMs for years. Then, oil prices rose, then they rose again, then they starting going through the roof in 2008, peaking at over $4.00 per gallon in the US. Most experts say that somewhere around $3.50 per gallon, consumers really did start to change behavior, and sales of gas guzzling SUVs and trucks plummeted.

GM announced it was closing several truck/SUV plants. Toyota has stopped production at two US truck plants for about 90 days. In the meantime… the financial crisis has led to a collapse in oil and gas prices. It's around $2.25 right now where I live. The price of oil and gas at the pump has been cut roughly in half, and may fall further. And Americans love their SUVs. They are now affordable to drive again.

Is it going to stay that way? If you were doing demand planning at an automotive OEM, or at one of their suppliers (who are equally affected), what way would you bet? And of course, there is a slowing economy and credit crisis to factor in. SUVs or hybrids? Trucks or compacts? Because of the huge fixed costs and long-term plant decisions involved in those plans, it is perhaps even a "bet the company" decision for the US OEMs, who are in precarious financial condition.

Maybe not quite as dramatically, but tough decisions like these will be faced by most companies at some level in this crazily dynamic environment.