The Return of Captive Imports

Hopefully the coronavirus outbreak will wind down as we head into the second half of 2020. However, once it subsides, we still need to deal with the economic consequences of massive quarantines and shelter-in-place policies. The global automotive industry was already facing an unprecedented transformational period in the coming decade that was going to require tens of billions of dollars in development and capital spending. Those costs may revive a concept from the 1980s known as the captive import. 

In the 1980s, American automakers were also facing huge challenges with rising gas prices, fuel economy mandates, and the superior quality of Japanese-built vehicles. Lacking the expertise and cost structure to effectively build small, fuel efficient vehicles at a competitive price, they formed partnerships with some of the same companies they were trying to compete with. While Detroit brands continued to build larger cars, pickup trucks, and early SUVs, they filled in the low end of their lineups with products built mostly in Japan and South Korea. 

Vehicles like the Geo Tracker and Storm, Ford Festiva, and Dodge Colt were produced by Suzuki, Isuzu, Kia, and Mitsubishi, respectively. These outsourced vehicles were sold alongside domestically produced models and became known as captive imports. Back then, the only difference between a Geo Tracker sold in a Chevrolet dealership and a Suzuki Sidekick was the badge. The same was true of the Dodge Colt and Mitsubishi Mirage. 

Can Captive Imports Help Balance Sheets?

Automakers are facing months of dramatically reduced revenues and ballooning cash burn. The grand plans they had for rolling out electric and automated vehicles over the next several years may not be affordable. Controlling their own platforms may become a luxury that their balance sheets cannot support. 

This brings us back to the modern captive import. In the past, powertrains were a key product differentiator for automakers. Engines from BMW, Chevrolet, Ford, Chrysler, and others often had distinctly different characteristics in the way they felt, sound, and delivered power. They were often distinct enough that different brands within the same company had unique engines, notably GM. GM was sued by customers in the 1970s when it was discovered that Oldsmobiles were being equipped with Chevrolet V8s. 

What Will the New Normal Mean for Vehicle Electrification?

When it comes to electric propulsion, much of that differentiation goes away. An electric motor from Tesla, GM, or Audi all feel pretty similar with instant torque delivery and little discernible sound. That’s one of the reasons why Ford struck a deal with Volkswagen in 2019 to use its MEB platform for an upcoming Ford-branded vehicle. 

Ironically, the captive import process is actually reversing this time around, with Honda recently announcing a deal to get two new battery EVs built at a GM factory using the Detroit automaker’s new electric architecture. 

Guidehouse Insights’ report, Assessing the Coronavirus Impact on Automotive Electrification and Drive Automation, projects at least a 30% decline in overall vehicle sales in 2020 in the wake of the pandemic. The recovery from this decline is expected to take at least 3–4 years, perhaps longer. With manufacturers struggling to preserve cash, they will be reexamining their investment priorities for the next several years. The shift to EVs is expected to take priority over automated driving but even that may prove to be too much of a load to bear. The existing product sharing arrangements predate the current health crisis but they are likely just the beginning of what we can expect over the next year or two as the new generation of captive imports start to appear.