Frost: Consumer demand to drive AWD growth

MOUNTAIN VIEW, Calif. (June 26, 2014) — Growing consumer demand for vehicle stability, safety and enhanced driving dynamics is fueling the adoption of all-wheel drive (AWD) systems, according to Frost & Sullivan research.

AWD systems enable the secondary axles to engage before slippage occurs and ensure the active distribution of torque between axles when turning corners, thus lending the vehicle optimal power and stability on the road. On-demand AWD also improves fuel-efficiency, allowing vehicle OEMs to counter the impact of soaring fuel prices on market growth, the company said.

AWD vehicles accounted for $11.7 billion in sales in 2013 and are forecast to grow to nearly $15 billion in 2020.

Market penetration of AWD systems is likely to be nominal over the forecast period—increasing from 32 percent in 2013 to 37 percent in 2020, according to Frost. On-demand and combination AWD systems are expected to contribute 45 to 50 percent of total revenue and hold a market share of 50 to 52 percent in 2020.

“The Detroit-3 OEMs currently dominate the AWD market, followed by Asian and German OEMs—who respectively hold 35 percent and 10 percent of the revenue potential,” said Frost's automotive and transportation research analyst, Vikram Chandrasekar. “The Detroit-3 will continue to command the most revenue from AWD system sales and are likely to hold 50 percent of the market share through 2020.”

However, the cost of sourcing AWD systems is expected to fall by only 5 to 10 percent in the coming decade. This comes as bad news to most OEMs as they consider the high cost of sourcing front wheel drive (FWD)-based disconnect AWD systems a major factor that is holding them back, according to Frost. Although the implementation of disconnects on the transfer-case within a target cost range has been feasible, OEMs and suppliers are struggling to adopt similar cost strategies for power transfer units on FWD-based AWD systems. Manufacturers need to overcome this obstacle as FWD-based architecture will soon be used for almost all passenger vehicles in North America, the company said.

“Rightsizing the driveline and disconnect driveline systems will be critical to the future of conventional AWD technology, even though this might threaten the growth of eAWD systems and restrict their use to a limited range of hybrid vehicle models,” Mr. Chandrasekar said. “OEMs should partner with AWD system suppliers to ensure effective rightsizing of driveline components based on customer usage profiles and expand their share in the North American market.”