7/3/2019 | 3 MINUTE READ

Peak Auto: What It Could Mean to You

Facebook Share Icon LinkedIn Share Icon Twitter Share Icon Share by EMail icon Print Icon

With the age of car-sharing, battery-powered fleets, and self-driving cars quickly approaching, many automakers are trying to reinvent themselves into mobility companies.

Share

Facebook Share Icon LinkedIn Share Icon Twitter Share Icon Share by EMail icon Print Icon

With the age of car-sharing, battery-powered fleets, and self-driving cars quickly approaching, many automakers are trying to reinvent themselves into mobility companies. Peak auto production — a time in the not-too-distant future when sales of private vehicles across the western world may plateau before making a swift descent — is a concept that many automakers, suppliers, and industry prognosticators believe could realistically take place in the next 10 years. Being able to forecast this potential plateau is critical for automakers and suppliers alike as they look to avoid capital-intensive investments, shift business models towards software and services, and develop other effective strategies for future operations. 

Evolving Scenarios

 

Industry forecasts predict global light vehicle production will hit the 100-million vehicle milestone in 2020 and will grow to more than 115 million by 2030.  However, most of this growth is being driven by China, India, Eastern Europe, and other emerging markets as a result of the growing middle class in those areas. However, automakers in mature auto markets are starting to throttle back their projections.  This pull-back is leading industry analysts and insiders to actually debate this idea of “peak auto production.”  So let’s look at the main arguments for a decrease in vehicle production and those for an increase in vehicle production. 

Decreasing industry production

 

Shared mobility is likely to be increasingly practical and financially attractive in metropolitan areas, especially as these areas become more densely populated. Well-developed car sharing infrastructures mean not only more space saved for pedestrians and other traffic participants, but also less pressure on public transport services.

One of ride sharing’s biggest attractors by far is its convenience. By simply accessing an app, passengers can work, talk on the phone, check social media, and get where they need to go—all in relative privacy. This alternative has become so attractive, in fact, a recent Reuters study showed nearly a quarter of U.S. adults have sold or traded in a vehicle in the last 12 months, with 9% of that group turning to ride-sharing services like Uber and Lyft as their main way to get around. 

Generation Y consumers are now the most promising demographic for ride-sharing companies; they are quickly becoming the major force shaping market requests in the United States. With many shouldering considerable debt from school loans, the price, as well as maintenance costs, of a new car are high enough for them to avoid owning one altogether and opt instead for shared mobility alternatives. 

Increasing industry production
 

As mentioned previously, dense areas with a large, established vehicle base are fertile ground for these new mobility services, and many cities and suburbs of Japan, China, Europe, and North America fit this profile. New mobility services may result in a decline of private vehicle sales, but this decline is likely to be partially offset by increased sales in shared vehicles that need to be replaced more often due to higher utilization and related wear and tear.  Vehicle scrappage is determined by miles driven, and each on-demand vehicle will travel more miles than the average household car, but unless carmakers do something to greatly extend the life of the vehicle, vehicle life span (in terms of miles driven) will not significantly change.

Finally, many believe the big driver of increased vehicle production will come from the distance on-demand vehicles cover between individual passenger trips. Recent studies have shown for example, that nearly 50 percent of the miles that Uber drivers log in New York City don’t include passengers — it’s the time drivers take to get to their passengers in the first place.  As a result, vehicle miles driven will continue to increase along with the demand for ride-sharing services, thus driving an increase vehicle production.

Don’t Get Caught Unawares
 

There’s no doubt that on-demand vehicles and ride sharing will continue to have an impact on our industry; how it affects your company is dependent upon your organizational view.  This is why I advocate for businesses to engage in longer-term scenario planning as soon as possible, with a robust strategic process. Companies who take advantage of this sooner rather than later will have far more options and will have a leg up on the competition in their efforts to maximize value in these times of significant technology disruption.


Resources