Where would the global auto industry and its suppliers be without China?
That’s a question to which we will probably learn the answer over the next few years, as China’s demand growth slows to more sustainable levels under its New Normal policies. So the chart above is a useful snapshot of market developments in the other Top 6 markets over the past decade, on a year to date basis (to October):
- Total sales in the 6 markets in 2015 are up just 4% at 35.2m since the market’s previous 34m peak in 2007
- US sales are up 6% at 14.4m: EU sales are down 6% at 11.6m: Japanese sales are down 4% at 3.6m
- Indian sales are up 100% at 2.3m: Brazilian sales are up 7% at 2.1m: Russian sales are up 1% at 1.3m
One key issue is that there is no consistent pattern between the 6 markets. Unlike the pre-Crisis period, sales have not risen on a stable basis over time, in line with improving economic trends:
- Instead, governments have intervened consistently to support sales via “cash for clunkers” programmes and similar discounts, as they seek to support employment in the auto industry
- Central banks’ low interest rate policies have also supported sales – in the US, for example, four out of five auto sales are made with credit. Even so, the average credit term has doubled to 67.9 months, as buyers struggle to keep the monthly payment affordable
Another warning sign of likely instability ahead is the impact of China’s downturn. Since this began in 2013, Russian sales are down 42% and Brazilian sales down 32%, due to the collapse of their commodity exports to China. And latest reports show no sign of this situation improving in the near future, as commodities remain in major over-supply.
This background is further support for my argument that the world is actually at “peak car moment”:
- Partly this is due to demographic reasons – an ageing population drives less, because people no longer drive to work when retired, or act as a taxi service for children
- Partly it is due to new attitudes among young people, who no longer see gaining a driving licence as a ‘rite of passage’ – as they can easily keep in touch with friends via social media
- But it is also due to cost and affordability reasons – cars and insurance are relatively expensive, but the average car is only driven for an hour a day
- In turn, this has led to the popularity of car-sharing services such as Uber and Didi (in China), and those run by the major auto manufacturers and cities
- And then there is the environmental issue and the pollution caused by cars – highlighted once more by Volkswagen’s cheating on its diesel emissions
Of course, the idea of “peak car” does not mean that people will suddenly stop buying and driving cars. Many people like driving cars, and they will remain an essential means of transport – particularly for those outside cities, or where public transport is weak.
What it does mean is that a paradigm shift is underway, in the way that cars replaced horses as the primary mode of transport. 100 years ago, the world’s first urban planning conference couldn’t imagine a world without horse-drawn transport, and worried that manure levels might reach 3rd floor windows in New York. That’s not a worry today.
People will still have a need for mobility, but they may well no longer need to satisfy this by buying new cars. That is the challenge, and the opportunity, that lies ahead.