Global vehicle sales will likely peak in next decade, analysts say
Beijing's Second Ring Road on a very hazy day last month. Chinese leaders have placed restrictions on car licensing to slow new light-vehicle sales.
Photo credit: REUTERS
DETROIT -- The world that Henry Ford put on wheels is poised for a stall.
In the globe's growing megacities, pollution and gridlock are putting a damper on driving. In India, some commuters are leaving their cars at home to avoid traffic snarls and long prowls for parking. More young Americans are forgoing the dream of auto ownership for public transport, bikes and vehicle-sharing. Cars on the road are lasting longer than ever. All of that may herald a new era for an auto industry weaned on a century of global growth.
The world will reach "Peak Car" -- a point at which annual global sales growth will top out -- in the next decade, several auto-industry analysts predict.
Researcher IHS Automotive, for one, sees annual sales cresting at 100 million within that time. Peak Car is at odds with the ambitious expansion plans of global automakers, which IHS says are gearing up to produce more than 120 million vehicles by 2016 -- almost 50 percent more than last year's worldwide sales mark of 82 million.
The dynamic also threatens the business plans of parts producers, suppliers of raw material and oil companies.
Driving this upheaval is a rapidly emerging reality: The vehicle that ushered in an unparalleled era of personal mobility in the last century is, in many cases, no longer the most convenient conveyance, particularly as more of the world's population migrates to big cities.
No one is predicting that car sales will suddenly fall off or that today's car companies are now dinosaurs.
What the experts do see is a reckoning for car companies, which may have to adapt to a world with less car-buying and more car-sharing, more cars that drive themselves and fewer hot rodders on the highway.
"The key question is: Do you sell cars or do you sell mobility?" said Tim Ryan, New York-based vice chairman of markets and strategy for consultant PricewaterhouseCoopers LLP. "If you ignore these megatrends, you run the risk of becoming irrelevant."
There's a counterargument to predictions that sales could peak: Chinese consumers continue to have a voracious appetite for automobiles, as more of the country's 1.3 billion people climb the economic ladder and many demand the freedom and status a car conveys.
China helped drive global auto sales up 46 percent since 2000, and in 2009 the country surpassed the U.S. as the world's largest auto market. Chinese consumers bought 22 million vehicles last year, a mark that automakers and analysts forecast will hit 30 million by 2020.
Workers clean Bajaj Auto RE60 models prior to the public opening of the 12th Auto Expo 2014 in Noida, India, last month. Global automakers are gearing up to produce more than 120 million vehicles by 2016 -- almost 50 percent more than last year's worldwide sales mark of 82 million.
Photo credit: BLOOMBERG
At the same time, China is struggling with urban gridlock and growing pollution that has created a brown haze over big cities such as Shanghai and Beijing.
The pollution problem spurred the country's leaders to put restrictions on car licensing to slow auto sales. Many automakers are preparing for changing markets with cars that can be shared, or speak to each other in a bid to keep traffic from jamming.
General Motors' EN-V autonomous two-seater, a vehicle engineered jointly with Segway Inc. that can detect and avoid obstacles, is being tested in Tianjin, China.
"We have looked at the urbanization trend very closely," GM spokesman Jim Cain said. "It's driven experiments like our EN-V program in China and our involvement in services like car sharing."
The case for growing gridlock has been presented by PricewaterhouseCoopers, among others.
Today, half the world lives in urban areas. Over the next decade, there will be a 25 percent to 50 percent increase in urban dwelling, as about 1 billion people move into cities, according to PwC.
In 25 years, there will be 9 billion people living in urban areas -- more than the entire population of the Earth today.
If they are all driving cars, gridlock could block the path of food, water and emergency medical treatment in urban areas, said PwC's Ryan.
"People won't stand for spending 25 percent of their life commuting," Ryan said. "The way they will get around will be different."
The desire for mobility isn't decreasing any more than the demand for information is abating just because fewer people read newspapers today.
As with news, what's changing is the delivery system. In the United States, 44 percent of people would prefer to live in a city with automated "driverless" cars that would reduce congestion, according to a new survey from Intel Corp.
Already in the United States, where automotive ownership has long seemed a birthright, almost one in 10 households don't have a car, up 5.7 percent over the last five years.
More young people also aren't pursuing drivers' licenses, once a rite of passage. In 2010, 69.5 percent of 19-year-olds in the United States had a driver's license, down from 87.3 percent in 1983, said Michael Sivak, director of sustainable worldwide transportation at the University of Michigan Transportation Research Institute in Ann Arbor.
Better-built cars are damping demand for new ones: The average age of autos on the road today has reached a record 11.4 years, according to researcher R.L. Polk & Co.
The shift also is being fueled by changing attitudes on oil consumption for environmental, political and economic reasons.
Alternatives to auto ownership are emerging, such as ride- sharing company Zipcar Inc. and ride-booking service Uber Technologies Inc., that appeal to a new generation of drivers disinterested in carmakers' high-cost products.
GM's EN-V autonomous two-seater, a vehicle engineered jointly with Segway that can detect and avoid obstacles, is being tested in Tianjin, China.
Photo credit: BLOOMBERG
In Germany, which remains Europe's top auto market more than two decades after sales peaked there, Daimler AG and BMW AG have tried to woo non-owners with programs that let people rent cars by the minute.
Last month, Daimler started letting some users of its Car2Go service pick up a Mercedes-Benz B-Class hatchback in Berlin and drop it off in Hamburg, or the reverse.
In the United States, Art Ortiz joined the ranks of carless commuters more than a year ago, when he totaled his 2003 Honda Element.
The 38-year-old Dallas dog trainer and dog walker mostly uses a commuter bicycle and a transit pass. When he needs a car, about four times a week, he gets a ride with his girlfriend or uses a pay service like the one from Lyft Inc., a smartphone application that summons private cars for hire.
"I didn't really feel the need to have a car," said Ortiz, whose years of auto ownership date to the Nissan Sentra he had as a 16-year-old. "A car was just a waste of money."
Ultimately, urban dwellers will order a ride to work on their phones, get picked up by a driverless car and whisk through traffic controlled by satellites and sensors that get them to the office safely and quickly, said Thilo Koslowski, auto analyst for researcher Gartner Inc. of Stamford, Conn.
U.S. regulators said last month they've begun working on rules to let vehicles communicate via wireless chips while on the road. For the world's automakers and suppliers, that means making cars won't be enough anymore, Ryan said.
They have to transform into transportation-service providers that cater to consumers who don't want the hassle and expense of owning a car and instead just want to rent one that comes when summoned, he said.
Many are laying the groundwork. Preparing for driverless cars and vehicles that talk to each other makes up a significant portion of the $100 billion the global auto industry spends on research and development, according to a study last month by the Center for Automotive Research, or CAR.
Automakers, who guard the specifics of their R&D budgets, wouldn't reveal to CAR exactly how much they're spending on autonomous autos.
At the Tokyo auto show last year, Toyota Motor Corp. unveiled concepts for three-wheeled vehicles that communicate with each other in dense urban settings.
GM and Ford Motor Co. are part of a U.S. program testing the ability of 3,000 vehicles to communicate among themselves and with objects such as traffic lights and roadside sensors.
Ford Executive Chairman Bill Ford, great-grandson of founder Henry Ford, in 2009 formed Fontinalis Partners to invest in mobility technology such as bike-sharing service Zagster and ParkMe parking-assistance software.
"We're going to have these megacities and they are going to have lots of infrastructure issues, not just transportation, but clean water and food distribution," Ford said in a July 2011 interview, outlining issues the company said last month it's continuing to examine.
"If you look at every auto company's business plan and extrapolate it out over the next 10 years, it certainly didn't take me long to start asking the question: Where will all those cars and trucks go?"
A driver with the ride-sharing service Lyft waits for a customer on a street in Santa Monica, Calif., in October 2013. Using mobile apps to connect passengers with drivers, ridesharing services like UberX and Lyft are bringing new zip to personal transportation.
Photo credit: REUTERS
One answer: For every vehicle that is used in a car-sharing fleet, automakers will lose 32 vehicle sales, according to a study this month by AlixPartners.
The Southfield, Mich.-based consulting firm, which advised GM on its bankruptcy, estimates that car-sharing has cost makers 500,000 vehicle purchases since 2006.
Self-driving "autonomous" cars will be the "killer app" that enables car- sharing companies to blossom, AlixPartners said. By 2020, it said, 4 million Americans will car-share, up from 1 million now.
That coming boom in autonomous cars has created an opening for technology companies that view mobility differently than automakers do.
Google Inc. has logged hundreds of thousands of miles road-testing its own driverless cars, according to the study by Ann Arbor, Mich.-based CAR.
"The auto manufacturers may need to have a different generation of senior executives and CEOs because today's generation gets more excited about the sheet metal of a production car versus the bits and bytes," Gartner's Koslowski said. "If the industry doesn't work fast enough, the Googles and Apples of the world will fill the void."
The need for a new form of mobility is evident in Mumbai, whose 12 million people are squeezed into 603 square kilometers, or about 230 square miles.
Just 14 percent of trips are by personal car while more than half the commuters cram into 2,900 passenger trains that carry 7.6 million people in the city each day, according to a report by Mumbai Railway Vikas Corp. Another 23 percent ride buses and 9 percent use a public taxi or motorized rickshaw.
Kavita Bhatt, 31, takes a taxi to work in Mumbai because it's easier and cheaper than crawling through traffic at 3 miles per hour in the car she owns.
"Commuting is a pain any way you look at it," said Bhatt, an executive at a research company. "I drive to work once in a while, but it's impossible to find parking."
She drives mostly on weekends, when traffic is more manageable, in the new Hyundai Grand i10 hatchback that she shares with her father.
'40 percent ego'
Even so, many emerging-market consumers yearn for auto ownership because it is an important marker of the transition from poverty to the middle class, said Steve Polzin, director of the Transit Research Program at the University of South Florida in Tampa.
"If the resources are there, people cherish mobility -- we can't underestimate the importance of that," Polzin said. "A car is 60 percent mobility and 40 percent ego."
In China, only 44 out of each 1,000 residents own a vehicle -- compared with 423 in 1,000 in the United States, according to the World Bank -- and people like Shanghai native Michelle Ding are set on becoming the first in their families to own a car.
"When your economic means hit a certain level, it makes sense," said Ding, a 28-year-old who currently commutes an hour each way to her job as a project supervisor for a commercial developer. Driving to work will cut her commute time in half, she said.
Ding, who is researching Volkswagen models online, said she may have trouble finding parking near her apartment. "I'll make sure I find a way," she said.
Meanwhile, America's century-long love affair with the car is cooling. The number of households without a car grew to 9.2 percent in 2012, from 8.7 percent in 2007, said Sivak of the University of Michigan.
In New York, Washington, Boston, Philadelphia, San Francisco and Baltimore, more than 30 percent of households were carless, according to U.S. Census data. In 21 of America's 30 largest cities, carless households grew from 2007 to 2012, Sivak found.
Young people are three times more likely than older generations to abandon their vehicle if costs increase, according to Deloitte's 2014 Global Automotive Consumer Study. They also have a greater desire to live in a neighborhood where everything is in walking distance and to use car-sharing and car-pooling, Deloitte found.
"The likelihood is pretty good that we have reached the peak per person or per household" in the U.S., said Sivak, who has produced five studies on the topic. "We have fewer vehicles and we drive each of them less."
Some of the decline in vehicle ownership in the United States can be attributed to the 18-month recession that ended in June 2009 and the relatively slow recovery since, Polzin said.
As people regain wealth, he said, some of those trends will reverse. Tanya Loh, 35, went carless and hasn't looked back. Loh, who works at an e-commerce startup in San Francisco's Dogpatch neighborhood, ditched her 2006 Volkswagen Jetta TDI diesel a year ago after she realized the city had more convenient transportation options.
"I'm not anti-car," said Loh, who grew up in the suburbs of car-crazy Los Angeles and learned to drive a manual transmission at 16. "It was about efficiency and about optimizing the time that I have."
A sign for a Peugeot 308 outside a showroom at the company's Paris headquarters last month. More urban residents, notably younger people, are forgoing driving, analysts say.
Photo credit: BLOOMBERG
Loh's "wheels" now: a Dutch bicycle and a used Vespa motor scooter. She has a pass for the San Francisco transit system. She also uses smartphone applications from Uber, Lyft and Flywheel Software Inc. to summon private cars for hire and taxis, as well as the City CarShare service.
Loh says she has cut her monthly transportation costs in half. She also gains efficiency by working on the bus, she said, without having to worry about her safety or parking.
The solution for avoiding global gridlock may come from an as-of-yet unforeseen technology, said Eric Morris, an assistant professor of city and regional planning at Clemson University in South Carolina whose research looks at future innovations and lessons from the past.
In 1898, at the world's first international urban planning conference, many attendees predicted that manure left behind by horses pulling coaches and wagons would soon pile up to New York City's third-story windows, he said.
What the attendees didn't predict was the impact of a technology that had been invented more than a decade earlier. By 1912, cars outnumbered horses. By 1920, the internal combustion engine had replaced oats-fueled horse power altogether, Morris said.
That long-ago urban-planning conference still speaks to the greatest challenge in this emerging new era of mobility -- persuading auto-obsessed consumers they will no longer need their own set of wheels.
"It's really pretty hard to go to somebody and say 'Can you imagine a day will come when you won't need a car?'" said Phil Gott, senior director of long range planning at IHS in Lexington, Mass. "Because the obvious answer is 'What, are you nuts? I'll always need a car.' But in fact, people are moving into the cities and doing with fewer cars and in some cases with no cars."Contact Automotive News