This Is What Peak Car Looks Like
(Bloomberg Businessweek) -- After one too many snowstorms, Boston tech executive Larry Kim had had it with shoveling out his car and struggling to find parking. So in 2014 he ditched his Infiniti luxury sedan and began commuting by Uber and Lyft—at an annual cost of as much as $20,000. “I would never go back to owning a car,” says Kim, chief executive officer of MobileMonkey Inc., a Facebook Messenger marketing platform, who says he’s recovered an hour a day by not driving. “Your time is not free, right? Your time is worth more than $20 an hour. So in my case, why not spend $15,000 to $20,000 a year to get all of that time saved?”
The automobile—once both a badge of success and the most convenient conveyance between points A and B—is falling out of favor in cities around the world as ride-hailing and other new transportation options proliferate and concerns over gridlock and pollution spark a reevaluation of privately owned wheels. Auto sales in the U.S., after four record or near-record years, are declining this year, and analysts say they may never again reach those heights. Worldwide, residents are migrating to megacities—expected to be home to two-thirds of the global population by midcentury—where an automobile can be an expensive inconvenience. Young people continue to turn away from cars, with only 26 percent of U.S. 16-year-olds earning a driver’s license in 2017, a rite of passage that almost half that cohort would have obtained just 36 years ago, according to Sivak Applied Research. Likewise, the annual number of 17-year-olds taking driving tests in the U.K. has fallen 28 percent in the past decade.
Meanwhile, mobility services are multiplying rapidly, with everything from electric scooters to robo-taxis trying to establish a foothold in the market. Increasingly, major urban centers such as London, Madrid, and Mexico City are restricting cars’ access. Such constraints, plus the expansion of the sharing economy and the advent of the autonomous age, have made automakers nervous. That’s also pushed global policymakers to consider the possibility that the world is approaching “peak car”—a tipping point when the killer transportation app of the 20th century finally begins a steady decline, transforming the way we move.
Rather than signaling the end of the road for the automobile, peak car is a reflection that reurbanization and the widespread adoption of mobile apps that can summon a vehicle on demand will lessen the need for many of the 1.3 billion vehicles now on the road. And with new cars increasingly expensive, but mostly used just a few hours a day, the financial case for alternatives is growing stronger. “When you put all these trends together, you’re going to see a cap on personal vehicle ownership start to emerge,” says Mike Ramsey, an automotive consultant with researcher Gartner Inc. “We are near peak car.”
A decade ago the auto industry predicted annual global vehicle sales would top 100 million by now, but they’ve stalled instead, falling to 94.2 million last year, down 1 million from 2017. Researcher IHS Markit predicts the 100 million vehicle milestone will be surpassed in the next decade, but only because of growth in China, India, Russia, and other emerging markets. And even carmakers in China, the world’s top-selling auto market, are starting to throttle back their projections.
Globally, the success of mobility services is already chipping away at long-term forecasts for the industry. IHS last year trimmed 1.4 million vehicles from its 2030 prediction after studying the new options for getting around, says Henner Lehne, vice president for forecasting. “Longer term,” he says, “we will see a flattening of private-car purchases.”
IHS sees the biggest impact of mobility services coming in China. Auto sales there plunged 18 percent in January, an unprecedented seventh consecutive monthly decline, as commuters rapidly embraced ride-hailing. Last year, 550 million Chinese took 10 billion rides with the Didi ride-hailing service. That’s twice as many rides as Uber provided globally in 2018. “Increasing numbers of Chinese are opting for mobility as a service over car ownership,” wrote Michael Dunne, CEO of automotive researcher ZoZo Go.
China’s car sales momentum may have slowed, but that’s better than the situation in established markets such as the U.S. and Western Europe, says Jeff Schuster, senior vice president for forecasting at researcher LMC Automotive. “Mature markets could very well be at peak auto,” he says.
The tipping point worldwide will come at the end of the next decade, when self-driving cars start gaining traction, predicts Mark Wakefield, head of the automotive practice at consultant AlixPartners. Replacing a taxi driver with a robot cuts 60 percent from a ride’s cost, making travel in a driverless cab much cheaper than driving your own car. “The takeoff point is the robo-taxi,” Wakefield says. “By 2030 we have a pretty substantial amount of sales volume coming out [of vehicle sales] because of that.”
Also helping to drive away car buyers: rising sticker prices. To boost their profit margin, automakers have been loading cars with expensive extras and high-tech touches, pushing the average price of a new car in the U.S. to a record $37,777 by the end of last year, according to Kelley Blue Book. That’s caused many people to hold on to their existing rides longer; the average age of autos on U.S. roads reached a record 11.7 years in 2018, according to IHS.
European drivers face the same rising cost of ownership. That’s what led Copenhagen lab technician Linda de Sparra Terkelsen to sell her Fiat 500 and zip around town by bike or public transportation instead. “It’s faster to bike, much cheaper, and it’s really nice to start the day with fresh air,” she says, adding that she’ll never buy another car.
Nonetheless, auto executives are predicting a prosperous future for the traditional automobile. Population growth and economic expansion should fuel ever-growing sales, even in mature markets, says Elaine Buckberg, chief economist for General Motors Co. Yet GM is placing big bets on mobility investments and cutting back on carmaking. It’s planning to close five North American car factories, starting with an Ohio plant in March, while plowing $1 billion a year into developing self-driving cars. Employment at its autonomous tech arm, GM Cruise, has grown to more than 1,000 workers, from just 30 in 2016. GM, which plans to debut a robo-taxi service late this year, already offers car-sharing through its Maven unit and has invested $500 million in Lyft’s ride-hailing business.
In Europe, Daimler AG and BMW AG on Feb. 22 said they’ll pour more than €1 billion ($1.1 billion) into their jointly owned car-sharing and ride-hailing businesses. The year-old umbrella venture, ShareNow, is expected to become the world’s largest car-sharing operator; it will weigh purchases of startups or established players along with collaborations, Daimler said.
Indeed, automakers may talk a good game about moving metal, but increasingly they’re chasing profits expected to come from services that charge by the mile. Revenue from those “disruptive” options will grow to 25 percent of the transportation market by 2030, from 1 percent now, according to McKinsey & Co. While earnings from traditional carmaking decline, profits from mobility services will come to dominate the $634 billion that the auto industry is expected to make in 2030, Accenture says. “Right now, everyone still hopes to sell more cars. I haven’t come across a single company that forecasts a decline,” says Philipp Kampshoff, a McKinsey partner who specializes in transportation. “But there is just a huge profit pool emerging, and everybody is thinking, How can I tap into it?”
Automakers are engaged in a delicate dance, relying on their century-old manufacturing businesses to generate profits to finance their future in shared and electric driverless cars. The first big challenge is persuading new car buyers to give up gas guzzlers and go electric, a shift energy researcher BloombergNEF predicts will occur in the next decade, with China leading the charge. Electrified cars connected to the internet will enable cheap forms of mobility that will make owning an auto expensive and obsolete. “Before peak car, there’s going to be a peak in internal combustion engine vehicles,” says Colin McKerracher, head of advanced transport analysis for BNEF. “That will have a big effect on automakers’ strategies, because investment has a habit of chasing growth.”
Ultimately, individual car ownership will give way to having a mobility app on your phone, where an automobile is but one mode available, says Kersten Heineke, a McKinsey transportation specialist. A wealthy commuter might order a driverless Uber Black to take her to the office in solitude. A regular joe could hail a robo-shuttle that gets him to the subway just before his train departs for the city center, where he’ll hop a prebooked e-scooter to carry him the last mile to work. “This is the ideal future of mobility for a city,” Heineke says. “The main question around peak car is how much of this will trickle down to smaller cities and the countryside.”
The minority of the world’s population living in those wide-open spaces by midcentury will likely still own vehicles, because the distances are too large and population density too small for many mobility services to operate profitably. But urban dwellers may well have to spend a day in the country to catch a glimpse of that 20th century show pony known as a car. — With Alexandra Semenova
To contact the editor responsible for this story: James Ellis at email@example.com
©2019 Bloomberg L.P.