The global auto industry finds itself in the midst of tectonic shifts today. Prime among these are car and usage patterns globally.
Rising traffic congestion, ride-sharing options, widening public, and disruptions like electric vehicles and autonomous mobility are driving new ownership patterns.
However, there are a lot of conflicting opinions, with alarmist calls for the end of “car ownership as we know it” routinely emerging. Others claim that vehicle sales are at all-time highs, and millennials are buying cars more than ever. In any case, does an ownership shift pose a threat to manufacturers and other players in the auto industry?
In India, over three million cars are sold annually. The country has over 50 motor vehicles per 1,000 people. However, industry experts have expressed fears about Indians not buying enough cars.
Emergence of shared mobility
Because of high up-front costs and ownership hassles, some consumers are now re-evaluating car ownership. The future of ownership is also being shaped by the emergence and growing popularity of ride-sharing services.
While we are noticing a trend towards car rental, carpooling and subscription services, the reality in India is that vehicle penetration still remains abysmally low. As per a government index, India has just 22 cars per 1,000 individuals.
In the US and the UK, the number stands at 980 and 850, respectively. Hence, it may be premature to say that shared mobility will disrupt ownership patterns.
Moreover, even as ride-sharing rises and ownership takes a dip, vehicle demand will simply shift from consumers to ride-sharing companies. Thus, vehicle sales will continue to grow and the auto industry has no reason to worry.
It has been estimated that by 2030, car sales in the US alone will fall by almost 12 per cent. Germany, in the past decade, has seen a fall of 28 per cent in getting driving licenses, according to Chinese auto consultancy ZoZo Go.
However, a Moody’s study in 2017 postulates that although ride sharing decreases the number of privately-owned cars, it will not result in a change in car demand. This is because if consumers choose a ride-share option instead of a private vehicle for a journey, the total amount of vehicle depreciation will be unaffected.
The only change will be that of depreciation units being concentrated in a lower number of cars. Given that vehicles have a fixed lifetime, the ride-share cars will depreciate faster than equivalent privately-owned vehicles.
This is encouraging news for the auto industry. It means vehicle sales volumes will be unaffected by the introduction of ride-sharing. Having fewer cars on the road does not have to mean lower car sales.
This is in part because ride-hailing and sharing companies favour modern, low-emission vehicles. Zipcar, in a bid to keep operations low carbon, is aiming for an all-electric fleet by 2025.
This represents an area of opportunity for auto manufacturers. Instead of re-branding themselves as tech-driven service providers, they can look to fulfil the demand for the next generation of electric cars.
The response from the auto industry to the mobility evolution has been nothing short of dramatic. Manufacturers largely seem to recognise that the increasingly fragmented, competitive market will only get more complicated and have taken two approaches to counteract any adverse effects.
For one, car manufacturers have begun investing in tech giants that offer new mobility services. Toyota, for instance, has parked millions in Uber. General Motors has invested in Lyft, and BMW in DriveNow.
Secondly, and this is more the case with foreign markets, Tesla’s growth has prompted a response from car manufacturers to look at electric cars. Daimler has been seeking tie-ups with Tesla. According to estimates by the Boston Consulting Group, over 33 per cent of cars plying on the roads by 2030 may be electric.
Over the next decade, automobiles are likely to be seen as more of an on-demand service instead of a big-ticket purchase. According to some industry figures, over 80 per cent of car sales will be to fleet management companies, not individual consumers. This means that automakers must prepare for a future where drivers may not necessarily want to own the cars they use.
As far as India is concerned, urbanisation in the country’s tier-2 and -3 cities has only just started, and vehicle ownership forms a large part of it. Combine it with the high aspirational value of a car and it is clear that ownership in India is under no threat; it is not expected to impact sales growth.
Given that metros and big cities still account for the large part of vehicle purchase in India, there is a huge untapped market for car ownership. As the auto boom in India’s small cities is underway, automakers must be ready to service this huge demand.
To compete with the likes of Uber and Zipcar, some car manufacturers are now looking at mobility services — everything from electric scooter hire to car-sharing apps.
Volvo’s 24-month subscription service in Canada is a leasing alternative covering maintenance, minor wear, and other costs in a single payment. Customers get a new vehicle and the latest tech. The company expects the subscription model will contribute to around 10 per cent of overall sales.
Then there are automotive giants like General Motors entering car-sharing programmes. It launched the Maven programme in 2016, allowing customers to use a fleet of company vehicles through a rental process.
To conclude, cars are not disappearing any time soon. What is slated to change is how we use them, and the automotive industry must keep up. Car-sharing, ride-hailing, and electric vehicles present an opportunity and carmakers must devise new methods to stay relevant.
The writer is Chairman & Managing Director, UNO MINDA