The macro landscape for the auto industry does not seem to have changed much lately. Europe remains a troubled region. North America continues to show growth, with steady recovery on track to deliver a market over 15 million units this year. We’re getting back up towards pre-crisis markets again. The US economy may not be quite firing on all cylinders, but it’s ticking over quite nicely.
China is also still looking pretty good for around 10% vehicle market growth this year. One key variable to look at there is the money supply, which tracks car sales pretty well. I’m told the money supply is looking buoyant. The last thing Beijing wants is for the economy to run out of steam and for any kind of popular protests, as we have seen lately in Turkey and Egypt, to gather momentum on the streets.
Things in Europe, of course, remain rather dire, even if the market is showing signs of bottoming.
The trend to sales in Western Europe in the first half of the year show that the underlying running rate of sales has stabilised at around the same low it was last at during the low spot of the early 1990s. A degree of stabilisation in terms of overall demand will be welcomed by many in Europe’s beleaguered auto industry. However, the position for the industry and some OEMs in particular, and the need to address overcapacity, claw operations back to profitability, remains deadly serious.
It now looks like the German car market will dip a little below 3 million units this year, not a disaster (especially when you look at some other European markets, like Italy where the market has been halved) and the German OEMs are pretty busy meeting orders elsewhere anyway.
The UK car market, meanwhile, continues to defy gravity, propelled by private buyers who are attracted to replacing their cars for new under their personal contracts and with interest rates at near zero percent. When, I wonder, will the UK car market run out of momentum, or can this continue for a while yet, a structural change with many people permanently changing their cars for new on shorter cycles than used to be the case?
Britain’s car industry is maintaining a positive sheen. Total vehicle output increased 8% last year to 1.58 million units, the highest level since 2008. A number of OEMs are showing a substantial commitment to increase UK car production, most notably Nissan and Jaguar Land Rover (JLR). Output could be heading for 2 million a year within the next five years and there are clearly opportunities for UK suppliers ahead, too.
Things still look worse on the Continent. Something I picked up in the news recently seems very apposite regarding the situation in Europe. German Chancellor Angela Merkel has apparently become fond of a rather crude English language term that is becoming so popular in Germany that it has now been inducted into their equivalent of the Oxford English Dictionary, the Duden. The word? Ahem, get ready for it: ‘shitstorm’. German language experts voted it ‘Anglicism of the year’ in 2012 and the eurozone’s economic crisis seems to have propelled the word into wider usage in Germany.
Certainly, German consumers seem to be retrenching, worried about eurozone bailouts and where the eurozone’s economic crisis is heading, where it might leave Germany, the de factor guarantor. German car sales in the first half were 8% down on last year. Some southern European countries are once again having trouble making austerity budgets stick (surprise, surprise). The EU is not at all popular in Spain where unemployment stands at 25% and is nearer 50% for young people. Welcome Croatia, the latest addition to the EU club and its dysfunctional family.
There are rumours that PSA Peugeot-Citroen and General Motors could be getting closer and, if they do, consolidating European manufacturing would be an obvious thing to look at. Obvious, that is, in a business sense. Politically though? Ah, tricky. With the European economy on its knees and worries over low growth and unemployment very much on politicians’ radars, axing employment-intensive car plants doesn’t look very politically astute. It’s not exactly a winner at the ballot box. There are elections later this year in Germany.
Not so long ago a bankrupt General Motors was looking at selling Opel/Vauxhall. With almost three quarters of the companies employees in Germany, the prospect of a sale and conditions for that sale created a quite a political fuss in Germany. Now, GM is busy talking about repositioning Opel/Vauxhall as more upscale than Chevrolet. It sounds good on paper, but Chevrolet has been mighty successful and makes good cars at a (for the consumer) very good price. As Opel/Vauxhall continues to lose money, the European headache for GM continues. Some sort of consolidation in Europe involving PSA might look like a way out. It would not be popular though. As Angela Merkel and many of her compatriots would no doubt concur, the eurozone’s ‘shitstorm’ has certainly not passed over yet.
The changing consumer…
In any business, knowing your customer and meeting their needs is an essential first principle. That’s as true in the car business as any other. Many people in the auto industry are wondering how the customer, and market demand, is changing and how they need to adapt to best meet the changes. There’s a lot of talk about the growth of cities and urban mobility, the challenges ahead that are being shaped by environmental pressures, pressures of population and rapid advances in connectivity.
There are signs of changing attitudes. Young people, especially in cities, are not as attracted to getting on the car ownership rung as they once were. Cars are costly to run and maintain. Lifestyles are increasingly dominated by the emergence of cool brands like Apple and the devices that come with that. The costs of motoring: insurance, fuel and maintenance can look daunting for young people. In Germany in the last few years there has been a 25-30% decline in new car driving licenses issued to the under-25s. People are applying for driving licenses much later in their lives.
‘Peak Car’ some argue, has passed. Distances travelled by motor vehicle in mature automotive markets are going down. The reasons may be complex, but there is a sense for some of an industry that may be past its heyday or that some consumers are fundamentally changing their attitudes to transport. The auto industry needs to listen and adapt.
Renault’s entry range programme director shared his thoughts in respect of low-cost brands at a recent conference. Arnaud Deboeuf said that Renault’s low-cost Dacia brand “is one of the symbols of the new consumer trend in metro markets”, appealing to an emerging market group that is not motivated by traditional automotive product strengths.
“For many years automotive companies have planned to increase their turnover, to expand lineups, add content and raise prices,” he said. “The underlying idea was that we could raise the costs of the cars because we could increase the customer’s willingness to pay. The car was a symbol of status and achievement. More recently things have changed.
“We have seen the emergence of a large portion of car buyers who no longer show their pride in the most recent or expensive car model, but [they] would rather invest in high-tech, leisure…and they are no longer looking for status when they buy their car. They are looking for a ‘good enough’ offer, a ‘good enough’ level of feature, a ‘good enough’ level of comfort.”
In many cities around the world, car sharing is widening its reach and appeal. The savvy young consumer can rent a car when he or she needs it, by the hour. They can also use other modes of transport as appropriate and not be burdened with the cost overheads that come with outright car ownership. Smart phones and apps that provide real-time updates are supporting this drive towards the increasingly fragmented consumption of transport modes. If sustainability is your thing, there’s an app that can help you optimise your travel plans to reduce your CO2 footprint, as well as apps that will minimise your journey time. Car clubs look like they are here to stay as a part of the urban transportation landscape. Another point is that they offer up to date models, something that plays well to the brand aware and technologically conscious priorities of smart ‘Generation Y’ consumers.
Several vehicle manufacturers are now getting involved in car sharing projects and businesses. The smarter ones recognise that they need to be able to adapt their business models to suit changing market needs. Initially we saw the premium OEMs getting involved, but volume players are now starting to get active in this area. Ford, for example, has now got into car sharing with FORD2GO which is a project to provide car sharing across all Ford dealerships in Germany. We are also seeing more leasing companies getting into the car sharing business.
The digital dealer
Another key trend is the rapid evolution of digital technologies in the urban environment, the emergence of ‘lifestyle retailing’, such as that offered by Audi with its ‘City’ outlet in London. Potential buyers can configure cars on large screens, an experience suited to city living and that uses up less space than the traditional dealership. It’s more of a lifestyle kind of retail concept, like Apple, and means that you can have a retail point in the centre of the city, rather than in the outskirts where land is cheaper. Audi has only three cars in the whole showroom, but the advanced digital technologies mean that you can see any car you want on the wall, put options on, you can gesture control and so on.
As technology develops it can aid the driver, enhance the driving experience or turn the driving experience into something else. ABS is a simple example of electronics intervening to make braking better. Such interventions from vehicle systems have proliferated to things like collision avoidance and lane departure warning. As the interventions multiply, the position of the driver is changing, perhaps subtly, with more responsibility taken by advanced electronics. The ultimate expression of these advanced technologies can be seen in the autonomous car, such as that produced by Google.
Autonomous driving is something that is beginning to attract much more attention, even if the fully driverless car remains some way off as a commercial proposition rather than an experimental car. We might not see significant autonomous driving before 2020 but we will see certain features of autonomous driving such as valet parking and traffic-jam assist. With traffic-jam assist, if you are caught in a traffic jam, the car will drive itself up to a speed of, say, 30 MPH. You can take your hands off the steering wheel, check your email or read a book…
Another intriguing development is intelligent transport systems. Cars that can communicate with each other and with roadside infrastructure can produce real-time data flows that can serve to optimise traffic flows. The traffic lights become much more dynamic. It’s a nice vision of technology helping to reduce traffic congestion.
And here’s a thought. If cars are communicating with each other and advanced systems mean that they never crash, then why bother with passive safety systems that add weight? There’s probably no need for airbags if the chance of a system failure and subsequent crash is about the same as being struck by a meteor.
Advanced technology may reshape the car and the driving experience radically and it may also impact our emotional feelings about motor vehicles and the brands that come with them. Can driving be fun? Of course it can. Many of us enjoy the driving experience, the sense of control, man and machine in harmony on a twisty country road on a sunny day. But a long commute in heavy traffic and in pouring rain? That may be an instance when you would rather read your newspaper than negotiate the driving. Maybe flip a switch to autopilot. Is this the car as a pod? You get in, enter the destination on a screen and then sit back, get on with something else while the car seamlessly takes you where you want to go? A good scenario or a bad one? Or would you like access to a ‘pod’, as well as a more conventional car when you need it? Would that be two cars, engineered for different experiences, or would both experiences be available in one vehicle? If you have travelled in the pods at London’s Heathrow airport, you’ll perhaps feel that there is a place for the autonomous pod in the transportation future.
Meanwhile, the car companies and suppliers are working on cars in the near future that will be geared to helping you check your email and keep in touch while in your car. There is no need to be incommunicado and fancy electronics will gradually mean that you don’t have to pay as much attention to driving as you do now. That’s right. Do something else in your car. You can, instead, be engaged in much more socially productive activity such as checking your Facebook friends’ news or watching dancing cats on YouTube.
YouTube, by the way, is updated every six days with more content than has been delivered by the BBC throughout its entire history. There’s plenty of demand for new forms of media content out there and the car companies can’t just ignore that.
There’s a lot to be resolved and the car needs to continually adapt to changing societal needs and preferences. It’s ultimately a question of what the customer wants and where the regulators draw lines.
Being part of the solution, not the problem
As the world’s population grows and the migration to cities continues, moving around the big mega-cities in a manner that minimises environmental harm, maximises economic growth and makes cities agreeably liveable spaces will become a rising challenge. The auto industry can manoeuvre to be part of the emerging solutions, rather than the problem. And that’s the way the smarter companies are already thinking.
Writer: Dave Leggett