The Western world’s century-old love affair with the automobile is coming to an end.
People
are driving less than they did before the recession, and there are
fewer cars on the road. In the US, the number of vehicles per driver has
fallen from a peak of 1.2 in 2007 to 1.15 today, according to data
compiled by Schroders, an asset management firm. Young Americans are
getting their drivers’ licenses later than they did in 1983, or even in
2008. Fewer Britons under the age of 30 have licenses today than in the
1990s. And many young people on both sides of the Atlantic are
not getting licenses at all.
This
could very well be the end of the road, writes Katherine Davidson,
automotive analyst at Schroders, in a fascinating note that makes the
argument that car sales may never recover to their pre-recession peak.
And it comes down to two things: urbanization and smartphones.
A status symbol no more
The
majority of the world’s population now lives in cities. And young
people are increasingly willing to stay there, unlike their parents, who
flocked to the suburbs as their families grew. Nearly two-thirds of
American “millennials,” or people born after 1984, live in cities today
and some 40% say they’re not leaving. For them, “cars are not as
relevant as a status symbol, and getting a license is no longer a ‘rite
of passage’ in the way it once was,” writes Davidson.
Urban
centers, of course, are less pleasant and more expensive to drive in,
thanks to congestion charges, lots of traffic lights, and pricey
parking. And the proliferation of smartphones—with apps that let city
residents access real-time information on public transport and
capabilities that have given rise to private taxi services like Uber—add
to the sense among city dwellers that owning a car is an unnecessary
expense.
This
chart shows that interest in car ownership has increased from
recession-era lows. But only one age bracket, consumers 55-64, shows
more interest now than in 2007—and note the flattening out of the trend
line for consumers in the 25-34 age bracket.
A new object of desire
Smartphones
cut car use in other ways, too. By allowing people to easily stay in
constant contact, smartphones have reduced the number of trips
people take. Danah Boyd, a researcher at Microsoft, noted this
phenomenon in her 2014 book, It’s Complicated, which looked at
the use of communications tools among teenagers. “What the drive-in was
to teens in the 1950s and the mall in the 1980s, Facebook, texting,
twitter, instant messaging and other social media are to teens now,” she writes (pdf, p.20).
E-commerce also
has detrimental effects on car ownership. If your supermarket delivers a
hefty order to your home every weekend, trips to the out-of-town
hypermarket suddenly become unnecessary. Ditto bulky items from Amazon.
New models needed
What
does all this mean for car companies? “Our base case is that there will
be a structural stagnation in the developed world auto industry, with
no further gains in density and all future vehicle sales driven by
replacement demand,” writes Schroders’ Davidson.
Nigel
Griffiths, chief automotive economist with the research firm IHS, is
somewhat more sanguine: “We do believe there is a structural change
occurring. The question is how significant that is and how pervasive
that will be in the long term,” he says, adding, “We are being very
cautious in our forward-looking models.”
One
reason is for that is the difficulty in reading structural changes amid
a lot of cyclical noise. Gas prices are falling. Exchange rates are
volatile. It’s not clear where car ownership levels will settle out,
post-recession. All of that has “really clouded the issue,” says
Griffiths.
Emerging
markets don’t offer much cause for optimism. Modest increases in car
ownership in developing countries have already led to gridlocked cities,
thanks to terrible (or, in many cases, a complete absence of) urban
planning. From Mumbai to Nairobi, and certainly all over China, vast
amounts of money are being poured into public transport. While there
remains much room for growth in car ownership in these markets, signs
are that emerging economies will learn from the west, adopt new
technology, and avoid building their cities around the automobile.
