The motor industry’s fortunes are increasingly divided, but in the right markets and with the right technologies, they look surprisingly bright.
Henry Ford and his engineers perfected the moving assembly line a hundred years ago. They cut the time taken to assemble a Ford Model T from 12 hours and 30 minutes in 1913 to just one hour and 33 minutes the following year. That made the car a lot cheaper to build and opened up a mass market for it. By 1918 its list price was down to $450, or just over 5 months’ pay for the average American worker, against the equivalent of about a year and a half’s pay when the car was launched a decade earlier. Cars became a personal badge of status, and in time carmaking became a badge of national virility.
But since the 1950s the automobile has come to be seen as dangerous, dirty and noisy. In response it has been ever more strictly regulated, which has imposed additional costs. After the financial crisis the entire industry slumped spectacularly in many rich countries. Two of America’s big three carmakers, Chrysler and General Motors, went bankrupt and had to be bailed out by taxpayers. In Europe car sales last year were the lowest since 1995. The battery-driven cars that were supposed to solve the pollution problem have so far been an expensive flop. The motor industry seems to be in dire straits.
Yet this special report sees plenty to be optimistic about. Sales in Japan remain stagnant and in Europe they are unlikely to grow much in the next few years, but in America they are already beginning to bounce back, and in China and other emerging markets the current boom looks likely to continue for the foreseeable future. AlixPartners, a consultancy, forecasts that the worldwide market for cars and other light vehicles will expand from about 80m units a year now to 107m in 2020 (see chart 1). In China, now the world’s biggest market for cars, annual sales are expected to rise from 19m last year to 31m in 2020 as car ownership spreads to the country’s vast interior. So over the next seven years a Europe-sized market will grow up in China’s hinterland.
Over the past decade tens of millions of Chinese families have gained personal mobility on an undreamt-of scale while lots of new jobs have been created making, selling and servicing cars in China. But the Chinese government seems less concerned about that than about its failure to create strong national champions capable of taking on the foreign carmakers on their own turf. In future it may try harder to achieve this aim, which could deter foreign firms from continuing to invest in the country. A wiser course would be to accept—as Britain, and more recently Russia, have already done—that as long as the business is thriving and generating lots of well-paid work, the nationality of a car factory’s owners and the badges on the bonnets hardly matter.
As ever more consumers in China and other emerging markets have the money to buy fancier cars, makers of upmarket and high-performance vehicles will benefit. Mass-market carmakers will have a harder time: too many factories are being built, especially in big emerging markets, which will lead to intense competition and price-cutting. As the biggest, most efficient manufacturers—such as Volkswagen and Toyota—pull ahead, those in the second division may seek salvation in alliances.
As an investment, then, the motor industry has to be treated with caution. But its engineering and environmental credentials are improving all the time. A century after becoming a mass-market product, the car is still a long way from being a mature technology. Manufacturers and their suppliers are investing huge sums in a variety of improved propulsion systems and in new lightweight materials to meet regulators’ emissions targets. The current generation of models is already vastly cleaner than earlier ones, and emissions of carbon dioxide, nitrogen oxides, soot and other pollutants are set to fall much further. The smog that began to afflict traffic-choked California in the 1950s and is now obscuring the sky in Chinese cities will gradually clear. The day may come when environmentalists stop worrying so much about cars and turn their attention to other polluters.
Consumers will be in heaven. Improved manufacturing systems will allow the bigger carmakers to offer an ever wider range of models, supplemented by a steady stream of niche products from new entrants. Fierce competition will keep prices down even as cars are packed with ever more technology that will make them more expensive to produce. More of them will drive themselves, park themselves and avoid collisions automatically. That should cut down on accidents and traffic jams, reduce the stress associated with driving and provide personal mobility for the growing ranks of the elderly and disabled.
All the technology that will go into making cars cleaner will also make them far more fuel-efficient and more economical. For motorists with short, predictable daily drives, all-electric cars may prove adequate and, as batteries improve, increasingly cost-effective. Others will be able to pick from a range of propulsion systems, including hybrid, natural gas and hydrogen as well as improved petrol or diesel engines, to suit their needs.
Manufacturers are hoping that all this technology will help counteract a worrying trend they are beginning to observe in rich countries: that car ownership is becoming unfashionable. In cities car-sharing and short-term hiring is becoming more popular. Young urbanites are getting their driving licences later, but the numbers of drivers at the other end of the age spectrum is growing, which may compensate for that loss.
Best of all, in emerging markets there is enough pent-up demand to keep the industry growing for many decades yet. But which makers, in which countries, will reap the benefits?
Photo credit: New York Times
Via The Economist