Evolution, rather than revolution, has been the watchword of the global car industry for decades. Engine tweaks and fresh designs mask one important fact: that the cars driven by more than a billion consumers today are broadly the same as those that trundled along the roads half a century ago.
But revolution — with a capital R — may be on the way.
The rise of electric vehicles, supported by emissions regulation and championed by the likes of Tesla’s Elon Musk, is expected to eat away at demand for combustion engines.Traditional automakers find their business models under attack from a host of assailants. This report will identify these problems, how they threaten carmakers and how the world’s motor companies are rallying their international and financial might to respond.
Diesel has a black cloud hanging over it following the industry-shaking revelations from Volkswagen in 2015 that it installed devices in 11m vehicles worldwide designed to cheat emissions tests.
Other emissions investigations all over the world have implicated others, from Mitsubishi to Daimler.
The probes cast a shadow over the integrity of the sector, says Stuart Pearson, auto analyst at Exane BNP Paribas. “Consumers won’t know who they can trust.”
The unstoppable march of technology has seen cars become increasingly connected, partly in an attempt to make them attractive to young drivers more concerned with being online all the time than with horsepower. With internet access comes the risk of online troublemakers causing havoc. The dangers of cyber attacks that could result in fatalities is the stuff of nightmares for auto executives.
Technology brings fresh competition. The shadows of Apple and Google loom over motors manufacturers that are steeped in history.
Others are preparing to enter the market. Samsung has developed vehicle-tracking telematics with UK technology group Tantalum and is reported to be developing its own driverless car.
These brands are well known — are even loved — and such technical challengers threaten to upset older companies for whom customer trust is everything.
At this year’s Davos summit, Mary Barra, the chief executive of General Motors, said: “We are moving from an industry that, for 100 years, has relied on vehicles that are standalone, mechanically controlled and petroleum fuelled, to ones that will soon be interconnected, electronically controlled and fuelled by a range of energy sources.
“I believe the auto industry will change more in the next five to 10 years than it has in the last 50.”
Older manufacturers are responding to these challenges. For many, the question is not how to make an electric motor run or how to get a sensor to activate the brake, but how to make these technologies affordable enough to put in family cars, rather than being gadgets for the rich.
But one form of disruption — a Silicon Valley term that for once is unusually apt — threatens to undermine car sales: the sharing economy, embodied by the likes of ride-sharing company Uber.
In future years, so the thinking goes, no one will own a car. Driving — or “mobility” — will be an on-demand service, activated at the tap of a smartphone, a service Uber already offers.
One great fear of carmakers is that ownership is falling among younger generations, and there are worries that individual cars will go the way of the horse and cart.
“What we want from our cars is changing,” says Tim Lawrence, manufacturing specialist with PA Consulting Group. He adds: “Younger customers care less about actually owning the car. Car sharing and hiring are back on the agenda.
“That means [established companies] need to be looking at alternative business models and using the potential of new connected technologies to meet a wider range of mobility needs in different ways.”
Of particular worry are millennials, people in their 20s-30s, among whom car ownership may be dwindling. A study from the University of Michigan this year found 69 per cent of 19-year-olds in the US had licences in 2014, compared with 87 per cent in 1983.
But other evidence suggests these fears may be unfounded. In 2014 in the US, the world’s second-largest car market, people aged roughly 21-38 bought 4m cars or trucks, making the generation second only to baby boomers (those born from 1946-1964) for vehicle sales, according to research group JD Power. Customers under the age of 34 account for a fifth of GM’s sales, a figure that has increased by 5 per cent since the start of the decade.
The fears are based on the idea that lower rates of car ownership will mean falling sales for the manufacturers. However, analysis from Deutsche Bank suggests that, contrary to this view, sales may actually rise as the fall in vehicles numbers will be offset by more frequent replacements because shared cars will wear out more quickly.
“US sales nonetheless increase under every scenario we’ve examined,” wrote Deutsche Bank analysts. Reports of the death of carmakers may therefore be greatly exaggerated as well as premature.
BMW offers DriveNow, its car-sharing scheme which is available in London and Europe as well as the US, while Mercedes-Benz owner Daimler has its car2go service. Audi is launching a car-sharing scheme called Audi at home and General Motors has taken a share in Lyft, Uber’s US rival.
New entrants in this market face significant problems. As well as lack of brand recognition, they must have sufficient scale to rival car ownership. Building this from scratch means either drivers deliver cars to customers or there are sufficient pick-up points to make the service workable, something that will require significant outlay in big cities where demand will be highest.
Young people in cities can use metros or Uber and many do not have off-street parking. This adds to the hassle of owning an asset that research suggests will sit unused for more than 90 per cent of its life.
Successfully tapping into that unused vehicle time will be the step that prevents today’s big names from becoming tomorrow’s dinosaurs.