The auto industry has seemingly suffered two major body blows in the last 10 days. The shock arrest of Carlos Ghosn in Japan and GM’s announcement of plant closures in North America give succour to those who believe we are witnessing the beginning of the end of the car industry.
It’s taken China just 15 years to become the world’s largest car manufacturer.
The doomsday scenario is that incumbent OEMs and tier suppliers will be reduced to white label manufacturers and suppliers for the tech and data giants who have created a dominant mobility system out of nothing.
In the middle of all this, Tesla will somehow emerge as the world’s biggest supplier of electric vehicles – shares in Elon Musk’s venture rose yesterday on the back of GM’s news. How Wall Street loves a short term hit!
This model assumes too much. It assumes that private car ownership will shrivel, car sharing will somehow become the preferred option of Americans and Europeans who have spent decades enjoying their own cars. It ignores the growing Chinese middle class starting to enjoy the benefits of private wealth, which unsurprisingly includes buying their own cars as status symbols – increasingly from Chinese manufacturers, but also from European premium brands.
Perhaps the biggest assumption is that autonomous vehicles will have reached the cognitive ability of a human driver within a few short years and that the infrastructure will be there to support them. When an autonomous vehicle can understand the “wait or go” etiquette of navigating through gaps, pot holes, garbage trucks and parked cars in the average British suburb, then it could be said to have reached parity. So far most AVs are tested on roads alien to much of the world.
The future is likely to be more complex, more mixed and probably richer in value for the incumbents than many imagine. To predict it more accurately it is useful to look at the past. For example, in the last 15 years global car production has nearly doubled from 41 million cars to 73.5 million annually, according to figures from OICA.
There are still huge numbers of cars being built to a traditional specification that ignores much of the doomsday scenario prescription for the future.
This has been driven by the explosion of car manufacturing in China, but production has increased or held steady in more mature regions such as North America, Europe and South Korea/Japan.
Given that the disruptive forces set to undermine the auto industry have been gaining ground since at least 2012, the production figures suggest that the incumbents remain some way off a global collapse on in their value chain. That is not to say they are blind to the challenges ahead.
Which is why the recent news from Nissan and Renault needs context. While we should not speculate on the reasons behind the Ghosn sacking, we can assume that Nissan is looking to ensure it is well placed to deal with the challenges and opportunities. GM too, is making tough choices to reposition itself for changing markets - but these so far are about the changing vehicle choices of the American car buyer. The same reason Ford is switching to truck and SUV production at the expense of sedans.
The biggest car groups are now doing exactly what some more sober analysts predicted. Faced with new competition, they are mobilising to develop their own EVs, add digital services and ensure they are forming the right partnerships for autonomous vehicles and car sharing.