Wherever one looks, passenger car sales are in vicious decline. Q1 numbers of this year have been particularly revealing. US inventories are at record levels, and sales are down sharply. So are China’s. So are Western Europe’s. And so are Japan’s. Other automobile markets are flat at best, such as Korea and India. There is nothing on the horizon that could reverse that trend. This is obviously everything but soothing news for the great car producing nations of the world, and I would like to again point to Germany here.
The German automobile association released new production numbers for April 2019. Output has previously been reduced commensurate with the drought in global sales, but the April passenger car number at -14.7% year-on-year reveals a new dimension of the contraction process. The year-to-date output is now down by -12.2%. This comes on top of an annual decline of -9.4% in 2018. The 12-month rolling average is not only acceleratingly pointing south, but it has also already fallen to a level as low as during the financial crisis.
There is no other way of saying it… The heart of the German industry is in deep recession. While the government is keeping busy digging into their majors and persecuting them on the diesel scandal, and while economics minister Peter Altmaier is visibly stumbling over his misguided new industrial policy of creating so-called national champions instead of protecting those very companies that make up the core of Germany’s business success, the automobile industry is sliding into one of its gravest periods in history.
The latest official numbers from 2017 account for national revenues of 331 billion Euros by German vehicle manufacturers, of which 234 were exports. The net export surplus from passenger cars and relevant parts stood at 120 billion. Vehicle and parts production, in general, made up for 21% of the German economy’s gross value creation – compare this to China’s 4%, for example. In 2018, a critical 79% of passenger car output went into export, and a record 835 thousand people were employed by the auto industry.
And obviously, it is not just Germany as an industrial base that is facing the consequences of this downturn, even though the effects seem to be biting there first and more visible. But look no further than Japan, or Korea for that matter, both countries massively skewed toward this capital intensive industry. To be sure, costs will be managed in the interim by outsourcing production to India, Mexico and the likes, but if as a country one doesn’t have sufficient versatility to move into alternative sectors, beware…!
Not only do we have a precarious situation of overcapacity to deal with, one that meets with drastically falling global sales numbers. The entire industry is being disrupted before our eyes. For the German grandees like Daimler, BMW (just announced first quarterly loss since the financial crisis), and Volkswagen to jump on the electric vehicle hype and rush to set up car-sharing enterprises will not sell them more cars going forward. As I hinted at before, the age of the passenger car as we know it may well be over.
To be sure, people will still be driving cars, especially for longer distances, but it will become unnecessary for individuals and families to own multiple vehicles. Metropolitan areas, in particular, are prone to embrace methods of transportation that could be the death knell for the conventional auto industry. Sharing of an already vast existing capacity, as in Uber, Didi Chuxing, Grab, etc is only the beginning. The next wave is likely to be self-driving cars, in the wake of which the concept of the car will change entirely.
Humour me for a moment… The future may simply be versions of mini-busses if you will, of different interior and luxury but assembled from mere 3D-printed plastic parts as accidents are statistically excluded and insurance no longer necessary, powered by batteries, and guided by AI-triggered route optimisation as a result of data input on customers’ mobile phones. Anyone can do this, and data companies may well be better equipped than some of the global automobile incumbents.
I still happen to think that the industry is way too complacent. To thump one’s chest when putting out the new label of being a mobility company overnight may be a cute marketing gag but will not solve the underlying problems. To wave aside the apparent future developments as being too far off is outright irresponsible. Look at history to better understand what disruption can do to your business. Kodak, Xerox and Blockbuster are frightening examples, but even survivors and re-inventors, such as IBM, are.
