Monday 14 January 2019 12:49 am

Off road: Is the car industry in reverse?

The automotive industry faces recession and decline. Driverless cars are on the horizon, but has the moment for motors already passed?

The first Model T Ford rolled off the production line in 1908. Available in “any colour… so long as it is black”, in the words of magnate Henry Ford, the car marked a breakthrough and became a symbol of America’s new middle class.

Throughout the 20th century, car ownership grew exponentially. In the early 50s, about 85 per cent of UK households didn’t have a car. By the early 90s, less than third didn’t, with the number decreasing only slowly since then.

Car ownership has reflected changing patterns of work, increasing affluence, and greater freedom for women. It still represents personal status, freedom and autonomy.

The latest Department for Transport data shows 3.1m vehicles were registered in the UK during 2017, a six per cent drop on the year before. By the end of the year, there was a total of 37.7 million registered UK vehicles, continuing an upwards trend that has shown little sign of stopping. Just over 80 per cent of those vehicles were cars.

Going into reverse

Looking at these stats alone, and more broadly at the global picture – in particular, the rapid expansion of the middle class in China and India – you’d be forgiven for feeling surprised that the automotive sector is having an uncomfortable ride.

But the last year has been an torrid one for car manufacturers. Ford and Jaguar Land Rover both announced thousands of jobs cuts last week, which are expected to land especially hard in the UK. Last year, the British car industry had its worst September since the financial crisis, with a sharp 20 per cent fall in sales.

In a report released by RBC Capital Markets last month, analysts predicted that the worldwide automotive industry is now poised for its first recession since the financial crisis.

At the centre of the sectors’ woes is China. In an industry exposed heavily to both consumer purchasing power and fluctuating commodity prices, car manufacturers have found Trump’s trade war to have destructive repercussions. Last Wednesday, figures showed car sales in China had dropped for the first time in 20 years – down six per cent to 22.7 million units last year.

With the current downturn coinciding with the rise of self-driving cars and tighter environmental controls, 2018 could prove to be the year things went into reverse permanently for the automotive industry.

Sneaking a peak

For years, analysts and academics have examined the concept of ‘peak car’ – the point at which the number of personal automobiles on Earth hits its highest point, and then begins heading back down. Some argue we reached that point years ago – since 2005, distance travelled per person has fallen by some six per cent, adjusting for population increases.

“We are reaching ‘peak car’ in many developed markets,” Bank of America said in a 2017 report. “Transportation is costly and inefficient, making the sector ripe for disruption.” In 2013, US technology academic Maurie Cohen told The Atlantic: “We’re probably closer to the end of the automobility era than we are to its beginning.”

There are various reasons why a decline might be expected: scarcity of materials could push up prices, while environmental and social factors could both drive a shift towards greater reliance on public transport.

Add to that mix younger people’s lessened interest in automobile ownership compared to previous generations, plus a trend in urban planning towards pedestrianisation, and it signals a potentially bumpy ride for the big car firms.

The road less travelled

The impact of self-driving cars is the other great unknowable, with auto giants and big tech firms rushing to get into the space. In 2017, KPMG researchers released a study based on mobile phone data, which mapped commuter travel patterns across three big cities in the US. It forecasted that ride services employing self-driving cars would land in densely-populated urban areas first, with people supplementing public transport usage by hailing driverless vehicles.

At such a point, road usage may actually get worse, as the barriers to accessing a car could fall sharply: from needing the vehicle itself, a licence, insurance, a parking space and everything else, to simply needing a phone and fare money. Last year, Uber chief executive Dara Khosrowshani told a Financial Times event: “The great goal is getting rid of car ownership.”

KPMG said such a switch would trigger a “precipitous decline” in demand for typical household cars, down to 2.1m sales a year from a then-figure of 5.4m by 2030, with families opting to hail a ride instead of driving for errands such as shopping, and keeping hold of larger vehicles for longer.

The services giant predicted that would leave just three or four companies producing small- and medium-sized families cars.

None of these factors alone suggest the car has run out of road. If electricity-powered vehicles can deliver on manufacturers’ promises (and if the necessary infrastructure is put in place), they will be cheaper, run for longer, cause less pollution and require less maintenance. That change – reducing the environmental stigma of the personal vehicle, and making them more financially accessible – could be enough to prompt a renaissance of the car. In addition, there are those who will seemingly always need a personal car: certain professionals and many of those living in rural areas are the clearest examples.

But the pressures will remain, and the malaise might be enough to push the car-manufacturing industry into a more rapid decline.

Either way, the current moment for the industry – caught between pressure to innovate and falling sales – feels like an inflection point, and if global economic doubts continue, the giants may find themselves needing to quickly switch lanes.