20/03/2019 - 15:26

Inflection point for transport

20/03/2019 - 15:26

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OPINION: Emissions concerns are one factor driving change in the car industry, but the transport habits of a changing demographic are also in play.

Inflection point for transport
From pollution to gridlocked cities and road deaths, the pitfalls of cars are clear.

The car is not dead, but there is a growing body of evidence to demonstrate that a sea change is rolling though the vehicle industry.

And while the shift to electric power is the most obvious variation there is something even more significant – fewer young people are driving.

Of all the factors influencing the car business, including falling worldwide sales and plunging vehicle-dealer profits, the most important is the decline of people in the US under the age of 24 who are bothering to get a driver’s licence (and what happens over there inevitably happens here).

Management consultancy McKinsey & Company noted the slide in licences in a major study into the vehicle industry titled ‘Mobility’s second great inflection point’.

The theme of the analysis is that the vehicle business is in the early stages of a shift that will prove as profound as the move from horse-drawn transport to petrol power in the early years of the 20th century.

Replacing horses with cars changed the world in many ways, most good (less manure on the streets) but some bad, including a dramatic increase in atmospheric pollution, gridlocked cities that slow economic growth, and an estimated 1 million people killed each year on the world’s roads.

Much of the negative side of cars is known, although the million dead each year is probably the statistic that should ring alarm bells simply because it equates to 2,739 every day (or 114 every hour).

Autonomous (self-driving) vehicles could be part of the long-term solution to lowering the death toll, but the most immediate disruption to the car business is the impact of ride-sharing services such as Uber.

In cities and towns around the world, people are discovering that owning a car is an expensive indulgence when you can call for one when you need it.

In a section of its mobility report titled ‘Social Forces’, McKinsey said while owning a car remained a powerful status symbol there were signs that millennials might be more open to different models of car use than ownership.

The report also said millennials were less likely to place a premium on travelling for face-to-face meetings as opposed to interacting online.

“The past eight years have witnessed a decline in the percentage of Americans with a driver’s licence across every age group,” McKinsey said.

The biggest decline can be seen in those aged 16 to 19 where an 11.8 per cent drop has been recorded, while there has been a 6 per cent fall among those aged 20 to 24.

“As well, new car purchases have been falling for every demographic of American consumers, except for those aged over 70,” McKinsey said.

The McKinsey report dovetails neatly with two other items of evidence that the car industry is changing.

The first is a study of worldwide vehicle sales last year by investment bank Macquarie. It found that total new car sales fell by 0.4 per cent last year, the first decline since the 2008 GFC.

The 2018 decline could also be attributed to tougher times as China and the US waged a trade war, with that event probably flowing into the December quarter when global car sales dropped by a remarkable 5.8 per cent.

The second example of car trouble can be measured in the financial performance of Western Australia’s biggest vehicle dealer, Automotive Holdings Group, which has suffered a sharp decline in profits caused by tough trade conditions and changes to the laws governing finance and insurance.

What’s happened to Automotive Holdings is a reflection of the changing nature of the car market noted by McKinsey, including the way the internet has become a significant force in vehicle sales with “two-in-five customers willing to switch car brands for better (internet) connectivity features”.

Growing numbers of autonomous vehicles, which use basically the same technology seen in WA’s iron ore mines, mean car makers will move closer to technology developers.

The big issue for cars, and the many industries that rely on cars – from companies selling them to those that service and repair them – are the changing social factors, which include fewer young people getting licences to drive and more cities banning cars from their centre.

McKinsey said what’s happening now, the second transport inflection point, will be much like the first when horses were replaced by cars, with similar benefits such as lower costs, greater convenience, a superior consumer experience.
As to how quickly will it happen; the horse-to-car switch took about 20 years (from 1900 to 1920) while the current shift, or second inflection point, might also take 20 years, or less.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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