Nature and Biodiversity

Will China’s love affair with the car fade?

John Moavenzadeh
Head of Mobility Industries and System Initiative, Member of the Executive Committee, World Economic Forum LLC
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A curious thing is happening in the United States. For the first time in its history, people are driving less.

According to the US Department of Transportation, vehicle miles travelled – an indicator of travel levels per capita on the roadway system by motor vehicles – dropped to 9,400 miles in 2013 from 10,100 in 2004. This nine year decline, however, is not due to rising gasoline prices or a tight economy, but a result of two main factors: ageing and urbanization.

Urbanization and ageing are having a significant impact on the automotive mobility because urban and older customers have different mobility preferences. In developed markets, urban customers drive less and are less likely to own a vehicle. Older customers may be less interested in performance and more interested in convenience and access. Tomorrow’s older customers are today’s younger customers, and we also see some interesting changes in consumer preferences among the younger generation, particularly those in their teens and twenties in many countries around the world.

In the US, there is evidence that younger customers are less interested in owning a vehicle than their parents were. Some younger consumers are just as content to connect with their friends virtually via social media as their parents were physically via the car. Indeed, younger Americans are less likely to get a driver’s license. A 2011 University of Michigan study showed that the proportion of younger people who have a driver’s license – particularly those in their twenties – significantly declined between 1983 and 2008.

In China, the trend seems to be the opposite, where auto sales are on the rise thanks to a burgeoning middle class with more disposable income and where owning a car remains an important status symbol. But I wonder how long that will last? Will China’s love affair with the car start to stumble like America’s has? The leaders of the Chinese automotive industry are wise to watch the developed markets closely, as it may provide foreshadowing to China’s own automotive future.

Globally, the automotive industry will change because the automobile and the system in which it operates will change. This transformation of automotive mobility is driven primarily by forces external to the automotive industry – technology, demographics, shifting customer behaviour and preferences. But it is also driven by a fundamental reality: the current model of automotive mobility is simply not sustainable for the planet. We need look no further than in China, where severe air pollution crises and relentless traffic congestion have become a daily part of life.

In 2011, Bill Ford – executive chairman of the Ford Motor Company and great-grandson of Henry Ford – warned against the impact of “global gridlock”. Congestion matters because it stifles the economic lifeblood of cities, and cities are the economic lifeblood of nations. When cities are congested, the pool of labour talent available for a job in a given location is decreased, which decreases economic competitiveness.

For many years, CEOs and industry leaders have talked about car companies transforming from being manufacturers of vehicles to providers of mobility services. Now it seems that transformation is really starting to happen as the automobile is increasingly using an array of advanced technology: software, smart sensors, advanced vehicle-to-vehicle and vehicle-to-infrastructure communications, advanced materials, and energy storage. None of these technologies are the traditional strengths of vehicle manufacturers and their suppliers.

Technology is playing a transformative role in every industry – and the automotive industry will be no exception. Self-driving vehicles have the potential to be a real game changer for personal mobility – particularly when combined with car sharing, electric vehicles, advanced materials and other innovations.

My sense is that we will see a shift from an automotive industry to an automotive ecosystem. The clearly defined boundaries between the automobile industry – suppliers, vehicle manufacturers and dealers – and everyone else – energy companies, infrastructure providers, governments at all levels – will become increasingly blurred.

And out of this haziness, we will see more partnerships within the industry and partnerships between automotive and non-automotive companies. It’s no coincidence that companies like Qualcomm, Huawei, Panasonic and IBM are increasingly interested in the automotive sector and investing in building automotive business units designed to deliver solutions – not to sell parts.

The real question for the leaders of the global automotive industry is the following: Do you want to shape your future or do you want to have it shaped for you?

Author: John Moavenzadeh is Head of Mobility Industries at the World Economic Forum USA.

Image: Vehicles stop at a red light in downtown Shanghai January 10, 2011. REUTERS/Carlos Barria

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