The DECLINE of the AUTOMOBILE Industry? – VisualPolitik EN

For more than 100 years the automotive sector
has been one of the most important industries in the world. For decades it has meant strength,
wealth and industrial power. Companies like General Motors, Volkswagen
or Toyota were largely responsible for spreading the tentacles of the great industrial powers
around the world. Folks, we are talking about amazing numbers: Every year, nearly 100 million vehicles are
sold worldwide; This industry employs tens of millions of
workers. This is just in the United States and Europe,
and to more than 20 million people. And every year, these companies invest about
100 billion dollars in R&D. It may be hard to believe, but companies like
Volkswagen, Daimler or Toyota invest in Research and Development almost as much as some of
the best-known companies in Silicon Valley. Check this out. In fact, with more than 15 billion dollars,
the German group Volkswagen is none other than the third company in the world that allocates
the most resources each year to investment and development. It stands just behind Amazon
and Alphabet. However, folks, just a second, because the
automotive industry isn’t going through its best moments… At least where popularity
is concerned. In the last 2 years many questions have arisen,
so many that, recently, it has led to the main question: Are we seeing the decline of
the automobile industry as we know it today? Could this sector’s good years be over? But… Now, do you want to know exactly what
we’re talking about? Listen up. (GIANTS WITH MUD FEET?) Lately, car manufacturers are criticized constantly. There’s constant talk of the electric car,
the autonomous car, car sharing, trend changes, changes in habits among the youngest or, simply,
a world of megacities where cars would supposedly become obsolete – At least private cars. All this is fueling the Peak Car concept,
according to which the automotive industry would be on the verge of reaching its historical
sales maximum, if it hasn’t already reached it. This means that from now on, or at least shortly,
we’d see fewer cars being sold each year. Not more cars, fewer cars. “When you put all these trends together,
you’re going to see a cap on personal vehicle ownership start to emerge. “We are near
peak car.” Mike Ramsey, an automotive consultant with researcher Gartner Inc.) As if this weren’t enough, governments and
the growing social conscience are exerting increasing pressure so that manufacturers
produce more environmentally-respectful cars. And this is all very good, but it presents
a slight inconvenience for producers: Developing an entire technology and adapting
all processes to it costs a fortune. Volkswagen said it will spend 44 billion euros
on electric cars, digitalization, autonomous driving and new mobility services by 2023.
REUTERS) German automakers will spend $45 billion on
electric vehicles over the next three years. Business Insider) But, we could of course think… Sure, so
what? In the end they’ll still be rich from car sales. And that’s precisely where the Peak Car
concept comes into play. Allow me to explain: if costs grow as a result
of the new technologies that cars have to incorporate and of all the investments that
companies have to make – for example in R & D or to adapt their production methods
– and then, sales drop… Well… it would soon lead to the collapse
of these companies’ margin or profit. Higher costs and lower income. Not to mention the risk that some will fail
in the transition and get kicked out of the market. In other words, we could say, folks, that
car manufacturers are facing a kind of perfect storm. A reflection of what all these concerns involve
can be found in the automobile companies’ stocks; that is, in the price of their shares. In general, these companies are quoted at
a price/earnings per share ratio that is much lower than the market average. Of course, given the circumstances many professional
investors won’t hesitate to consider them as value traps: They look like cheap stocks, yes, but as their
margins and profits are going to drop, well… They really aren’t. Now, at this point, before continuing, there’s
a question we need to ask ourselves… Why or how was the Peak Car concept reached? Listen up. (AN INDUSTRY IN DECLINE?) Friends, the Peak Car concept rose from an
idea: technological changes, trends and the world’s
increasing urbanization are going to lead to fewer care sales. See, one the one hand, our planet is increasingly
becoming a world of cities, especially megacities. The percentage of the world population that
lives in cities won’t stop growing. In 2050, 70% of the entire world population is expected
to live in urban areas And, logically, in these spaces, a car can
sometimes be more of a nuisance than a solution. Traffic, pollution… Many large cities have
begun to restrict the use of vehicles in urban centers. For example, in Shanghai, Shenzhen or Beijing,
license plates for cars with combustion engines are auctioned. That is, there is an annual
limit of new enrollments and if you want to get one you have to really dig into your pocket…
If you can or it’s worth it. Then, this process is reinforced even more
due to the growing environmental concerns that exist in society, that have led to new
car sharing formulas and an extension of services such as UBER or LYFT. That way, following the reasoning of the Peak
Car defenders, if the average time of use of the vehicles grows, fewer vehicles will
be needed, and if hiring a car can be comfortably done at any time with your mobile phone, well…
you won’t be as encouraged to buy one. Why spend money on a car that will spend most
of its time in a garage? And let’s not even talk about when autonomous
cars arrive. The result? Among other things, there will
be fewer cars sales. And not only that. Meanwhile, as the costs for motor companies
increase, and predictably so does the competition as new Chinese brands and who knows if companies
like Google or Microsoft delve fully into the business… the prospects for the industry’s
giants aren’t precisely good. Folks, these are the reasons why the big car
companies aren’t in style (in the stock market). However, lets pause for a moment before condemning
the entire industry to hell. Let’s ask ourselves a question, what if things
weren’t so bad? Can we find signs to think that the golden
years of the powerful automobile industry haven’t ended yet? Well, folks, we can. Listen up. (WHAT IS TO COME) China moved from the bicycle to the car in
just 20 years. Until 1994 the typical images of the country included streets crowded with
bicycles. To give you an idea, in 1985 there were fewer
cars throughout China than in London city. And to top it all, almost all those cars were
from the government. Less than 3% of the country’s passenger cars were privately owned. However, from 1994 everything changed. In
just 15 years, China surpassed even the United States as the world’s largest automobile market. Do you know how many cars are currently sold
in China each year? No less than 28 million cars, 11 million more than in the United States. To give you an idea of ​​what this entails,
General Motors itself, one of the great icons of the American industry, today sells more
cars in China than in the United States. The evolution, folks, was spectacular and
there was a reason: the enormous growth of the Chinese middle class, of which we already
talked about here in VisualPolitik. However, despite all this growth, the rate
of cars in China is still very low. It’s 5 times smaller than in the United States. In other words, there’s still a lot of room
to grow. But okay, you may be thinking, but Simon…
Now, with the changes we’ve seen, the Chinese won’t need as many cars. And, also, in many of its cities they’re
just annoying. Well yes… and no. We tend to forget it but the Chinese middle
class and the families’ purchasing power continues to grow strongly…. And even though
the percentage may be somewhat lower than in the past, families still want to have their
own car. And if they have money, then they could get
an AUDI, a BMW, a Mercedes… something typical. Folks, it’d be a good idea to take a look
at Japan’s experience. See, Japan has one of the largest urban populations
on the planet. 94% of Japanese live in urban areas and the
country also has the world’s most populated city, Tokyo, with 38 million people living
in its metropolitan area. Well, despite this, the aging population and
having public transport systems that range among the best in the world, the rate of vehicles
per capita is not only 4 times higher than in China but new cars sales remain stable. In other words, if we talk about probabilities,
I think we can expect the Chinese market to continue to rise for quite some time. But, the good news doesn’t end here folks. In the United States, sales are at record
levels, even if vehicles’ average age has risen to a stunning and record-breaking number
of 12 years. That is, if we consider that the US economy
has full employment, wages are growing and the way of life hasn’t changed – the cities
haven’t changed – it doesn’t seem probable that sales will fall permanently. Don’t
you think? Because together, China and the United States,
with nearly 50 million cars sold each year, account for more than 50% of world sales. “Right now, everyone still hopes to sell
more cars. I haven’t come across a single company that forecasts a decline,” Philipp
Kampshoff, a McKinsey partner who specializes in transportation.) But that’s not all. The big manufacturers
could still receive some great news: INDIA. A country with more than 1.3 billion inhabitants,
that even though had lagged behind China, is now beginning to wake up… The Indian government is building more than
20,000 km of new roads in a country where the vehicle rate is very low. Little by little, that is beginning to change.
In 2018 vehicle sales in India grew by almost 9% to 3,270,000 vehicles, overtaking the United
Kingdom as the fifth largest market in the world. By the way, the company that sells the most
cars in India is Japanese. Suzuki controls almost 50% of the Indian market. However, folks, that’s nothing. Just to reach China’s vehicles rate, India
would have to sell more than 100 million cars. And the strange thing wouldn’t be to think
that it will happen, but that it won’t. Due to status, freedom or comfort, families,
when they can afford it, want to have their own car. Just 20 years ago, we would’ve never thought
that China would sell more than 28 million cars a year. Of course, behind India there are also Vietnam,
Indonesia and many African countries. So, saying that fewer cars will be sold…
at least I think it’s fair to say that it isn’t that clear that it will happen. And regarding carpooling services, at the
moment the data tells us that what they do is increase the number of kilometers traveled,
not decrease them. That is, they make people use cars more as
a means of transport. Yes, UBER’s cars, or those from different Car Sharing platforms,
move for more time, yes, but they also cover more kilometers, so their average life is
lower than that of private vehicles. In addition, car companies themselves have
delved strongly into the car sharing-market in cities. They see a potentially huge business,
a new source of income. Daimler and BMW Plan $1.1 Billion Uber Battle.
Daimler and BMW are pouring more than 1 billion euros into their joint car-sharing and ride-hailing
businesses to take on the likes of Uber Technologies Inc. and Lyft Inc.The German venture is estimated
to become the world’s largest car-sharing operator. Bloomber) But okay, at this point, you may have some
concerns, but Simon, what will happen to the environment? Is all this sustainable? Well, sorry, but the question shouldn’t
be whether it’s sustainable or not, but how we’re going to achieve sustainability:
either with more efficient engines, the hydrogen engine or with the electric car. For example, along this line, in just 5 or
6 years the Chinese government wants more than 6 million electric cars to be sold in
the country each year. Cars that, by the way, aren’t subject to limitations in large cities. That explains news like this: “Tesla Plant Key to Musk’s Future Ambitions
Takes Shape in China. Three months after groundbreaking, Tesla Inc. is rushing to complete
its multibillion-dollar factory on the outskirts of Shanghai to capitalize on growing demand
in the world’s largest electric-car market”. Bloomberg) Anyway, folks, now you see. The automobile
market will change a lot in the coming years, but… Thinking that car sales will fall year
after year? Only time will tell, but beyond conjunctural,
short-term situations, it isn’t clear whether the automotive industry’s best times are
behind them. So I really hope you enjoyed this video, please
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