The Industry
The automobile industry is a fast-changing one that is full of significant competition. Namely, the industry has a wide range of different types of companies from all over the planet. It has faced some push back and resistance as people have learned about both the cost of ownership of vehicles and the impact of these vehicles on the planet at large. Roughly 80 million vehicles are sold and bought each year. The two countries that both make the most cars and purchase the most cars are the United States and China. China is a relatively recent entrant into this market, as the country is seeing a middle class period of growth, where more people are able to afford cars and also demand them.
Around seven million cars are purchased each year within the United States. The number of total cars sold has been rising over the last few years, as well. It has been going up at a rate of around five-percent each year, with emerging markets accounting for most of that growth. This trend line is coming at the same time that more and more cities and states are considering forms of public transportation in order to stunt the problems associated with climate change. There are several key individual players who make up this market. In the United States, the big, legacy producers Ford and General Motors make up around 32% of the market between them, with Toyota importing cars to gain a 14% piece of the market share. Globally, the biggest player is Volkswagen. The company owns several brands and is known for making luxury cars that are made to last.
The market has been trending toward a greener approach over the last few years. Scrutiny has been put on the industry in part because of an understanding of how cars can impact the environment. With this in mind, new companies have emerged, such as Tesla, for the sole purpose of making electric cars. Existing companies have also attempted to build out new models to keep up with demand. The demand for these vehicles has been uneven. Around the world, around 1.3 percent of new car sales have had plug-ins. This has been different in countries like Norway, which boasts a rate of around 40% of new car sales being electric, leading the world. However, projects suggest that in the next decade, the number of electric cars will grow from 3 million to 125 million, as people figure out that their footprint is causing problems for the world at large.
The Problems
There are many potential problems that one might want to tackle in order to understand this industry better and to help companies within this industry overcome the issues. However, as mentioned prior, this particular industry is having to deal with a brave new world on the topic of climate change. This is not just a problem in its own right, but the growth of information on the topic presents another issue. People are starting to come around to the idea that cars are bad for the planet in their current form, and while there is not yet contempt for the car companies, there is some upcoming issue about the utilization of vehicles. Beyond that, this is now an issue of government concern. The United Nations released a report recently which suggested that the planet has roughly ten years to figure out a solution for climate change or the world is going to plunge into deep issues. For instance, they noted that climate change is becoming such an issue that if there is no fix, people are going to be to migrate from the countries near the Equator, which will no longer be livable, up to countries where there are livable conditions. The social consequences are enormous, so countries are banding together to try to figure out a solution to these problems. This is evidenced by the reality of the Paris Accords, which constitute an agreement among nations to do something to bring down emissions.
What this has led to is a growth in the number of public transit options that countries have rolled out. In some ways, this is interesting because of the combination of public and private entities involved in trying to produce new alternatives to cars. Many cities in the United States have improved their bus and rail systems in hopes that people will use these rather than driving (Kamga & Yazici 148). In viewing the trend lines on the overall utilization rates of public transit in the US, one can see a small decline of a few percent overall from 2014 to 2017 (Lehman 1). However, this belies that overall rising trend lines for the last few decades, as people have become more trustful of public transit, seeing the efficacy of riding on the train or taking the bus. Perhaps most problematic for the automotive industry is that in cities where public transit tends to be innovative, growth in these options has been great. New York City, for instance, has seen a 20 percent growth in its rate of public transit usage. The tendency to use public transit more presents a threat to the automobile industry for multiple reasons. Mostly, as the adoption levels of public transit rise, the collective costs go down. A train that can hold 100 people is not efficient if there are only 25 riders. When there are 75 riders, the shared costs go down among all riders. This means that the public transit options are much better able to compete on price as the rates of utilization go up.
While the reports suggest that public transit is down recently in most major cities in America, one must know that this does not necessarily mean that people are using their vehicles or are purchasing vehicles at higher rates. This is because the decline in public transit use in these cities has coincided with the rise of Uber and Lyft, among other options (Greenblatt & Shaheen 74). People are, it seems, not opting to buy cars, but rather, to use ride-sharing, which is currently quite affordable in light of the venture capital money that is being poured into these projects. People who have become reliant on ride sharing have no need for a vehicle because they have one on demand at any time. This can be a long-term problem for the vehicle companies because it means that Lyft and Uber, among others, are working on the technology to ensure that all people have an option in lieu of a car. While people riding in these app-based options are still in a car, this is not particularly helpful because they are not buying a car if they can get cheap rides without having to put up with all of the hassles associated with car ownership, including parking and maintenance. While ride sharing is not per se a public transit option, the fact that it is allowed and also subsidized makes it function much like a public transit option, adding more competition and making it much harder for the car companies to sell their vehicles at competitive prices. It produces price and margin competition that presents a long-term threat, when looked at it conjunction with other factors especially. This creates long-term difficulty for companies that are looking to succeed by getting people back into buying cars, and it may stunt some of the growth from foreign markets that exist.
Solutions and Recommendations
There are several potential solutions to this issue for the automobile industry. One of the options is to begin working seriously on creating more efficient vehicles both in terms of fuel and in terms of cost. When people are taking public transit, what they are demonstrating is two important choices. First, they are demonstrating a desire to save the environment by using an option that is perceived to be much friendlier. This means that if the auto industry wants to remain competitive, it has to match this goal by ensuring that its own options are friendly in this regard. On top of that, it means that people are willing to exchange some comfort for a lower cost. Riding on the subway in a major city is not always a pleasant experience. People are often subjected to bad weather, to rude fellow riders, to the potential of crime, and much worse. This creates a significant difficulty for them, but they will do it because they save money over the cost of car ownership. This should suggest to car companies that they need to offer options to people that both meet the gas efficiency goals of society and meet the goals of people who are trying to save money. While car companies have been spending their time trying to come up with very expensive fuel-efficient cars that can heal the environment, this may not be the right track. If people are showing that they would rather save money by sacrificing some of their convenience, which is also shown when they choose to ride with a stranger in an often dirty Uber vehicle, it shows that perhaps they are not as worried about the tricks and convenience measures as people might think. One of the solutions then is to create options that meet both of these goals, while marketing hard to people to show them that buying these new cheap, fuel-efficient vehicles is a way they can signal to others that they are both responsible and frugal.
The recommendation for the auto industry here is to shift its focus, finding ways to bring more fuel-efficient, cost-efficient cars to people rather than focusing on the many tricks and tools that might have existed prior. Gone are the days, it seems, where people are willing to pay an obscene amount of money for vehicles that have all of the bells and whistles. The economy is such that many people cannot afford this any longer, so they are cutting the fat in ways that make sense. What the car companies have to do for consumers is to message to them around the idea of identity. Does a person want to be a new innovator with a car that both saves money and saves the environment? Do they want to be a part of the solution while being able to provide more for their family while also ensuring that they are not pumping more emissions into the environment? The car that they will receive is much more than a car. It is about their identity as consumers who are responsible during a time when so many people are not. If the car companies can match up the product with the messaging in this regard, then they could have long-term success in meeting the needs of consumers. This is a big, structural problem, so there is no easy solution, but this focus on product and branding together may be the best chance that the auto industry has at survival.
- Greenblatt, Jeffery B., and Susan Shaheen. “Automated vehicles, on-demand mobility, and environmental impacts.” Current sustainable/renewable energy reports 2.3 (2015): 74-81.
- Kamga, Camille, and M. Anil Yazici. “Achieving environmental sustainability beyond technological improvements: Potential role of high-speed rail in the United States of America.” Transportation Research Part D: Transport and Environment31 (2014): 148-164.
- Lehmann, Kurt R. Understanding the Effects of Demographic and Socio-Economic Factors on Public Transit Ridership Trends. Diss. University of South Florida, 2018.
