PART 1: Have we reached "Peak car"?
Millennials and centennials are leading the shift in consumer preferences for ride access over buying a car. This is disrupting the business models of OEMs and rental car companies and potentially having a long-term effect on sales growth.
In 1950, 29% of the world lived in cities. By the time 2000 rolled around, urban living had reached a 50/50 split, and the percentage of city dwellers is expected to rise from 55% today to 70% in 20501. City governments are guiding residents to public transport, startups are linking travel options together, and millennials simply don’t want to own a car. This poses a big problem for car brands, and it’s keeping the auto industry up at night.
The Shift from Ownership to Access
Consumers are reconsidering their approach to cars and even to getting a license. In London, usage of private cars dropped from 47% to 36% of trips over the past 15 years, and accounts for just 3% of trips in Central London2. In America, the share of 20-24-year-olds with a driving license fell from 92% to 77% between 1983 and 20143. For many, owning a car in the city doesn’t make sense. For the typical urbanite, it’s 24% cheaper to use mobility services rather than purchasing a new car.4 For millennials and centennials with flagging wages, that extra money is especially attractive. And for anyone who’s tried to move at rush hour or park on the street, the time tradeoff and improved convenience over private car ownership is huge.
Carsharing and ridehailing apps aren’t just a spontaneous alternative, they provide a gateway to leaving ownership behind. The annual Carplus UK survey shows that new members of carsharing apps increase use of public and sustainable transport by 7% and reduce their use of private car use by 10%. An Ipsos/Reuters survey in the US shows that 9% of consumers who sold their car are now exclusively dependent on ridehailing services as the alternative to car ownership, and another 9% are using a mix of mobility services (including cycling and mass transit). As this trend ripples across developing markets, the impact on vehicle sales will be significant. This isn’t a moment in time; it’s a modal shift away from private car ownership.
Mobility on Demand
In this age of Mobility on Demand, consumers are relying on their apps to hail a ride rather than purchasing a car. So, have we reached peak car? Not quite. But expect lagging sales growth over the next decade if this trend continues. We project the light vehicle market to grow from 1.03 billion in 2015 to 1.6 billion in 20325, but because of mobility services and urbanization, we’re expecting half-a-billion cars will never make it off the lot.
Share of Vehicles in Mobility Services
We forecast 130 million vehicles being used in mobility services by 2030, representing 8% of the global vehicles parc — the total number of vehicles on the road — and up from 2% in 2016, with 49 million of these in the ridehailing and carsharing sector6. Those numbers might not seem staggering, but consider this: One carsharing vehicle can remove up to 25 privately owned vehicles from the road, and one ridehailing vehicle can reduce up to ten.
When comparing to the base case 2030 forecast car sales, this would imply a reduction to the projected vehicle parc by up to 27%. Our analysis would imply that, due to the foregone growth of 158 million - 436 million vehicles, the parc would be constrained to between 1.16 billion - 1.44 billion vehicles vs. the projected 1.6 billion in 2030.7
Seeing the Road Ahead
While we haven’t reached peak car quite yet, mobility as a service, the world’s urbanization and the ramping up of civic transportation development are a threat to car industry growth.
Car companies aren’t stuck in neutral. They're investing heavily in mobility services like ridehailing, carpooling, peer-to-peer rentals as well as in autonomous vehicles. The future of the car industry is in technology, recurring revenue, and building a new information superhighway. People still travel and will always need to travel.
The question now is, how can original equipment manufacturers (OEMs) capture revenue from each mile a driver moves?
There are almost 11 trillion miles driven per year globally. As car companies begin to provide cars as a service rather than an asset and new revenue streams in data monetization expand, the addressable market could be worth between $450-$750 billion by 20308.
In this series, we examine how OEMs, rental car companies, cities, and tech providers are responding to a shifting model of consumer transportation, introducing the Future of Mobility and mobility as a service.
Stay tuned for the next article in this series. "Need a Ride(Share)?"
1.Source: UN, 2016; 2.Source: Transport for London, 2016; 3.Source: University of Michigan Transportation Research Institute, 2016; 4.Source: Urban mobility at a tipping point, McKinsey & Company, 2015; 5.Source: LMC, 2017; 6.Source: BofAML Research, 2017; 7.Source: BofAML Research, 2017; 8.Source: Monetizing car data, McKinsey & Company, 2015