Experts Ponder Future of Auto Makers’ Business Model

For decades the automobile’s presence in the developed world has expanded steadily. But several industry observers and insiders contend those countries may have reached a plateau known as “peak car.”

This concept argues that the number of people in the West who will ever buy a car has reached the saturation point.

Since car ownership became ubiquitous in the developed world during the 1950s, every subsequent generation has added to the volume of cars on the road. Now that that first generation is either well into their 80s or no longer with us, they are merely being supplanted by the latest teenage generation.

In addition, the increasing trend toward living in cities means fewer people need to own a car, or drive as much as they would if they lived in a rural area.

The concept of peak car first was raised by David Metz of University College London, who served from 1992-1997 as chief scientist at the U.K.’s Department for Transport.

According to the U.S. Department of Transportation, until the early 2000s the country saw 50 consecutive years of 2%-4% growth in vehicle miles traveled (VMT). But this dropped 1.2% in 2011 vs. prior-year and is down by more than 8% since 2005.

Wade Newton, a spokesman for the U.S. Alliance of Automobile Manufacturers, says American auto makers “had yet to reach a consensus” on whether they are being affected by peak car.

“Auto sales depend on so many things that are out of our control – the housing market, joblessness and what people see in the future – what they think about their personal economic prospects.

“For years the VMT figure was going up, but now there are reports that the number of vehicle-license holders is dropping. People have so many ways to connect online now that maybe you don’t need to drive a car as much as you did.”

Many auto makers are unaware of the peak-car concept or choose to ignore it, says Louise Wallis, head of business development for the U.K.’s Retail Motor Industry Federation.

 “China and India are still growing at quite a lick, so they are not particularly focused on realigning production,” she says. “But this is something they are going to have to address at some point. They are not as aware of peak car as they ought to be.”

However, Wallis does have sympathy for the predicament posed by the concept. “Manufacturers are constrained,” she says. “They are faced with the prospect that they have to close down (plants), but that becomes very politicized.”

A fundamental reassessment of the role of the car is needed, according to Peter Cooke, professor of automotive management at the University of Buckingham in the U.K.

“Up until now, the car has been the be-all and end-all, but that is changing,” he says. “Some cars spend up to 75% of their time immobile, depreciating. We need to think about how we can utilize them better.”

Some of the implications may be uncomfortable, Cooke says. “This is a business problem for the dyed-in-the-wool manufacturer. Why do we need so many company cars? The need for face-to-face meetings is reducing.

“I see railway and car providers increasingly getting together and moving towards integrated transport systems.”

Such scenarios, which Cooke describes as a “total mobility package,” might involve an inter-city journey made by train rather than car, with the business traveler then picking up a hire car for the short journey to their destination.

Some auto makers are facing the peak-car concept head-on.

“From our perspective, peak car makes a lot of sense,” says Nik Pearson, U.K. media manager for Toyota. “But it depends what lens you look at it through. Car manufacturing is going through the roof in the BRIC countries (Brazil, Russia, India, China). The main battleground now is Russia, China (and) Brazil.”

The re-thinking called for by Cooke is taking place, at least at Toyota, Pearson says: “What is the business model in developed nations – is it outright purchase, or is it things like city car shares? Are they the way to fix a broken business model? Instead of pumping money into selling cars, why not sell a fleet of city cars?

“We do have a backdrop of austerity, but there’s still the wider question: Does the car really suit the way we all live our lives anymore?”

Toyota’s research and development arm has employees dedicated to “inter-model mobility,” linking cars to public transportation, and ways in which vehicle design and structure can change to fit into such a model. Developments in this context include i-REAL, the auto maker’s personal-mobility scooter that can go either on roads or sidewalks.

The trend toward living in cities also calls for revised strategies for auto design and markets, Wallis says. “People who live in cities and want to drive will be looking for smaller fun cars – the Mini and the Fiat 500 are ideal. They won’t want large oversized cars.”

Cooke sees further factory closures and declines in production as inevitable. “But the role of the motoring manufacturer is to make a profit, not to make cars. I see the industry trimming back, (but) manufacturers will make a profit on smaller volumes. They’ll have to focus on profit and value-added rather than units sold.”