Drive a car in any major city of the world, and you’ll be forgiven your evil thoughts. And you’ll wonder how it could be possible that the number of motor cars on the world’s roads could double in the next ten years. But that’s no stretch of the imagination. If you simply extrapolate current trends, that figure should not be too far away from reality.
In my home country, South Africa – a nation of about 20 million adults who are old enough (or young enough) to drive – there have been about 650,000 new car sales a year for the past few years. Half of those are in my home city, Johannesburg – or, to put it simply: a thousand new cars a day on Joburg’s streets, every day for the past 3 years! This demand for cars is a global trend. Yet, Ford managed to rack up the biggest corporate loss in history in the past few weeks.
A great article in the Resilience Report of Booz Allen Hamilton (15 Feb 2007) highlights the three trends driving this car boom – trends that anyone in any emerging market country can see easily: (1) increasing numbers of middle class consumers; (2) an expanding lower end auto market – i.e. a demand for cheaper entry level cars; and (3) increasing pressures on the auto industry, to produce better, cheaper cars.
The report rightly identifies environmental concerns as a huge factor going forward. I’d like to suggest that they missed one further trend: the legacy staffing costs currently being carried by American car manufacturers. Its estimated that Ford and GM both have about $ 1,000 costs per car for pensions and legacy staff costs. They can “easily” shed these debts by declaring bankruptcy. This would be a tragedy for the pensioners, but possibly the only way out of the huge hole American car manufacturers find themselves. The US government has long subsidised and protected US car manufacturers – now the chickens are coming home to roost, and global competition is forcing them to deal with reality.
For the car industry, it truly is “the best of times, and the worst of times”.
One Billion new cars in the next ten years
