By Mark Richards.
All my life there have been three fundamental facts about cars. Now all of them are under threat, and the changes they will bring will threaten the car industry as we know it. Yes, it will affect the UK – but it will affect Germany far more. We take a look at what could happen – and what it might mean for all of us…
For a teenage boy, it was an essential rite of passage. You finally made it to 17. You started learning to drive, you passed your test, worked through the summer holidays and then the day you had waited all those years for arrived…
You bought your first car.
Mine was a green Mini. NFK 711D. Just under £200 if I remember rightly.
…And, like all my generation, I gradually moved up through the car ranks. A better car when I started working, then something sporty, which gave way to the Volkswagen Sensible when the children arrived and then – as they got bigger – some vast people carrier.
They have left home now and I would like to go back to a sports car. Except that now I have a bad back and would not be able to climb out of one…
Three basic facts
Those were the inescapable facts of owning a car, and for all of my life there have been three other very basic facts about the car industry:
- Cars were driven by people
- People owned cars – and aspired to own cars
- And the cars were powered by the internal combustion engine.
But suddenly, all that is changing. Driverless cars have moved from science fiction to simple fact. My children have all learned to drive – but I am almost certain that my grandchildren will not need to.
That dream of owning your first car? The step up from a Ford to an Audi, and the confirmation you were moving up the company ladder? Last year, half a billion people around the world used a ride-hailing app, pushing the value of companies like Uber and Chinese firm DiDi to over $50bn.
And now – as we have written previously – the internal combustion engine is giving way to the electric car, and quite possibly to the hydrogen cell.
But it is not going to end there.
So much for Spring. This week it is going to be ‘unsettled’ (to put it kindly) and when I walked into work the wind was straight from Siberia. So let me take you to California…
If California were a country it would have the 5th largest economy in the world: we are not talking about an insignificant sample here. But so far in California 56 companies have obtained a permit to conduct tests on autonomous vehicles – more simply, self-driving cars.
Of those 56 companies, 71% are ‘tech native’ companies – from Google and Apple that you have heard of, to companies like Drive.ai, Zoox and Pony.ai that you probably have not. (If you only click one link this morning, click the Zoox link: it gave me the best feel yet for the ‘brain’ of a self-driving car…)
Add those developments to the fact that governments around the world are ever more concerned about emission targets, road safety and subsidies for electric vehicles. Factor in people continuing to embrace a pay-per-use and sharing economy – and it is inevitable that car ownership will start to fall.
The traditional car industry is under attack
Clearly, the traditional car industry is under attack, much as the traditional banking sector is under attack from the challenger banks and fintech. You might argue that the car industry is making a better fist of fighting back than the banks – the luxury car brands, for example, have a powerful hold on their customers, at least for now. And the big car makers have been busy with mergers, acquisitions and partnerships.
But in the long term, the continued success of the traditional car industry will depend on its ability to attract the talented software engineers that would otherwise join Google, Amazon and Apple – and on its ability to fight off competition from the Far East and from companies like Drive and Zoox.
Supposing the traditional car industry loses the battle? We have already seen Honda and Nissan move production away from the UK as they concentrate their efforts on the Far East, but the UK will be far from the worst affected country.
Vorsprung not very technic
The German economy has been the engine driving Europe, but it only narrowly averted a technical recession in the last quarter. According to Bloomberg, the German auto industry employs 835,000 people: it accounts for 20% of the country’s exports. Suddenly the three fundamental changes outlined above put the industry – and Germany’s seemingly inevitable balance of payments surplus – under threat as never before.
The changes that are happening in the car industry pose a real threat to Germany. Since 2007 the revenue generated by the country’s car industry has more or less doubled: it now easily outstrips sectors like retail, utilities and transport in importance to the German economy.
Geographically the big car companies are spread across Germany: VW is in Wolfsburg, 140 miles of Berlin, BMW and Audi are all over Bavaria, Daimler and Porsche are in Stuttgart, while Ford employs 17,500 people in Cologne.
We are talking of Swindon being devastated if the Honda factory closes with the loss of 3,500 jobs: there are predictions that 70,000 German jobs will disappear over the next ten years in engine and transmission production alone. The consequences for the German economy – and by extension, the wider European economy – do not bear thinking about.
The pace of change
Very clearly, what happens in Germany will mirror what happens in other countries, including the UK. When he was Chancellor George Osborne was fond of saying how the UK could never be immune to what happened in the wider world. Equally clearly, it cannot be immune to changes in consumer behaviour and the technology that drives those changes. What is happening in the car industry will happen in countless other industries – very possibly including yours and mine.