Originally published in Automotive News
By Daron Gifford
If you believe some experts, the auto industry as we know it is about to drive off a cliff.
Self-driving vehicles and ride-sharing services are going to upend the idea of traditional vehicle ownership, they say, leading to fewer people owning cars, which will result in a massive drop in overall vehicle sales.
They’re right on the first point. They couldn’t be more wrong on the second.
These bleak, not-so-distant future predictions for automakers and parts makers come courtesy of experts who mostly work on Wall Street or in Silicon Valley.
Their arguments are buttressed, they believe, every time a major automaker announces plant closures and layoffs as a result of a planned pivot toward these new technologies — investments made with no real timetable for a payoff.
And people whose job it is to sell cars are in for an even ruder awakening, or so this line of thinking goes. The number of car dealerships would crater in this scenario, dropping, some predict, by as much as 50 percent by 2025.
Very different future
Many of these things are true: The future of the auto industry is electric, self-driving and highly dependent on ride-sharing. And automakers, suppliers and dealers should be — and already are — preparing for a very different future from what they’ve grown accustomed to over the last half-century. The same goes for consumers.
But proponents of this argument lose me when they say this will all result in a dramatic drop in new-vehicle sales.
Consumer trends may change, who’s doing the buying may change, but we will need cars in the future. A lot of them.
In other words, rumors of the auto industry’s impending demise have been greatly exaggerated. In fact, they’re flat-out wrong. Here’s why: This view of the auto industry has largely been driven by investment analysts who are missing one key point.
They predict the number of vehicles in operation will plummet as shared autonomous vehicles grab more market share, which likely will happen between 2025 and 2037.
On this, again, they’re not wrong. As more people begin using autonomous ride services, and as the vehicles become more efficient, it would follow that the number of vehicles in operation would decrease.
But they shouldn’t be counting vehicles — they should be counting miles.
Imagine how long the average vehicle is used today. You drive to work, you drive to school, you drive to the grocery store. Most cars spend more time sitting in a parking lot or at home in a garage than they do on the road.
That won’t be the case with shared autonomous vehicles. Those vehicles will likely spend as much as 10 hours a day on the road covering up to 100,000 miles a year, as opposed to the standard 10,000 that most families put on their vehicles every year.
This is what will become the key driver for how many vehicles will be manufactured and sold each year. Regardless of who is buying them, tomorrow’s vehicles are going to wear out in a shorter period than we’re used to, which means they’ll have to be replaced sooner and more often.
A new vehicle that travels 100,000 miles a year will wear out in two, three or maybe four years.
That contrasts with an average vehicle life span of about 15 years today.
A lot of smart people who analyze the auto industry, and even some who work in the industry, have promoted the narrative of an approaching sales cliff.
Instead, they should be thrilled. After years of watching the life cycle of vehicles increase, we’re about to see it cut to an almost unfathomable level.
Soon, all new vehicles will be manufactured, purchased and run to end-of-life within four years.
And those new cars will be replaced by even more new cars, because there won’t be much of a secondary market — after all, how many people are willing to buy a car with 300,000 miles on it?
Changes are afoot for the auto industry, all right. Someday soon, though, more experts will start to realize those changes are for the better, not the worse.
Daron Gifford is the automotive industry consulting leader at accounting firm and consultancy Plante Moran in Detroit.