Despite some contemporary discussion, the U.S. car industry hasn’t reached its peak yet, but it’s not too far out from doing so either.
I am pleased to host another student guest post, this time by Patrick Goodney. This is the 12th student guest post this semester. You can see all the student guest posts from my “Monetary and Financial Theory” class at this link. This is the second student guest post by Patrick. His first was “The Fed Should Raise Its Target Rate Before the End of 2015.” I was impressed with how judicious both that post and this one are.
Has the traditional car industry already reached its peak? In July, futurist Thomas Frey argued the U.S. had indeed already reached “peak car”—writing that vehicle ownership, driving and sales are all growing at slower and slower rates.
Frey says the turning point for the car industry was a major shift in American lifestyles spurred by “the perfect storm” of “economic collapse, digital revolution, and major shifts in urban lifestyles.” Ride-sharing startups like Uber and Lyft, as well as the emergence of electric cars and the promise of driverless cars are all leading a shift in consumer’s preferences—and Frey says this is represented in data by the deceleration of auto sales and of driving. Frey says America is already at “peak car,” at that the rest of the world is only a few years away. But are these projections reasonable?
Mark Mills argued in The Wall Street Journal in early October that Frey’s prediction is miscalculated (in a piece aptly titled “We’re a Long Way From ‘Peak Car’”). Mills says of Frey’s theory: “The idea may seem plausible given recent history: tepid new-car sales, fewer miles driven per capita and shrinking gasoline use. In reality, it’s poppycock: The car habits of young adults ages 18–33 simply reflected a lack of jobs and money.”
Mills says millennials are moving to the suburbs, and indeed, are “the fastest growing class of car buyers.” As well, Mills points to the fact that sales of electric cars are down one fifth to help illustrate the uncertain promise of future vehicles. Whereas Frey sees car ownership in the future as “relegated to the hobbyist, luxury market, much like owning airplanes or horses today,” Mills does not see the individual need for car ownership ever fading. Driverless cars will see as much demand as human-driven cars, he says, writing “whether a human or an algorithm is driving, it’s still a car.” He sees the expanded appeal of driverless cars among traditionally excluded groups like the elderly and young as evidence that the industry will continue to grow with technology, not retract.
I, somewhat boringly, view the future of the car industry as a blend of both projections: we are not quite yet at peak car, but we are very much on our way.
I think it very premature for Frey to declare the car industry as peaked; although it is facing competition in the future from the proliferation of ride-sharing and autonomous cars, the technology and its adoption is still too far out for us to already be trending down.
Frey is arguing that we are at peak car because the rate at which car ownership is growing is decreasing; this is not to say that car ownership is decreasing yet. Until we’ve reached that point, I’ll remain skeptical to the claim that the car is fading. Lower rates of ownership growth can be due to many things besides shifts to alternative transportation, anyways (lower birth rates among them).
As far as ride-sharing businesses like Uber and Lyft go, they still have a ways to go before disrupting the car industry. The businesses are young so far. It’s naïve to think many people are swapping car ownership or planned car ownership for ride-sharing at this point in time. If you live in a market where Uber is available and popular, you may think that Uber is more successful than it is. But, you can only use Uber in just over 300 cities worldwide so far (in 64 countries). So, ride-sharing is nowhere near a ubiquitous part of American life yet. There’s no coverage for most of the US. Ride-sharing’s market is very niche, but should continue to grow with time, if legal hurdles do not prove too overwhelming. (Lawmakers are consistently looking to put snags in ride-sharing’s rise.)
Perhaps the most credible threat for disrupting the auto industry is electric self-driving cars. According to a piece in The Economist, “An OECD study modelling the use of self-driving cars in Lisbon found that shared “taxibots” could reduce the number of cars needed by 80-90%… one extra car in a car-sharing service typically takes 9–13 cars off the road.” The huge reduction in the number of cars on the road promised by autonomous vehicles will surely be the undoing of the modern car industry. But still, the technology (and the road to legality) is quite a bit away from 2015.
I feel Frey’s views that driverless technology and ride-sharing will reduce the need for car ownership in the future is spot-on; however, his timeframe seems a little off. he new technologies are too far out yet to say cars have peaked today. Ride-sharing and the distant promise of driverless technology is not affecting today’s demand for cars in any meaningful way—Mills is wise in blaming the temporary decline to millennials’ lack of access to jobs and money. When future technology actually catches up with consumer demand, we will finally have reached “peak car.” I would say that we’re still at least five years out yet.
Ride-sharing’s impact will only snowball over the next five years. I imagine ride-sharing programs will be available in many, many more cities by 2020 and perhaps there will be ideas we haven’t seen yet born from the tech industry for transportation. Self-driving cars have a lot of promise for slowing down the consumption of cars and are increasingly attracting investment, so I see no reason not to think people will start believing in them as a viable alternative to traditional driving in around five years. Companies such as Apple are shooting for 2019 for releasing self-driving electric cars, according to The Wall Street Journal, so seeing car-buying trends change in around 2020 seems like a reasonable prediction. Between ride-sharing and autonomous cars, the traditional auto industry is bound to slow down in the next five to ten years.