Forget everything you know. Particularly if you’re in the business of marketing or selling cars. The world as the car makers have known it for decades – the world of the forecourt dealer and the ‘I’m a Ford man’ loyalist, the world of regular servicing and 5-star safety ratings – is set to change beyond all recognition.
If you’re the boss of a large car company that is unnerving news. Because it’s the world on which their business models are based, marketing campaigns planned, production facilities structured and finance schemes funded that will change. Get it wrong and the fallout is going to be spectacular.
You can’t pinpoint any single factor driving that change. It’s a complex, 21st century whirlwind of demographic upheaval, disruptive technological advance, environmental urgency and economic imperative that is forcing some of the biggest brands the world has ever known to look inwards and question their own relevance.
When Ford’s new global chief executive Jim Hackett argues that ‘the Blue Oval’ has as much right to succeed in the future as any tech company, the unspoken reality is the possibility of Ford not succeeding. It reveals the level of change that is facing every car brand.
Today the threat to rival car brands doesn’t just come from within. It comes from Uber, Google and other industry renegades like Elon Musk at Tesla, whose electric car business has a larger stock market value than any of the giants in the original Motor City of Detroit, despite being a deeply loss-making enterprise. (Ford, for the record, recently fired its last chief executive on the back of a $10bn annual profit…)
And that is why everything is about to change. Ford’s decision to oust Mark Fields was a very public $10bn bet on the way we all travel in 2030. Their wager, like that of every car maker trying to gaze into the next decade, is that the next generation of car users is going to be very different from the one that buys their products now.
Here are just a few of the daunting demographic and social challenges facing the car brands over the next decade:
- A decline in the number of young adults with driving licenses.
- A decrease in personal car ownership across the age range.
- Increased urbanisation as millennials leave small towns for big cities.
- Improvements in public transport.
- The rise of car sharing and hail-a-ride services like Uber.
And the data is clear: the shift has already started. The number of UK adults below 25 holding driving licences has fallen over 6% in the last four years. Even more damning: 42% of people in a survey of Londoners who had given up their car said they had done so because they used Uber or similar taxi booking apps.
In America, the unrivalled home of the car, the number of non-car owning households rose last year by 0.2% - from 8.9% to 9.1%. You might sniff at what seems on paper a marginal increase but the facts are more stark than you might imagine: not only does a 0.2% increase represent 50,000 households, but the rise is the first time since 1960, when the US government began recording car ownership data, that the figure has ever risen. For nearly 60 years household car ownership in America rose. In 2015 it stopped.
Take each one of these factors in isolation and they represent a challenge to the marketers of automotive brands who still focus heavily on traditional measures of success – units sold (and the crucial margin on those units.)
But combine them and they become a minefield. Just how do you sell a car to a young urbanite who doesn’t hold a driving licence but, in their eyes, holds the next best thing: a smartphone with an Uber account?
The answer probably lies not in the way we view the customer but the product itself – and the way we commoditise it. For previous generations the car was the ultimate expression of freedom – the keys to independence – and, for the most part, to experience that independence you had to own one. With the advent of the smartphone that has changed. Teens no longer need to leave the home to see their friends. Connectivity has given them virtual highways to visit their peer groups. And even once they’ve left home, young urban millennials are much more likely to be saving for the rent or a mortgage than a deposit on a car.
So the question is, what role will cars play in their futures? It’s clear that for many, the ownership and user model will be very different. Autonomous cars, for example will be inherently shareable cars, dropping a customer at one location, then ferrying someone else to another, and so on. We will rent or share our ‘ownership’ in ways that are anathema to people whose car is their pride and joy. Car sharing, in its earliest guise, is happening right now, with trial schemes running in cities across the world.
DriveNow, a scheme backed by BMW and rental firm SIXT, is operating in 12 European cities. It allows 800,000 registered users to share a fleet of cars within the cities and pay for them by the minute. The cars can be picked up and dropped virtually anywhere, meaning users aren’t tied to the conventional need to return the car to their start point or prescribed parking areas.
James Taylor, DriveNow’s UK managing director, says the attitude and expectations of their customers is typical of a new generation of car users: “With the rise of smartphone-driven transportation services like DriveNow, the attitudinal shift of customers is marked. People who own cars tend to make most of their journeys in that car. They’ve paid for it, so they’re going to use it. But with car sharing that is no longer the case. People use our cars when they make journeys that need a car but at other times they will cycle, use public transport or walk. The next generation of users expect flexibility in transportation and car sharing gives them that.”
Schemes like DriveNow and Zipcar represent the tipping point for the automotive industry as it navigates its way towards electrified, autonomous and fully connected cars. The upsides to those new methods of mass transit are clear: who would argue against cars that can keep our cities clean, guide us out of trouble and entertain us at the same time? But the big question still remains: can the car companies of today convert themselves successfully into the tech companies of tomorrow and provide transportation solutions that don’t just keep us moving… but them in business?
Matthew Franey is cheif executive of Foxtrot Papa and guest editor of The Drum Network Automotive Special. To find out more or receive a copy of this special, please contact email@example.com.