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What lies ahead for the auto industry in the new decade?

Accurately predicting things gets tricky with wildly shifting trends

Eco-friendly cars were ushered in by the previous decade. PHOTO FROM TOYOTA

The year 2019 and the decade of the 2010s are behind us. It doesn’t mean, though, that we should simply banish them to the annals of history. Surely, there is much to celebrate about that time, and yes, much to learn from it as we enter the year 2020 and beyond. In Toyota-speak, we like to say: “Know the way, lead the way.” The knowledge of the past lights the path to the future.

The last decade started with a bitter lesson that underscored a vulnerability of the auto industry. The Great Japan Earthquake and the floods of Thailand wrought immense tragedy among the people of the Tohoku region and greater Bangkok, respectively. They were two of the most unfortunate catastrophes that we hope we never have to witness or experience again.

In the car industry, these two tragic events revealed the soft belly of a complex and highly globalized industrial juggernaut. The facilities of automotive component suppliers that were located in the affected areas were literally washed away, and supply chains around the world were majorly disrupted. Auto manufacturing factories, near and far, had to shut down due to the lack of certain critical parts.

Industry experts in the auto sector and beyond realized just how fragile supply chains were and could be. In the name of economies of scale and logistics efficiency, parts production ended up being concentrated in too few factories, with no apparent and sustainable alternative sourcing channels in place. Business continuity seemed to have been paid more lip service than real attention and preparation.

As a postscript, though, I have to underline the real story amid all the loss and misery caused by the above-mentioned tragedies. These two events should be remembered for the indomitable spirit of man to triumph over disaster. It should honor the deep reserves of optimism, courage, collectivism, love and care of the people of Japan, Thailand and, yes, the world. We let hope and the goodness of man rise above the despair that ravaged businesses, communities and families.

The massive floods in Thailand disrupted operations in the auto industry. PHOTO BY PORNCHAI KITTIWONGSAKUL

“Spirit of Tohoku” and “Amazing Thailand” spurred recovery efforts that—with the help of people from all over the world—saw lives return to normal. Supplier factories came back online and auto manufacturing ramped up in impressively short time.

Following the tragic opening act of the 2010s, car sales grew at phenomenal rates through the mid-decade. This was evident all across the globe but more so in Asia. China, for example, sold only a total of 10 million cars and commercial vehicles in 2009. Ten years later, sales more than doubled to some 24 million—a growth of over one million cars a year.

In the ASEAN region, the market research firm Frost & Sullivan reported that auto sales were just above two million units in 2010, and estimated the figure to approach four million by the end of the decade. Again, a doubling of the number of vehicles sold.

And, of course, in the Philippines, vehicle sales outperformed growth in the region. From some 130,000 units in 2010, sales peaked at over 450,000 in 2017 before settling back to 410,000 last year.

Growth can always be a heady elixir. Periods of growth often beget more growth. As a sales-oriented person, I am predisposed to project eternally rising sales curves. Even when the market prospects dim, we fall back on increasing market shares to rationalize a rise in sales. In my almost four decades with the industry, I have learned that the Philippines is, if anything else, a cyclical market. It rises fast and it falls fast, but yes, if we take the average, car sales should continue to grow steadily over the long term. That is what we have to keep our focus on and not the short-term aberrations.

A case in point is the deceleration of Philippine auto sales following the spike in 2017. The following year saw sales drop significantly, and 2019 saw a temperate growth rather than the surge that had been predicted. I believe that this is a market correction that will be digested before too long. With the Philippine economy forecasted to grow at rates of over 6.5%, and interest rates remaining low through the midterm, it’s hard not to be optimistic about the prospects ahead, albeit guardedly.

It’s a new year and a new decade. What happens now? PHOTO FROM PIXABAY

So what lies ahead? Many say this will be a year of perfect vision, a pun on the 20/20 rating for eyesight. But it may not be as cut and dried as many think. We can expect continued volatility, uncertainty, complexity and ambiguity to blur the calendar year.

Volatility will result from rapidly shifting geopolitical conflicts. The North Korean situation, the supposed Chinese incursions in East Asia, the resurgence of Russia, the rising populism across the world and the sustained threats of insurgence and terrorism all foretell a tinderbox climate in terms of global politics.

Trade disputes and sociocultural upheavals will lead to uncertainty in the business environment and consumerism. Brexit and the US-China trade war are the mothers of all these disputes. Meanwhile, growing intolerance and ethnicism may reshape social behavior and lifestyles.

Complexity will grow from a rise in protectionist and nationalist safeguards vis-à-vis the broader framework of globalization. Businesses will need to navigate a murky sea of regulations that promote local production while balancing commitments to free trade.

The sea of change in technology and the rise of artificial intelligence, big data, social media and digital infrastructure will lead to ambiguity in governance, compliance and privacy. Regulation is not able to keep up with the pace of innovation, thus resulting in the accelerated obsolescence of laws and the lack of clarity about what is and is not legal, ethical or moral.

More and more people will inevitably turn to personal mobility devices just to get around. PHOTO FROM PIXABAY

I propose, therefore, that outlooks no longer be defined by the year that comes and goes. Periods of time—the continuum—become more relevant in terms of what we can expect to come. So here goes my feeble attempt to call what the future holds in the middle to long term.

One, 2020 will be the baseline for the shift of automakers into overdrive in their pursuit of alternative mobility solutions. Electrification will be the significant goal by the end of the decade. After all, this cannot happen overnight or even in a year. We will certainly see a surge in the availability of hybrid-electric, pure electric and fuel-cell derivatives. Interestingly, these new electric solutions will have been stripped of all the purported past notions that EVs are boring, offering driving experiences that are devoid of fun. Electric now equates with acceleration, power and spirited road-handling. And yes, sustainable motoring, too.

Two, personal mobility devices (PMDs) will grow in popularity as people decide to take back control of their time, their health and their life. This will create new pressures on government to provide thoroughfares for this new type of transporters—very much as a foundation rather than an afterthought—in their urban planning. Reimagining road design to include PMDs as a mainstream type of mobility will necessitate local and national government regulators to incubate regulation in step with this new trend. At the moment, regulators are hard-pressed to make heads or tails of how to enable and promote alternative mobility solutions beyond the traditional mass- or private-transport options. This, in turn, causes confusion and disruption of the very technology that is meant to disrupt the status quo toward a better quality of life.

Three, ride-sharing will escalate, but this will be more of a substitute for mass transport than a real shift to a shared society—at least in developing countries. This will not undermine car ownership but will complement it. In an emerging market like the Philippines, sharing will not reduce the appetite for cars. Instead, it will impact more on the types of vehicles people prefer to own, when they buy one, how they use it and, perhaps at some point, how they share it. Automakers will be confronted by a different set of filters and design dynamics to fit into the evolving lifestyle of millennials and the silver-haired generation. I seriously believe that, in spite of our current love affair with SUVs, the future is in multipurpose vehicles that will be designed from the inside out (as opposed to the traditional outside-in). Affordability will still drive purchase preferences in the Philippines and Asia more than social relevance.

Straightforward car ownership may play second fiddle to more empowered and robust access to mobility solutions that provide flexibility

Speaking of affordability, a fourth trend will be the growth in new financing (ownership) packages that take away the sting and the complexity of traditional financing. Leasing, for example, may finally grow in popularity in developing markets. Full-service leases may be a more sustainable solution to the growing cry for reduced—or practically zero—upfront acquisition costs. Subscription packages may also address the need for cars-on-demand to fit diverse lifestyles. Straightforward ownership may play second fiddle to more empowered and robust access to mobility solutions that provide much more flexibility than rigidity.

Finally, I believe that the purchase-and-ownership experience will change significantly. A simple and more transparent experience will surface—one that allows consumers to be in charge of how they acquire and own vehicles. The current environment is too complex, and there are so many hidden charges. The traditional salesperson will become more of a product specialist that helps you choose the right car instead of the right purchase package. Electrification will simplify maintenance needs, and so service shops will transform into “software upgrade” centers and accident repair hubs. Servicing will be planned and running costs reduced. Dealers will become more of lifestyle destinations than mere showrooms. At the heart of it all will be the explosion in connectivity, big data and digital infrastructure.

Car sales in 2020? I think it will remain cautiously optimistic in the Philippines, but it will surely grow sustainably through the new decade. Car financing will continue to be a driver of sales, but there will have to be a more disciplined approach to wanton credit approvals. Motorcycle sales will rise, and that is a very positive indication of the emergence of sustainable motorization. Used cars will start to become more organized with quality, transparency and consumer protection as key enablers. And, finally, consumer savvy will grow as Filipinos are exposed to a broader selection of models.

That’s as far as I can see. Nothing explosive or transformational, the triggers for which were pulled in the last decade. The 2020s will be a matter of who does right by the consumer in the face of rapid and fundamental changes in the way people consume and live their lives.

Vince S. Socco

Vince is the chairman of GT Capital Auto and Mobility Holdings, a post he accepted after his retirement from Toyota Motor Asia-Pacific. His career began in 1979 with Delta Motor Corporation (Toyota). He mentors everyone—in real life and through his ‘Navigator’ column.