OEMs should focus on building alliances with city authorities if they want to unlock the full commercial potential of mobility services. Management consultancy McKinsey & Company believes that the future of mobility will be shaped largely by cities’ needs, desires and ability to change the local transportation landscape.
However, cities will not be able to act unaided; new mobility services will be developed in partnership with commercial providers. According to Eric Hannon, a partner at the firm, many city authorities do not know how to work with OEMs, but equally carmakers struggle to find the best way to collaborate with city governments. Focusing on building effective partnerships will be critical to future success. And this requires a deep understanding of the factors shaping the mobility strategies of individual cities.
Research by McKinsey has isolated three alternative mobility scenarios and the factors that will shape the future of mobility at a local level and determine which route a city will take. McKinsey labels these three paths as: Clean and Shared; Private Autonomy; and Seamless Mobility.
McKinsey sees the Clean and Shared option as most relevant to cities within rapidly growing emerging economies like India and Mexico. They may lack the infrastructure needed for a widespread roll-out of autonomous cars, or the funds necessary to create that infrastructure; instead they will focus on promoting electric vehicles, shared car use and expanding public transport.
Wealthier cities could embrace Private Autonomy, adopting self-driving cars and the traffic management technology needed to implement demand-driven congestion charging and live route planning to optimise traffic flows around the city. Seamless mobility will provide citizens with door-to-door, on-demand travel around cities using a combination of private, shared and public transport. As a result, it represents the most radical departure from the status quo and is only likely to take off in the most densely populated, high-income cities such as Chicago, Hong Kong, London, and Singapore.
The first factor which dictates a city’s mobility strategy relates to its demographic characteristics. Urban areas with a high population density and significant traffic congestion have a much greater need to introduce new mobility solutions. Most OEMs have a sense of which cities fall into this category; there is also a wealth of demographic data to help identify the most affected cities.
TomTom International uses data collected via its navigation systems to assess traffic congestion in almost 400 cities worldwide. Its latest TomTom Traffic Index reveals that Bucharest is the most congested city in Europe and the fifth most congested worldwide. Journeys across the Romanian capital take on average 50% longer than they would in a free-flowing traffic situation – equivalent to an extra 57 minutes’ travelling time per day. In the morning and evening peak travel times, journeys can take twice as long as at other points of the day.
Table 1: Most congested cities in Europe in 2016 *
*Based on the extra time taken to complete a journey compared with a free-flowing traffic situation
Source: TomTom Traffic Index 2017
The way cities address mobility challenges is shaped, according to McKinsey’s Hannon, by their motivation to act. Some cities are motivated purely by tackling congestion levels or reducing pollution and improving air quality; other cities want to position themselves as ‘smart cities’ that are vibrant and attractive places in which to live. If the focus is purely on reducing air pollution, then the city authorities are as likely to rely on urban access regulation, such as banning older, more polluting vehicles. Those with a longer term vision have tended to opt for more positive initiatives relating to promoting shared car use and the creation of an integrated transport network.
The final part concerns a city’s ability to make changes. Hannon commented that sprawling metropolitan areas might have quite a fragmented structure, with responsibility for transport issues shared among a number of district councils. For example, in London, the allocation of parking spaces for shared vehicles is managed separately by each of the 32 boroughs; this has restricted Bolloré’s ability to set up a London-wide car-sharing network. Many cities in Asia elect a new city authority every couple of years. If a city changes its elected officials regularly, then it is less likely to embark on major infrastructure projects that need investment over the long term.
Hannon predicted continued growth in automotive revenues over the next 15 years. However, the bulk of the growth would come from new mobility services, which would account for $1.5tn (€1.4tn) of the industry’s $6.7tn revenues by 2030. The aftermarket looks set to shrink; electric vehicles are anticipated to be cheaper to maintain, while increasing adoption of advanced driver assistance systems (ADAS) will help to reduce collisions and, with it, repair costs.
Annual growth from new car sales is anticipated to be in the region of 2% over the next 15 years. Global sales volumes would be broadly flat, with slightly stronger volume growth in emerging economies and decline in other markets. Revenue growth would be the result of inflation and price rises.
While this may seem a gloomy prognosis for the industry, Hannon disagreed. Many industry commentators have suggested that shared mobility will lead to fewer new car sales. Under the McKinsey scenario, there would be fewer cars on the road, but the volume of sales would be sustained with shared cars needing to be replaced on a much more frequent basis.
This assertion has also been borne out by analysis conducted by Autovista Intelligence for its Mobility Intelligence report.
Research in the UK by Carplus reveals that 45-55% of individuals do not own a car at the point they join a car-sharing scheme; after becoming a member, an additional 20-25% feel that they can do without a car. Individuals living in London are less likely to own a car before membership and more likely to give up their car after joining a car-sharing scheme. Typically, new car sales represent around 8% of the total UK car parc. So while 20-25% said that they had decided not to buy a car because they were now a member of a car-sharing scheme, only 8% of this group would actually have been likely to purchase a new car. As a result, the industry is likely to miss out on sales of around 29,000 cars.
However, London is currently targeting growth in the number of car-sharing members from 186,000 in 2016 to 1 million by 2025. At the same time, city authorities are looking to increase vehicle utilisation from the current 70 members per car to 100; that would mean the 2016 car-sharing fleet of 2,800 vehicles would need to swell to around 10,000 cars for there be sufficient vehicles for the anticipated number of members.
Autovista Intelligence calculated how many new vehicles would be needed for car sharing, based on the anticipated growth in the size of the fleet and replacing existing vehicles every two years. This results in the sale of at least 36,650 new vehicles over the next 10 years to meet the growing requirements of the car-sharing industry in London. Used more intensively, then shared cars may have to be replaced annually, resulting in even higher sales volumes.
Given this, the increased need for new cars to go into the shared sector is likely to vastly outweigh any losses from consumers choosing to share rather than own a car.
Table 2: Impact of the rise in car sharing on new vehicle sales in London
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