Fuels & Lubes International - 2014 Quarter 3 - page 17

17
FUELS & LUBES INTERNATIONAL
Quarter Three 2014
Overall, the outlook
for the global consumer market
is bullish despite The Millennial
Cliff, which portends a decline
in spending until 2023 due to
fewer consumers.
McKinsey Global Institute,
the research arm of McKinsey &
Co., the global consulting firm,
projects that one billion more
individuals will enter the global
consumer class across the world
by 2025, creating USD30 tril-
lion in spending. Of these one
billion consumers, about 600
million will live in 440 cities,
according to the “Urban World:
Cities and the Rise of the Global
Consumer Class,” a publication
from McKinsey. The average in-
come for a member of the global
consumer class, as defined by
McKinsey, is USD3,600 a year.
That will not be nearly
enough to ward off the ad-
verse effects of demographics,
urbanisation, societal shifts and
increasing environmental con-
cerns from The Millennial Cliff
bringing both a structural and
cultural red light to accelerating
auto sales.
The demographics of The
Millennial Cliff will result in
fewer car buyers in the nations
where the most consumers can
afford motor vehicles, such as
Japan, the United States and
those in the European Com-
munity. For emerging market
countries, such as India and
China, cultural and politi-
cal factors will hamper motor
vehicles sales at the lower end,
along with basic economics.
India is the home market for the
cheapest car in the world, the
Tato Nano. With a sticker price
of USD3,000+, the Tato Nano
costs about a year’s income for
the average consumer as defined
by McKinsey. But the Tato Nano
has flopped in India as few want
the stigma of owning what is
not only widely recognized as
the cheapest, but pretty much
regarded as the worst car in the
world, too. In China, Beijing is
focusing more attention on the
environment, which is result-
ing in fewer permits for motor
vehicles in its booming cities.
Neither China nor India has the
domestic credit industry to fi-
nance car purchases to increase
sales.
Although there will be more
consumers, there will not be
enough with disposable income
to purchase motor vehicles to
replace the lost market share in
the more affluent nations as a
Although long-range forecasting is notori-
ously inaccurate for any sector, it is impos-
sible to ignore what could have been the
prevailing sales trends for the global auto-
motive industry that are so positive now
reversing within the next decade. U.S.
auto sales were up in April. These coun-
tervailing factors, however, emanate from
“The Millennial Cliff” and are based on de-
mographics, urbanisation, societal shifts
and environmental concerns; all could
hobble sales by themselves; combined,
the damage to the automotive industry
could be crippling.
result of the demographics of
The Millennial Cliff.
Urbanisation is the most
powerful economic force in the
global economy that is defining
much of the populace of The
Millennial Cliff in a very nega-
tive mode for the automotive
industry. That will only increase
in the decades ahead: the most
recent program announced by
the People’s Republic of China
aims to move 100 million more
from the countryside to cities
across the mainland. When
more move into cities, there is
less of a reliance on automobiles
and trucks as public transporta-
tion has a dominant role.
As an example, the city-
state of Singapore is one of
the wealthiest countries in the
world, ranking third in per cap-
ita income by the International
Monetary Fund. It ranks 90th in
motor vehicles per capita right
behind the Republic of Macedo-
nia, which ranks 88th. Cities are
also hostile to motor vehicles: In
China, Tianjin has reduced the
number of new car registrations
by two-thirds, from 300,000 last
year to 100,000 for 2014. What
citizens pay in public transpor-
tation provides much-needed
revenues to urban locales with-
out having to raise taxes that
irritate constituents.
With more consumers living
in cities in the future, fewer
consumers will have the need to
own their own motor vehicles.
As part of The Millennial
Cliff, there has also been a soci-
etal shift towards what has been
called the “shared economy.”
Speaking at the “Invest for Kids”
conference in Chicago last Octo-
ber, billionaire investor Sam Zell
noted that more were choosing
to live in cities. Those that pre-
ferred urban living favor renting
rather than the responsibilities
and expenses of ownership,
he remarked. That certainly
explains the growth of compa-
nies such as Netflix, which rents
movies, and ZipCars, which
leases motor vehicles for periods
of time as short as an hour. For
those living in a city, there is no
bigger burden than owning a
car as there is parking, insur-
ance, tickets and other hassles to
endure.
Renting a motor vehicle
is the best way for consumers
to benefit from urbanisation,
which will further lessen the
demand for cars and trucks.
A significant factor contrib-
uting to the changes coming
from The Millennial Cliff that
will harm the automotive in-
dustry is an increasing concern
for the environment. This is par-
ticularly true for China, which is
the world’s largest auto market.
Environmental awareness is
a huge part of living in cities,
which host the strongest move-
ments: Greenpeace was founded
in Vancouver; Hong Kong is the
home of Greenpeace East Asia.
Local governments in China are
increasingly limiting car regis-
trations to reduce pollution, too.
The logistics of urban living
favor environmental awareness.
It is easiest to recycle, use com-
munity facilities such as a public
laundry, implement alternative
energy systems that serve the
masses and live without owning
a motor vehicle in a major city.
High gasoline taxes to deter
driving to spare the environ-
ment and finance transportation
needs do not bother those living
in a city for the simple reason
that few own motor vehicles.
Concern about The Millen-
nial Cliff and its impact on sales
is not just theoretical role playing
for the corporate planning
departments of the automotive
industry.
The percentage of new car
sales to those in the 18 to 34 age
group has significantly dropped
in recent years. Motor vehicles
do not represent a sense of
freedom and an extension of the
personality for members of that
critical demographic as it did
in the past, particularly in the
United States. Mobile devices
such as tablets and smart phones
with social media platforms like
Facebook and Instagram can
create identities, relationships
and a sense of self without hav-
ing to renew registration, pay for
insurance, find a legal parking
spot or worry about damage to
the ozone from carbon emis-
sions. Moreover, the crushing
debt of student loans in the U.S.
1...,7,8,9,10,11,12,13,14,15,16 18,19,20,21,22,23,24,25,26,27,...48
Powered by FlippingBook