Urbanization and the Automotive Market

Topic: Pearls of Wisdom

John C.A. Stevenson, CFA

March 14, 2014


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Urbanization and the Automotive Market

Many will have read about the concept of “Peak Oil”, which is the idea that the world’s ability to grow the daily production of oil has peaked and will steadily decline over the decades to come.

Bloomberg borrowed this concept in a recent article about “Peak Car”. Most people assume that the automobile market will continue to grow, or even accelerate, as the wealth in many emerging economies like China allows a growing segment of its population to afford such a luxury. A recent PriceWaterhouse survey, however, points out that half the world’s population today lives in an urban area, but this is likely to grow by 25% to 50% over the next decade. The result will be urban gridlock which means that fewer people will opt for cars and will seek other ways to get around. Public transit and car sharing are likely to represent a significantly larger share of urban transportation than it does today. In fact, the Bloomberg article points out that some underlying trends supporting this idea already are in place. In 1983, 87% of 19-year-olds in the U.S. had a drivers license. In 2010, the number had fallen to less than 70%. More kids live in cities and fewer have the need or the opportunity to drive around.

No one is predicting a precipitous decline in the demand for cars, but over the decades ahead, the forces of urbanization may eventually result in fewer cars rolling off the assembly line.

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