August 1, 2017
Have you ever been to a dog park? If so, it is usually easy to spot the dominant, confident dogs strutting their stuff and the yippy, high energy pups nipping at their heels. Well, not to be disrespectful, but we can apply this scene (to an extent) to understand the global transportation market.
First, we need to understand who the alpha dogs in the market might be. To do that, we need to understand market share.
Second, we need to recognize the noisy ones who seek to make up for their smaller stature with vigor and energy.
Finally, we need to really understand what might transpire down the road and how the dog market might evolve in the future.
Let’s set the stage. We live in a global market. The auto industry would like to implement a global vehicle architecture through which it can improve the efficiency of its operations to supply various markets throughout the world. Petroleum products, both crude oil and refined products, are shipped among continents to ensure supply matches demand. Regulations are increasingly being developed in a cross-border, collaborative fashion. And governments are always looking at each other to coopt ideas about how to guide their economies.
The independent actions of individual government entities (sometimes nations, sometimes cities) can disrupt the flow of the market, just like a skirmish among terriers can rattle the dog park; but, these types of governmental actions often serve as distractions from what is really driving the market.
For example, recent announcements by France and Britain to eliminate petroleum-only vehicles in 2040 have made people take notice – but are they likely to have a huge impact?
First, keep in mind that both countries have left themselves a safety net by exempting traditional hybrid vehicles from these bans (these vehicles are powered by petroleum and supported by an on-board rechargeable battery). Second, France and Britain do not oversee markets that most would consider significant in size – they bark a lot, but they are not the dominant forces at the dog park.
To put this in perspective, let’s compare them to the big (sometimes angry) dog at the park – the U.S. When it comes to comparing their markets with the U.S., there simply is no comparison and it would be foolish to think the U.S. could follow in their footsteps.
But if France and Britain are joined in their foray by the rest of Europe, things may look different.
When trying to understand where the most influence resides, let’s take a look at global market share. The Asia-Pacific is far and away the largest market for light duty vehicles, more than North America and Europe combined. Yet, unified government actions would be required to dramatically influence the direction of the market. Imagine a Siberian Husky teaming up with a Chinese Chow Chow, a Japanese Akita and a Tibetan Mastiff– watch out, they could do some serious rearranging at the park. But what are the chances of them coming together like that?
In the second largest market, North America, the U.S. represents 83% of total vehicles sales. For all intents and purposes, as goes the U.S. so goes North America (in fact Canada adopts the fuel efficiency regulations of the U.S. by reference).
The third largest market, Europe, would similarly require combined efforts like Asia to have any chance of wielding the market influence of the United States.
But before U.S.-centric Americans start to beat their chest, the future may not be quite so red white and blue. When considering population growth projections and long-term market potential, it is not within North America or Europe that the auto industry will find its greatest growth opportunities, nor will it likely be in Asia – it will largely occur on the continent of Africa. The global population is projected to grow by more than 2 billion people by 2050, and Africa is expected to house more than 1.2 billion of those new residents of Earth. Numbers are not as easily found for the vehicle market there, but according to WardsAuto, in 2016 South Africa (the largest market) sold 547,000 light duty vehicles. Clearly, there is room to grow.
In the short term, however, I think there are great opportunities for the market in Latin America. It does not represent a significant share of the world’s projected population growth, but it is currently underserved. This is a market that boasts 20% of the world’s oil reserves but produces only 11% of its supply. The vehicle market currently counts one vehicle per five people – the U.S. is close to a one-to-one ratio. And the potential for economic growth in general, assuming political turmoil can be stabilized, is significant.
Overall, it is important to understand what regions compromise the most influence and how that balance might change in the future. If we are not paying careful attention to the balance of influence, we can be whipsawed around by various announcements and initiatives. That said, if the governments of key regions start to come together and harmonize their approaches, the tables can turn quite quickly.
The Transportation Energy Institute this fall will publish an assessment of global efforts to influence the market, ranging from the multi-national level all the way down to the individual cities. And this fall, we are teaming up with NACS and Conexxus to explore further the potential direction of the markets in Latin American with the first ever NACS Fuels Summit Latin America, November 7-8, in Buenos Aires.
This is a global world and it is time we all look at it as such – and we plan to provide some dependable, objective analysis to help with the transition. The dog park will evolve and the dominant pups are likely to change in the long term. It is important to stay vigilant as we monitor progress – we will help. Stay tuned!