It’s odd watching two conflicting dynamics at work. As an outsider, I follow the slow roll-over of global oil output: peak oil. As an insider, I’m watching a totally oil-dependent industry react to the symptoms of peak oil with no clear idea of what they mean or how soon they will call time on their entire business.
The peak oil dynamic is easily observable if you know where to look. Oil is walking a tightrope between being too expensive for most consumers, in which case consumption falls and with it prices, or being priced below the level that producers – especially frackers – require to break even. That’s a vicious spiral of prices hitting a ceiling, volumes falling and investors pulling the plug on exploration and development. Net result: less motoring.
The auto industry dynamic is at once harder to describe and less easy to discern. Today I got to listen to a smart and well-informed insider talking about a whole bundle of strategies being adopted by car makers, dealers, fleet suppliers and fleets themselves in order to cope with ‘the way the market is going’. Every one of those strategies amounted to concentrating their activities on an ever-shrinking pool of solvent customers. Floundering on the muddy shore of that pool are the stranded former ‘consumers of motoring’ who find themselves priced out of the once-dominant segment of society that regards owning and driving a car as a natural part of the human condition.
Predicting where all this will go -and more importantly how quickly – is a mug’s game. You’d have to have a really good handle on..
- international relations (to understand how long the UK will hold in to its relatively privileged status among resource consumers);
- domestic politics (to guess at how long the national elites will continue to favour the auto/highways complex and the older generation who’re not thinking of giving up their access to it), and
- the antics of central banks, who will ultimately determine how long this dead horse can be flogged.
My guess is three years. That is, the position that the current players get themselves into in three years’ time will determine whether or not they get to play a part in what happens over the ensuing 10 years. It’s a game of musical chairs, with seats for less than half the current crop of players (well, perhaps three quarters of manufacturers, half of leasing companies and one in 10 dealers).
The winners will be drawn from among those who realise over the next couple of years that they’re in the game. Right now, I’d say at least 70% of the players haven’t begun to understand their predicament yet.