Commentary / Japan

Winds of change sweep auto industry

by Takamitsu Sawa

Earlier this month, Toyota Motor Corp. announced the launch of a new service to lease its luxury Lexus cars at a set rate. According to the Feb. 6 edition of the Nikkei financial newspaper, the service will be launched in Tokyo and then expanded to other parts of the country starting this summer. Customers will pay a fixed monthly fee of ¥194,400 for a three-year lease and can change the car every six months, choosing from among six Lexus vehicles, including an SUV.

The monthly fee will cover both taxes and insurance costs. The automaker will target customers who want to drive different types of cars at a relatively low cost. Although such fixed-cost services are already popular in the distribution of music and videos, Toyota’s new program will become a touchstone for the automobile industry, the article said.

Toyota has thus entered into a subscription business as it tries to cope with the shrinking domestic auto market. Its website carries a message from President Akio Toyoda, who states: “I am determined to transform Toyota from a car-making company into a mobility company. This means that Toyota will provide all kinds of services related to transportation to people around the world.”

The automobile industry is said to be undergoing a major transformation on a once-in-a-century scale. It was in 1908 when Ford Motor Co.’s mass production of its Model T made cars affordable to ordinary Americans, so what the industry is experiencing now is the first major transformation since the history of automobiles began. And the changes are taking place on both the supply and demand sides.

The most conspicuous change on the demand side is the loss of interest among many young people in owning cars. This is in stark contrast with Japan’s bubble-boom period from the late 1980s to the early 1990s, when the rush of young people to own cars represented “conspicuous consumption” as a symbol of a “gilded age,” as expounded by American economist Thorstein Veblen in his 1899 book, “The Theory of the Leisure Class.” For the young consumers of those years, who still lived in small houses, it was worth spending large sums of money to buy cars, which provided them with luxurious living rooms that could move.

A second change is the shift in consumers’ priority from ownership to use. As society and the economy mature, automobiles, which were a symbol of the 20th century, have lost their meaning as a status symbol and have become just a means of mobility. Transportation network service companies like Uber Technologies, founded in the United States in 2009, and Didi Chuxing Technology Co., established in China in 2012, are achieving rapid growth.

Traditionally there were two purposes for owning a car: conspicuous consumption and having a means of mobility that was always available. However, automobiles have now lost the status of conspicuous consumption and therefore the purpose for owning them is limited to the mobility they offer.

Car owners can enjoy this mobility at any time as long as they have access to their vehicles. But they can’t when they don’t. Today, however, a smartphone app for transportation network services enables anybody to reap the benefit of mobility wherever and whenever it is needed. It is often far more convenient, therefore, to rely on apps than to own a car. The transportation service offered by Uber is especially beneficial when one travels abroad since it is offered in more than 600 cities in 70 countries around the world.

The acronym CASE was coined from the following four words: connected, autonomous, sharing and electric. Dieter Zetsche, chairman of the management board of Daimler AG, first used it in announcing the German automaker’s medium- to long-term strategies at the 2016 Paris Motor Show.

CASE summarizes changes on the supply side; that is, the way automobiles are manufactured. A connected car, capable of functioning as a terminal for information and communications technology, can obtain data on vehicle and road conditions through its sensors — information that is indispensable for self-driving vehicles. Technologies for self-driving cars are being developed through collaboration between software companies like Google and automakers. Fully autonomous automobiles are expected to be on the road as early as the 2030s.

Car-sharing, an arrangement in which automobiles are shared by multiple consumers, is also gaining popularity and reflects the change in consumers’ priority from owning to using automobiles. Meanwhile, a shift to electric vehicles is likely to make rapid progress in coming years.

Faced with dramatic changes on both the demand and supply sides, automakers are engaged in a fierce battle for survival. Whether they can develop the necessary technologies for self-driving and low-cost large-capacity batteries will be the key to determining the winners and losers of this competition.

IT firms like Google, Amazon, Facebook, Apple and Microsoft appear to be taking the lead in developing the operating systems for self-driving car technologies. If the auto industry has to rely on U.S.-based IT companies, just as personal computer and smartphone manufacturers rely on Windows and Android, American dominance in the industry will become indisputable. Self-driving technology is yet another source of contention between the U.S. and China as they both seek to win global technological supremacy in the field.

Takamitsu Sawa is a distinguished professor at Shiga University.

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