Ride-hailing to impact short-term car sales in China and Africa
A new report from IHS Automotive finds that the growth in ride-hailing services, such as Uber, will have a short-term impact on vehicle sales in Africa and China as would-be buyers will postpone purchases. However, the report concludes that as these services also require passenger vehicles, growth in demand for the services will fuel growth in demand for new cars. Furthermore, as ride-hailing prices stabilise in the long-term, demand for personal vehicles from first-time buyers will strengthen in these markets.

The growth in taxi-hailing services is anticipated to affect new car sales in the short term in markets from China to Africa.

IHS Automotive perspective

Significance : As ride-hailing services offered by the likes of Didi Chuxing and Uber gain credence in markets, the impact will be felt on demand for new vehicles as consumers postpone car purchases.

: As ride-hailing services offered by the likes of Didi Chuxing and Uber gain credence in markets, the impact will be felt on demand for new vehicles as consumers postpone car purchases. Implications : The immediate impact from the sudden and exponential rise in taxi-hailing services offers consumers a short-term fix to get to and from work at affordable fares, eroding the market share of traditional taxi firms. However, as these services also use passenger vehicles, fleet replacements and growth in demand for the services will fuel demand for new cars.

: The immediate impact from the sudden and exponential rise in taxi-hailing services offers consumers a short-term fix to get to and from work at affordable fares, eroding the market share of traditional taxi firms. However, as these services also use passenger vehicles, fleet replacements and growth in demand for the services will fuel demand for new cars. Outlook: In the medium to long term, however, as ride-hailing service prices stabilise, demand for personal mobility from first-time buyers will continue to strengthen new car sales in markets in Africa and China.

As ride-hailing services, otherwise known as transportation network companies (TNCs), gain legal status, their fast growth is expected to counter the increase in new car sales across markets from China to Africa.

In China, the government has recently begun to introduce legislation to regulate car-hailing services, use of which has risen sharply. The new regulations give a legal framework within which taxi-hailing services can work in China, and are effective from November this year.

"It's logical," said IHS Automotive's Light Vehicle Sales forecast analyst Wang Zeng, "As car-sharing services provide more options for people's transportation this correspondingly produces less demand for car ownership."

Demand for personal mobility continues to be a major draw in markets where first-time buyers make up the vast proportion of new car buyers. However, with the fast increase of car-hailing services the impact will begin to be felt in these markets - consumers are likely to delay purchasing their first cars.

Meanwhile, in Africa, where TNC networks are growing in a number of countries, the negative impact of this surge in demand for ride-hailing services will also have a direct impact on new car sales, says IHS Automotive's Light Vehicle Sales forecast analyst for Africa, Emmanuel Darku. "Africa has one of fastest growing middle and upper class populations, but due to the new possibility of using one of the many TNCs, combined with low prices offered by the TNCs and the current unstable economic environment, new car buyers may postpone this decision," Darku said. "This may cost in the short term, a slowdown in African car market ."

"But in the mid to long term, there will be pent up demand for new and used cars following the expected recovery of various African economies and as the prices offered by the TNCs for their services stabilizes," Darku added.

In China, the surge in ride-hailing services offered by Uber and Didi Chuxing has meant that executives are able to be effectively chauffeur-driven to work and back each day, reducing the need to use their own vehicles and deal with rush-hour traffic and finding parking spaces in crowded city centres. The effect of the increased use of ride-hailing services means that private cars are left parked in residential parking lots until the weekend when they are used for leisure activities. Didi and other players in the ride-hailing market have made it increasingly easy to access, call, and use their car-hailing services at extremely affordable prices. The China Daily newspaper quotes Xiong Guangan, the father of two children in Beijing, saying he and his wife postponed their plans to buy a second private car and let their car plate registration quota expire due to their frequent use of ride-hailing services. "I commute to my work in a chauffeured car on weekdays, usually one of Uber's, and our car is left in the parking lot. We only use it for family outings to visit places in the suburbs", he said.

The question is whether the effect of the increase in demand for these ride-hailing services will significantly affect new car demand in China.

Meanwhile, in Africa the sudden surge in growth of TNCs is fast becoming a force against the rise in new car sales. "Around 80% of goods transportation and human movement in the continent is done by road transportation, 10% by rail, 5% by sea and 5% by air," according to Darku. Although countries such as Algeria, Gabon, Nigeria, and Uganda are working to strengthen local vehicle production with supportive legislation for component and car makers, their growth is being threatened by the growth in TNCs such as Uber and Safaricom in the short term.

Outlook and implications

On 1 August, Uber handed over the reins of its operations in China to Didi Chuxing. The new entity will allegedly be owned mainly by Didi with Uber claiming a 17.7% stake, but with just under 6% of voting rights.

However, new passenger car sales in China in 2015 hit 19.7 million units, rising 9.1% year on year (y/y) according to IHS Automotive data. This year sales are forecast to rise 8.7% y/y to 21.47 million units. With the increase in ride-hailing services in China, areas such as Tier 1 cities where these services are popular are likely to feel the pinch as private demand for new cars in the short term may be affected, but it is important to note that services such as Didi still use cars, and ultimately as this sector grows those employed within the sector will add vehicles to ride-hailing fleets, and indeed replace existing vehicles. Deputy Secretary-General of the China Association of Automobile Manufacturers (CAAM) Shi Jianhua said: "The regulatory boost for the online car-hailing services may generate a large number of car replacements."

The vehicles registered for online car-hailing services are required by the new regulation to be removed from service after eight years, in a bid to maintain service levels.

Meanwhile in growth areas of China, such as the lower tier cities where first-time buyers have saved up for their first car, these purchases might be delayed, but it is unlikely they will postponed indefinitely due to the increase of ride-hailing services.

Indeed in Africa as well, despite the increase in ride-hailing services, the greatest impact of which will be on traditional taxi services, which include what are locally called tro-tros in Ghana, magbana in Guinea, the matatu minibuses in Kenya, and twegeranes or "let's sit together" vehicles in Rwanda, it is likely to act only as a short-term deterrent to new car sales in the continent. Darku estimates that in 2016 and 2017 the increase in TNCs could reduce new car sales by around 100,000 to 200,000 units across the African continent, but will have a more significant impact on the sale of second-hand vehicles in those markets. In the medium to long term, however, new car sales growth will rebound.

About this article

The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.