Why does the world need so many cars anyway?

The cuts have been hard and fast: The world’s largest automaker, Toyota Motor Corp., this month revised its production forecast for the year. Other Japanese manufacturers such as Nissan Motor Company and Honda Motor Company have done the same, bringing the combined figure to over 1 million cars. In the UK, production fell sharply in July, marking the worst performance that month since 1956. In the US, supply was down 50% from last year’s levels and below 70% at the end of 2019, according to Cox Automotive. Meanwhile production in North America could be reduced by more than 450,000 vehicles in the second half of the year — and 1.5 million units for the full year.

The prospect of fewer cars rolling down production lines can be troubling. However, it should have been what it was before the shock of the pandemic. “Peak Car” was imminent, if not already realized. In that context, having fewer vehicles doesn’t have to be – and, perhaps, be considered the new normal.

Take a look at what was happening before Kovid-19. The market was flooded with vehicles – buyers were being lured to showrooms with incentives, price cuts and tech features. Automakers were facing stricter emissions regulations, the threat of technology and trade frictions that were driving up the cost of cars.

In early 2020, Volkmar Denner, CEO of Robert Bosch GmbH, one of the world’s largest automotive parts suppliers, said: “It may well be that we have passed the peak of automotive production,” as his company had announced job cuts and slashed benefits. Global car production was expected to decline for the third year in a row as demand slowed down and remained flat in 2020.

All the while, carmakers’ profits were barely growing, margins were shrinking and cost control was the biggest challenge. Yet production continued to decline as companies saw no other way out of the quagmire. The fear of what would lead to the collapse of the global auto industry was so intense that even the International Monetary Fund sounded the alarm. In its World Economic Outlook report in October 2019, the organization noted that the sector accounts for 5.7% of global economic output and about 8% of global goods exports.

Mass production cuts now could paint a clearer picture of what could happen next for the global economy. But this will happen only if companies continue to do what they have always done. The coronavirus outbreak – along with supply chain shortages and shutdowns – has now forced automakers to do what they were previously unwilling to do. This is a good thing. With all the latest clean air goals, anyway, who really needs so many cars? Especially as they are becoming more expensive.

Sure, there may be frustrated potential buyers who can’t get their hands on a new car right away, or companies aren’t making as much as they could have. But the pullback should prompt a thorough rethinking of business models, especially as automakers now have the security of profit buffers and huge operating margins, thanks to a demand-supply imbalance. Companies can even go a step further by replacing gas vehicles with electric vehicles, and consider making fewer, better, greener cars.

Any impulse to ignore this opportunity and go back to business as usual, churning out the plethora of vehicles that consumers think consumers want, will be misguided – and ultimately far more painful.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. He previously worked for the Wall Street Journal.