The automotive industry is a growth industry. It has broken record after record in recent years, with no end in sight. Sales and production in China are booming. On the other side of the globe, a strong recovery in the US continues to surpass expectations.
Car industry, like many other industries, is hardworking and multi-faceted with some inherent difficulties when it comes to adapting to new circumstances. Cars are typical high-involvement products. And car companies know very well how to build strong brands, how to charge premium prices, how to keep residual values high, and how to keep customers happy.
Automotive manufacturers and suppliers are confronted with increasing complexity as a result of increasing numbers of products and options, shorter technology cycles, increasing pressure to innovate and global supply networks.
While automakers pour millions into winning the autonomous vehicle race, they run the risk of ignoring the more imminent threats that could sink them before the technology becomes pervasive.
These challenges are not insurmountable. Instead, they highlight the opportunity to fundamentally change the experience for drivers and finally bring in-car media consumption into the 21st century. However, in order for this to happen and truly become a mass-market solution, there are five key things that must take place.
The past five years have been good to the auto industry. Following a cyclical downturn and a series of bankruptcies and harsh restructurings in the wake of the 2008–09 financial crisis, U.S. vehicle sales have been strong, especially for highly profitable trucks and SUVs. Globally, automobiles have grown more attractive than ever, with all kinds of exciting new technologies impressive powertrain systems, mobile connectivity, advanced driver-assistance systems, maintenance monitoring, and the like further exciting car buyers.
Automakers feel confident investing large sums of money in developing new features for their cars, particularly advanced safety and navigation options. Many suspect that they can make fully autonomous vehicles (AVs), machines that can drive themselves anywhere, under any traffic and weather conditions, without a human ever having to take the wheel, a reality within a relatively short time, as little as five or 10 years. That, in turn, would open huge new markets, it is hoped, as buyers large fleets as well as individuals flock to driverless vehicles and associated services.
Some automakers are already investing hundreds of millions of dollars in the dream of the fully autonomous vehicle, and great strides have been made. Some are also spending hundreds of millions to develop and sell add-on mobile services and applications related to the Internet of Things, but the search thus far for those killer apps and service businesses has come up short.
However, one rarely hears mention of the many real, present challenges the industry is up against. Focusing so much attention and so many resources on the captivating prospects of the self-driving world may make for good reading, marketing, and investor interest. But it is a dangerous distraction for the auto industry.
At the same time, automakers must scale up geographically, because virtually all the industry’s growth is, and will be, in emerging markets. That means satisfying regional differences, including the need for fundamentally cheaper automobiles for emerging economies, a different product design and marketing for these countries, and local manufacturing. These demands compound the requirements for more investment. So the costs and complexities of renewing and expanding product lineups can be expected to grow.
The idea of fully autonomous vehicles is too futuristic for much of the driving public to embrace right now. But for automakers, the path from current models to driverless cars is going to be an exciting period of transformation. These new developments represent enormous opportunities even as they augur a perilous, unsteady phase for the industry. Original equipment manufacturers (OEMs) must navigate the challenges of designing, manufacturing, and upgrading traditional power train models while staking a claim in emerging technologies and improved customer experiences.
Back then the idea of self-driving cars looked, to Ford’s leadership, like a frivolous Silicon Valley moonshot. Four years later things have dramatically changed. Today Ford’s vehicle lineup features more than 30 options for semiautonomous features, including the automatic brakes I tested, and the company is aggressively working on cars that fully drive themselves. By year-end the company expects to have the largest fleet of autonomous test vehicles of any automaker.
One potential course for an automaker trying to focus its limited capital on its core offerings is to source some vehicle segments from a joint venture, a competitor, or even a consortium of auto companies. An automaker with insufficient profitable small cars to meet regulatory emission and fuel economy mandates might find it makes the most strategic sense to establish a joint venture with another company to provide them, or to just buy them from an independent small-car specialist.