Could New Technology, Changing Attitudes, Devastate Auto Industry?

The Detroit News

Com­mu­ni­ca­tions tech­nol­o­gy has shak­en the book busi­ness to its foun­da­tions, not to men­tion news­pa­pers, and auto­mo­bile man­u­fac­tur­ers might be the next indus­try ripe for attack.

When the glob­al auto­mo­tive indus­try gath­ers in Paris next month for the bien­ni­al car show, you will hear the usu­al sooth­ing claims about how healthy the indus­try now is, and how it’s poised for long-term healthy growth. The trou­ble is there are some sin­is­ter issues fes­ter­ing away behind the scenes which might ambush a com­pla­cent indus­try. There’s the ques­tion of future pow­er-trains, with the agen­da set by gov­ern­ments con­vinced that car­bon diox­ide (CO2) emis­sions from cars endan­ger the plan­et, and insist fuel use must be curbed. Mean­while, plug-in hybrid elec­tric vehi­cles seem to have stolen the inside track for the time being over bat­tery-only solu­tions, while fuel cells gath­er strength in the wings.

New entrants like elec­tric car leader Tes­la might dis­rupt the rest of the indus­try if it can turn its lead in lux­u­ry vehi­cles to the mass mar­ket.

Then there is the lat­est fad of so-called con­nec­tiv­i­ty and com­mu­ni­ca­tions tech­nol­o­gy. It’s not that the indus­try isn’t keep­ing pace. New auto­mo­biles are drip­ping with new com­put­er­ized devices, and man­u­fac­tur­ers now brag about how big their new touch screens are, even before brag­ging about blis­ter­ing accel­er­a­tion, rau­cous, sexy engine noise, or even fuel con­sump­tion. Con­nec­tiv­i­ty comes before per­for­mance. Last week in Lon­don, British lux­u­ry car mak­er Jaguar launched its new XE sedan, and it seemed to be most proud of the fact that it was appar­ent­ly a WiFi-trans­mit­ter on wheels.

Atti­tudes

Arguably the biggest threat of all though comes from sweep­ing changes fac­ing the indus­try because of new atti­tudes towards car own­er­ship and mobil­i­ty itself.

A recent report from invest­ment bank Mor­gan Stan­ley cal­cu­lat­ed that cars are only used for about four per­cent of their lives.

“The world’s $20 tril­lion car fleet achieves only four per­cent uti­liza­tion, leav­ing 8.4 tril­lion hours a year not used. What a waste!!!.” It said.

If car buy­ers are moved by that argu­ment, that could trig­ger a sea-change in atti­tudes towards their expen­sive vehi­cles.

We are told that con­sumers around the world, exclud­ing Chi­na of course, are becom­ing less enam­ored with expen­sive cars as a rea­son of pride, and are more like­ly to think of their wheels as sim­ply a way to get from A to B. Some of us think this appar­ent change of atti­tude among west­ern young peo­ple will soon dis­ap­pear when eco­nom­ic growth returns and car own­er­ship resumes as a clas­sic sig­nal of an individual’s mate­r­i­al progress. Since when were young men hap­py to take their date out on the bus? Con­nec­tiv­i­ty is clear­ly being embraced by the mak­ers of cars, but the assault will come from out­siders who reck­on they can either make new tech­nol­o­gy bat­tery cars bet­ter, or have a busi­ness plan which will force them in between the car buy­er or user and man­u­fac­tur­er, and from that posi­tion cream off the prof­its.

Car2Go

This new world is already being tack­led by car mak­ers like Mer­cedes and BMW of Ger­many. Mer­cedes’ Car2Go oper­ates in Euro­pean and U.S. cities leas­ing its lit­tle Smart city car with charges by the minute. BMW’s Dri­ve Now is pur­su­ing a sim­i­lar idea. Non-auto­mo­tive com­pa­nies like U.S.-based chauf­feur ser­vice Uber threat­en to invade man­u­fac­tur­ers’ space. Experts say that the tra­di­tion­al form of car acqui­si­tion — buy­ing with cash or bank loan — is begin­ning to be replaced by this new mod­el. New entrants will seek to inter­vene between the car buy­er and man­u­fac­tur­er to offer mobil­i­ty ser­vices like a car on demand, or an inte­grat­ed door-to-door jour­ney which might include dri­ving a car to the train sta­tion or air­port, anoth­er car at the des­ti­na­tion which can be dri­ven into the city and left for the car hire com­pa­ny to pick up. Clear­ly, if this busi­ness mod­el thrives it will threat­en the car man­u­fac­tur­ers as the rental com­pa­ny creams off the prof­its, and by its mas­sive pur­chase vol­ume, can bid down man­u­fac­tur­ers prof­its to zero or less.

“What we are see­ing right now is a rede­f­i­n­i­tion of the auto­mo­bile,” said Thi­lo Koslows­ki, lead auto­mo­tive ana­lyst with tech­nol­o­gy con­sul­tants Gart­ner, although he doesn’t think it nec­es­sar­i­ly ends in tears for tra­di­tion­al man­u­fac­tur­ers.

On the phone from San­ta Clara, Cal­i­for­nia, Koslows­ki said the new chal­lenges to the indus­try will force it to improve rather than threat­en its exis­tence.

“The auto­mo­bile will not just be dif­fer­en­ti­at­ed by engi­neer­ing excel­lence. We are enter­ing the era of smart mobil­i­ty. The car will have more capa­bil­i­ties, and will har­ness com­mu­ni­ca­tion to bring a future life style into the vehi­cle. Leas­ing, not own­ing, might become a threat to the indus­try, but for the most part I see it as an oppor­tu­ni­ty to rede­fine the auto­mo­bile as it becomes part of the con­nect­ed uni­verse,” Koslows­ki said.

Change

“This con­nect­ed uni­verse will re-empha­size the impor­tance of auto­mo­biles; I don’t think cars will go away any time soon, on the con­trary, they will become more impor­tant because of these tech­nolo­gies. Man­u­fac­tur­ers have to change the way they think about the auto­mo­bile; it’s not just about sell­ing, but under­stand­ing and embrac­ing what mobil­i­ty is,” Koslows­ki said.

Car own­er­ship won’t be as impor­tant, and it doesn’t have to live in your garage. It will leave when it’s not being used any­more, says Koslows­ki.

Anil Val­san, auto­mo­tive glob­al lead ana­lyst for con­sul­tants Ernst & Young (EY) agrees that con­sumers will move away from buy­ing to leas­ing and rent­ing, and it will gain momen­tum in new “mega” cities as well as small­er ones. Car pool­ing and ride shar­ing is increas­ing with the likes of Uber and reg­u­lar taxi com­pa­nies too, which will cre­ate their own apps to enable access and book ser­vices.

Notwith­stand­ing BMW and Mer­cedes, Val­san said main­stream man­u­fac­tur­ers have been slow to react, as new entrants try to con­nect car shar­ing to urban cit­i­zens.

“There is cer­tain­ly a risk for auto man­u­fac­tur­ers as new­com­ers iden­ti­fy nich­es and grow from that. But the most fun­da­men­tal shift is away from vehi­cle own­er­ship to access, the shift to mobil­i­ty ser­vices,” Val­san said.

Val­san said smart­phone based apps will allow cus­tomers to plan jour­neys and offer a range of options which might be part shared car, pub­lic trans­porta­tion like train or bus, and part autonomous vehi­cle. Three ele­ments need to be tak­en care of for this to hap­pen:

• Real time infor­ma­tion and a data plat­form

• A smart pay­ments plat­form

• Access to pub­lic trans­port and cars

Val­san said this will be rolled out slow­ly, not glob­al­ly, and the biggest obsta­cle is what he calls “the com­plex­i­ty of the back end” — the need to man­age fleets of vehi­cles and have them close to the con­sumer.

Who would want to do this?

“A recent sur­vey showed that one in six peo­ple would be will­ing to give up own­er­ship, if they have access to shared cars,” Val­san said.

There are some inter­est­ing vari­a­tions on these themes. One mod­el calls for a lease which would guar­an­tee var­i­ous cars for dif­fer­ent jobs. One for dai­ly com­mut­ing, anoth­er for long-dis­tance vaca­tion dri­ving, anoth­er for when the sun shone, or a nifty sports car if the mood took you.

Big Bar­ri­ers

Val­san also doesn’t expect cur­rent main­stream man­u­fac­tur­ers to be under threat from new entrants.

“I think it will be dif­fi­cult for a new wave of man­u­fac­tur­ers to com­pete with tra­di­tion­al ones, which cer­tain­ly present sig­nif­i­cant com­pe­ti­tion with big bar­ri­ers to new entrants like their huge dis­tri­b­u­tion net­works and after sales struc­tures,” Val­san said.

Pro­fes­sor Karel Williams of Man­ches­ter Busi­ness School points to the book indus­try as an exam­ple of an indus­try dev­as­tat­ed by new tech­nol­o­gy. Williams doesn’t pre­dict this hap­pen­ing to the auto busi­ness, but says the chang­ing per­cep­tion of the indus­try by car buy­ers pos­es a prob­lem.

“There’s a grow­ing indif­fer­ence to cars and motor­ing, and the rise of leas­ing in the per­son­al mar­ket pro­duces com­plete­ly dif­fer­ent rela­tion­ships to the prod­uct. Nobody ever felt defined by a rental car they picked up at the air­port. A com­bi­na­tion of west­ern indif­fer­ence and the rise of leas­ing is fer­tile soil from some­one who cracks a more rad­i­cal approach to rent­ing cars,” Williams said.

If car com­pa­nies can­not dif­fer­en­ti­ate their prod­ucts by their brand­ing, this bodes ill for prof­it mar­gins. Any­one order­ing a car with their smart­phone will get per­haps a Cit­roen or a Toy­ota, it won’t real­ly mat­ter. This sce­nario sug­gests leas­ing com­pa­nies will have mas­sive price lever­age over auto man­u­fac­tur­ers, which would also con­cede direct con­tact with their cus­tomers. Giv­en the dev­as­ta­tion this would reap on automak­ers’ bot­tom lines, expect them to move heav­en and earth to make sure it’s them in con­trol.

Neil Win­ton, Euro­pean colum­nist for Autos Insid­er, is based in Sus­sex, Eng­land. E-mail him at neil.winton@btinternet.com

Tags:


0 Comments

    Leave a Reply

    Your email address will not be published. Required field are marked *.