Automotive Disruption

Automotive will be facing a multi-faceted front of disruption affecting every aspect of the industry, all while changes in personal mobility and customer demands occur. Innovations will be made in the industry as it strives to predict and meet a shifting landscape and external influences. However, the accumulation of these disruptions may be complex and difficult to respond to.

While the ‘big auto’ incumbents are currently the masters of their own domain, and many are responding to coming disruptions, some Original Equipment Manufacturers or OEMs appear to show cracks in their ability to effectively keep pace with disruptive innovation — holistically, and at every level of their industry and brand.

For large auto incumbents, new products and innovation come with enormous costs that can be fiscally wasteful if not correctly aligned with market needs or government regulations. However, the consumer demand for new expensive technology is only gaining momentum. To mitigate risk and costs, OEMs are looking to reduce and share platform innovation while focusing on their brand/model distinction elsewhere.

In the long term, OEMs may not be able to recoup these R&D investments as these innovations may be misaligned with coming disruptions. Additionally, these technical innovations may ultimately work towards a different take on personal transportation, a commodity based transportation market rather than a product based market. But I digress, more on that later.

There may also be the sense that ‘big auto’ is too big to fail, and that timely innovation investments will be made at the right time. But if examples from other industries are any indication, once the disruption pattern occurs, it’s typically too late to respond.

Incumbent carmakers have the resources now to respond and mitigate future market loss, either by appropriately shifting budgets or partnering with/acquiring new technology platforms or disruptive businesses. However, for some, this may only slow the inevitable. The race is on, and new players are in the game. The ability to think longer term and with more agility is critical to sustain business relevancy.

The automotive disruption will be on all sides for incumbents. The deniers may find it costly and be culturally unprepared to effectively respond to each disruptive front. Ultimately, some incumbents will face irrelevancy, declining market share and find themselves open for acquisition or obsolescence.

Threats, disruptions and considerations

The following are just a handful of ideas potentially causing disruptions for the automotive industry. All of them are related, however, some are more distant disruptions than others. With each disruption idea we’ll touch on the influencing factors and perceived preparedness of incumbent carmakers.

Shifting Landscape

Overall landscape influencers such as technical advancements, environmental issues and the future of transportations that is changing the consumers’ perception of transportation and vehicle ownership.

Overall landscape influencers such as technical advancements, environmental issues and the future of transportations that is changing the consumers’ perception of transportation and vehicle ownership. Vehicle Design

Vehicle design and technical innovation alignment to customer needs, expectations and mindsets.

Vehicle design and technical innovation alignment to customer needs, expectations and mindsets. Marketing and The Customer Journey

From awareness and brand perception to seamless and holistic customer buying journeys.

From awareness and brand perception to seamless and holistic customer buying journeys. Sales and Retention

The innovation required to align aging sales paradigms with self-serve digital customer journeys, simplified pricing, and full lifecycle automotive ownership experiences from awareness, to sales and retention.

Shifting Landscape

Aspects of the automotive market hasn’t changed much since our parents purchased vehicles. For over 100 years personal vehicles have dominated the market. While there has been an introduction of digital to the customer journey, global competition changes, brand mergers and acquisitions — the underlying marketplace has remained somewhat the same.

For many carmakers the mandate has been to compete with the competition primarily through emotive enticement through cosmetics and capability wars, incrementally improving features year-to-year, introducing new vehicles where applicable, and marketing vehicles through all modern channels. Dealer associations cover most parts of sales, service and sometimes retention. Simple.

OEM’s are typically competing on 4 levels with each other:

Tier 1 (corporate brand) for brand perception and product positioning

Tier 2 (corporate dealers and dealer associations) for consumer pricing and sales

Tier 2 & 3 (franchised dealerships) consumer service experience and retention

Commercial and fleet vehicle sales through all their tiers above.

A logical structure from a traditional sense, but a fragmented and cumbersome structure when trying to optimize for modern consumer experience expectations.

This marketplace is about to become more complex for OEMs to operate in. Emerging technical innovations, transportation shifts, new competition and digital customer experience expectations will converge to augment this ecosystem.

While some are predicting “peak car ownership”, which may be a stretch in the short term, below are a collection of the factors driving disruptions now and paving the way for new ones in the future. These disruptions may force carmakers to rethink their culture, structure, products and, fundamentally, how their brands meet consumers’ transportation demands of the future.

1. Autonomous Vehicles

There are no surprises when it comes to autonomous vehicles; in 1964 General Motors explained, “it anticipates the day when the family will drive to the super-highway, turn over the car’s controls to an automatic, programmed guidance system and travel in comfort and absolute safety at more than twice the speed possible on today’s expressways.”[1]

Autonomous vehicles pose a threat (and opportunity) to the automotive industry as they increasingly become assimilated into public infrastructure and normal everyday consumer life.

Autonomous transportation’s future offers a dramatic shift in how consumers experience vehicles and, in turn, the way carmakers design and market them. We already spend a considerable amount of time looking at our connected devices, oblivious to the physical world around us. So the idea of freeing our attention from the road while commuting to work in an efficient and safe manner is an appealing notion.

Eventually this technology will describe personal mobility as a commodity rather than an expression of personal brand and utility as it is now. When the automotive marketing pillars of safety, interiors and comfort can be marketed as differentiators in this future, the “freedom machines” that came out of the 1950’s and 60’s will be long gone. Consider a future where people care little about what a vehicle looks like, or even how it gets us from destination to destination, and more about if the mode of transportation offers door to door service, whether it’s compatible with their IoT devices, and what the monthly subscription fees are.

Personal and utility vehicles still have a long future. However, for the masses, autonomous vehicles, along with environmental issues, customer convenience, and economic demands will lead to the rise of transportation-as-a-service. This will cause a fundamental shift the automotive industry from a product based business to a service based business.

Despite the GM prediction in 1964, some big auto incumbents are behind in this area, forcing them to make large innovation investments, acquisitions and/or partnerships for licensed autonomous software and systems.

Most OEMs are now promising some sort of self-driving vehicle by 2020 with the help of partnerships. Disruptors such as Google and Tesla saw the innovation gap and opportunity and forged ahead despite scrutiny and opposition.

Google has logged over 2 million miles — that’s over 300 years of human driving experience into machine learning autonomous systems, and is well poised to be a leader, if not the standard in self-driving AI. We may see a time when government regulation only permits a couple of highly tested systems in this space due to safety concerns and standardization. Vehicle to vehicle communication for swarm-like behavior and standardized communication with public infrastructure (why wait for that traffic light if there is no one around?), ensure unobstructed and efficient ambulance trips.

All Tesla vehicles currently being produced have self-driving hardware and software just waiting to be activated [2]. Uber has proclaimed it will buy 500,000 vehicles if they are ready by 2018.

In the short term, human piloted vehicles will remain but in the long term they may only remain to the hobbyist or elite as a premium vehicle. A minority amongst the autonomous masses.

“No doubt the precogs have already seen this.” — John Anderton

Autonomous transportation is a long term but looming, major disruption. The race is on, and trailing incumbents may lose out on growing fleet sales, incur smaller margins due to autonomous software licensing and become increasingly obsolete in the marketplace.

2. On-Demand, Vehicle Sharing

Uber and the ‘uber-izaton’ of everything is a current buzz term, but the reality of the disruption cannot be denied. Service design disrupters are making their way into many markets including automotive, and some are predicting the end of product ownership. Vehicle sharing and on-demand vehicle services are real disrupters to OEMs. As new car buyers in urban areas start to decline, the prevalence of car sharing programs will only rise. Coupled with autonomous mobility, this new on-demand and subscription based market only predicts a future of declining personal vehicle ownership.

Not only will OEMs need to forge stronger partnerships with vehicle sharing programs, they will need to re-invent their fleet lines of business with optimized vehicles, marketing, sales and distribution of models that are more in line with this new market.

While fleet and commercial sales can currently be a large segment of OEM sales, this line of business is often segregated from the rest of the organization, with limited funds and resources to effectively innovate and prepare.

With disrupters like Uber pledging hundreds of thousands of autonomous vehicles by 2020, incumbent OEMs should be prepared with the appropriate investments in fleet design innovation, sales, distribution and partnerships with on-demand vehicle platforms. Even new brands such as Tesla are hinting at not just being a manufacturer but also a service provider to compete with sharing programs and ensure fleet vehicle sales.

3. Multi-Modal Transportation

In urban or suburban areas, model-modal transportation is an additional threat that compounds the autonomous and vehicle sharing disruptions with advancements in public transportation and integrated mobility service design.

By providing integrated transportation as-a-service via a subscription fee, commuters will have access to various modes of mobility including rail, light rail, bus, shared vehicles, autonomous vehicles and bicycles. Multi-modal transportation aims to solve the ‘last mile’ issue that currently plagues public transportation by providing a holistic approach to public transportation.

The evolution of this has begun with transportation services partnering with public transit and bicycle share programs. Autonomous vehicle fleets will be added to address the personalization that public transit is in desperate need of, and the perception towards personal vehicles in urban areas will continue to decline and politically, paths will be forged for these programs.

For incumbent OEMs, the importance of autonomous innovation, partnerships with sharing platforms and the ability to prepare for modern fleet sales becomes imperative.

4. Electric Drivetrains

Big oil’s influence over automotive and its inability to properly incubate electric vehicles has left the market place with a disruptor that has a strong brand, the momentum and the technical capability of offering a superior electric vehicle (EV) product at general consumer affordability.

In the coming years environmental and government regulatory pressures for carbon free transportation will require a serious focus on EVs. The cost of fossil fuels will rise as they become less accessible, and premium oil will decrease. Renewable energy generation and consumption will become more efficient, affordable and investment ready.

This is nothing new. Big auto has been responding with hybrids and electric vehicles for some time now, however, they have been moving at a surprisingly cautious pace during this transitional time. A pace that is similar to displaced leaders in other industries. This pace is leaving room for disruptors with technical superiority and elevated brand perceptions. Both of which will be difficult for lagging carmakers to catch up with.

Tesla just announced profits and no longer requires funding. It’s acquisition of Solarcity creates a potential for an end-to-end ecosystem of consumer based renewable energy generation and consumption. On top of this, Tesla is aiming for a clean sweep in all automotive pillars with product superiority — the safety ratings have literally broken the charts, and they have their eyes set on middle-class consumer affordability; a dangerous tri-fecta of superior product, brand and affordability.

Electric drive trains are an immediate threat due to the change in energy generation, fossil fuel costs and in-turn customer needs. Manufacturers are playing catch up in this area, but are at risk as far as brand perception, due to government regulations and consumers demanding carmakers to be proactively environmentally conscientious and ethically compliant.

The biggest threat may be the accumulation of all these factors on the perception towards vehicle ownership. These disruptions will be within an industry of incumbent brands that are historically accustomed to selling products to individual consumers. Carmakers will have to shift away from this business model towards business models that facilitate service based platforms, providing commodity based mobility via on-demand and subscription transportation to customers, businesses and municipalities.

From a cultural perspective, some incumbent carmakers may struggle with the identity crisis of displacing the tradition of brand strength, marketing and advertising of the personal vehicle to just being a cog or a commodity element supporting greater ‘service designed’ transportation platforms.