The Top 5 Challenges Facing Auto Companies in the Coming Year
The automotive industry is undergoing a period of mass disruption and transformation. A convergence between technology companies and auto manufacturers is blurring industry lines and expanding the bounds of the traditional automotive company. Consumers are changing and evolving from an ownership-centric mindset to service-centric demand. Supply chain will be at the core of this transformation. Here's a look at five of the major challenges and disruptions in the auto industry as we look to the year ahead.
- Increasing globalization equals increased complexity and risk. Dramatic shifts in global sources of supply, combined with strategies to take advantage of emerging markets, brings new challenges related to global trade and international finished vehicle logistics fulfillment.
- Manufacturers are leaned out and require new avenues of efficiency and growth. Most major OEMs and Tier 1 suppliers have focused on operational efficiency, lean manufacturing, continuous improvements, and quality improvement efforts for more than 20 years. There is limited room for additional costs savings and returns in these areas.
- The connected car and Uberization are forcing disruption and innovation. A new ecosystem of suppliers, OEMs, dealers and complementary services are on the way. The ability to integrate these innovators into the automotive ecosystem will be key to excelling strategy.
- Consumers are shifting away from ownership. The industry is being pushed to evolve to a transportation service mentality. Ford recently announced plans to establish itself as a leader in transportation services, in addition to delivering automobiles.
- Innovation is needed to better meet customer needs. There's a growing demand for customization and greater customer intimacy. Auto makers are challenged to find new ways to get closer to the customer while maintaining profitability.
The World Economic Forum reports that digital transformational in the auto space is impacting R&D, procurement, assembly, marketing, parts and services. “In the parts segment, 10 to 15 percent of all global revenue will be generated online by 2025, and for parts and service retailing, China will be the most attractive market for revenue growth in digitization.” Business Insider estimates that more than 380 million connected cars will be on the road by 2021. According to McKinsey, “The automotive revenue pool will significantly increase and diversify toward on-demand mobility services and data-driven services. This could create up to $1.5 trillion—or 30 percent more—in additional revenue potential in 2030, compared with about $5.2 trillion from traditional car sales and aftermarket products/services, up by 50 percent from about $3.5 trillion in 2015.” McKinsey also estimates that global sales growth will dip from 3.6 percent to 2 percent by 2030. Much of this will be driven by car sharing and other mobility services.
With the emergence of autonomous vehicles and connected cars, the industry is going to look very different in the next 5 to 10 years. It will be essential for automakers to find ways to support new topline growth strategies while sustaining cost efficiencies and profitability. Those who deploy digital supply chain transformation strategies now will be well-positioned for success.