Future challenges of the automotive industry

My past experience (albeit a small one) working in the automotive industry has exposed me to the working of an industry that is till-date supported by a whole new world of technological and business model innovation. It still continues to be one of the most dynamic industries till date. Although a general perception indicates a certain amount of “inflexibility” due to the amount of time ittakes to adopt new changes, the industry has also been one of the most innovative and creative catering to the rapidly changing expectations of consumers. Nevertheless, the recent debacle of the US automotive industry in particular, and a gloomy outlook for future sales around the world make it important to consider the challenges to be overcome along the way.

The overall challenges could be categorised based on whether they arise on the supply-side or on the demand-side. The demand-side challenges are largely due to uneven growth of the industry in different sections of the world due to diverse demographic profiles with increasing demand in emerging economies and stagnation in the developed markets. This has been further fuelled by decreasing loyalty among consumers while choosing car brands due to increased competition with decreasing points-of-differentiation. On the supply-side, legislation and regulations, along with increasing costs on raw materials and fuel are causing a pressure on OEMs to sustain future growth.

For the sake of this discussion, I shall concentrate on three of the biggest challenges facing the automotive industry in the future:

1. Global conditions: The auto industry has always been, and will continue to be, one of the most regulated industries in the world – whether it is safety, emissions, taxes, etc. This pushes OEMs to constantly innovate in order to stay in the game. With the credit meltdown and global recession, this effect has been pronounced due to fluctuating oil prices and interest/exchange rates. Recent developments have taken a toll on the consumers’ purchase confidence, raising concerns of the sustainable future of the auto industry. The premium auto segment has especially been hit hard due to dependence on auto financing being one of the primary means of the emerging middle class being able to afford a premium vehicle.
2. Demographic Changes: Several industry reports have established a significant movement in consumers’ demand for automobiles moving from the west towards the east, with an expected increase of more than 70% in the coming few years. This also means that the customer base is going to be very different from the existing one, hence making it important for OEMs to not only understand the needs of these new consumers, but also find ways to strategically establish their brands. This has been successfully done by BMW in the past, but changing demographics is going to pose further challenges in the future. One of the primary examples is the adaptation of electric vehicles in different markets – while Europe and US have indicated an increasing demand for eco-friendly vehicles, countries like India and China continue to show preference for gas-guzzling vehicles.
3. Business Model changes: The global auto industry has traditionally competed only on technology and R&D innovation. However, this concept is changing radically with an increase in the number of strategic alliances seen in the recent past, the most notable being the Renault-Nissan alliance – this has made possible the increased engine co-operations, platform and process sharing between the firms. VW has been one of the most successful firms while following this strategy by owning several independent brands under the parent company. BMW has been able to do this successfully with the Mini brand as well. Going further, this phenomenon is expected to undergo a more radical change due to the expected emergence of the AUTOSAR concept in the future. According to this, OEMs will define a strategic partnership with the automotive electronic suppliers, such as Bosch, Denso, etc., hence leading to an increased consolidation and globalisation process within the auto industry. This will not only ensure setting technological standards for the car makers, but will also allow the firms to concentrate on coming up with innovative business models to earn profits. With these expected developments, it will be challenging for the firms to utilise these changes in the best possible manner.

Disclaimer: I would be right in not claiming to be an expert on this topic, but a student who is still learning the ropes of this industry. Hence, my views are strictly personal, and are most certainly open to debated discussions.

Start of another journey?

I have never been much of a blog person. Well, that can be explained by the fact that I rarely speak something unless I feel it makes sense.

That could probably explain the contents of this blog – it will mostly be posts on events or happenings in the world that interest me, and inspire me to write about them.

And yes, hopefully it lasts for more than a few months 🙂

Ciao!