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Are car manufacturers doomed?

In the not to distant future, once autonomous vehicles are the norm, we will need 10 – 20% of the number of cars that we have today. Considering that we really only use our cars about 5% of the time, in the age of personal transportation with autonomous vehicles, the need is likely to be on the lower side of that estimate. However, when we take into account rural areas and the fact that some of us will always want to own a vehicle we are not talking about as radical a change, more in the region of a 50% reduction in the need for cars. But that is only part of the story.

The Customer is Ready

Car Usage Facts

  • Cars are used about 5% of the available time, Fortune Magazine, March 2016
  • Parking is a real issue for many urban areas

Lease – Don’t Buy

  • Consumers are happy to lease and not buy/own
  • Better value is driving choice
  • Many leases are now fully inclusive of service and insurance

Shared Economy Examples

  • AIRBnB
  • UBER
  • BlahBlah Car
  • Car Ride sharing – house sharing becoming normalised

The implications

  • Consumers do not need to own a car, some will want to which needs to betaken into account.
  • Countries only need about 10% – 20% of the current car fleet as an end game target based on usage but realities will push this to be more like 50%.

So what’s new you may ask, car manufacturers are always under pressure to produce for less.

What is staggeringly new is that at some point in the not to distant future we will not need to have as many cars. In fact we will only need in the region of 1 out of 2 cars that are currently on the road. Now I know that with a convenient personalised transport service demand will increase. But even with an increase in demand we are going to experience massive change.

There can and will be debate on the percentage and timing but in terms of impact we will start to see it in the coming 5 years. And by 2040 we will most likely not need in the order of 50-80% of the current car production capacity but even that is not the key.

This change does not have to mean doom and gloom for the auto maker as there will be more profit on offer, but change is needed. It must be said that the projections will need to be adjusted for natural growth, primarily Asia. However growth will not stave off the looming impact on volumes.

       Sure there are country policies and politics to be played out. But the drivers are all there:

  1. autonomous vehicles;
  2. consumers ready to adapt to this service;
  3. cities that do not want to be clogged up with parked cars, not to mention the drive for clean air.

What may confuse matters is that in the short term, ie the coming 5 or so years, there is a projected growth in demand and production of new cars. At some point this will peak and then we will see the slow and then rapid decline in the need for cars and the rise in personalised transportation. Only those car manufacturers that manage this transition will survive and if history teaches us anything about industry change, the odds are not good, not good at all.

Takeout

There has been a lot of debate and some consternation when Tesla reached a market capitalisation similar to that of General Motors, circa $50 billion. The natural comparison was made looking at what they produce, ie number of cars, 100k cars Vs 10 million cars but this misses the point completely.

To put it simply GM represents the current auto industry and Tesla the future. As we all know valuations are based on the future value potential. In the new auto world it is not volume that will be the driver. It will be customer lifetime value and the car is the delivery mechanism rather than being a single sales event. The fact the sale happens online misses the bigger point.

It could be said that GM’s market capitalisation suggests that investors do not believe it will make the transition.

While there is no guarantee that Tesla will deliver on its valuation, a very tough deliverable, it at least is seen to be on the right track. It not only drives the technology forward but has a clear vision that embraces the way more and more customers see personal transportation. Case in point is the upgrade path to enable autonomous driving in their latest model.

The real challenge is to balance todays needs with tomorrows reality. It is likely that the more an auto maker delivers on todays reality and needs, the less likely they are to be in the game for the long haul as to do so requires real dedication.

In other words profitable car production today is about scale and optimising production. Whereas in the not too distant future the key is to align with how customers see and use personal transportation.

So are car manufacturers doomed? Many of them yes, but advantage to the newcomers as they can build this into their business from the start. So much so that many of the newcomers can have more in common with other industries than the auto one. 

You can download a PDF of the complete article which also includes a copy of the advert, click here.

In addition to undertaking strategic analysis like the current auto industry review, Dr Edward Nugent assists businesses implement sales and marketing systems. He also leads the work with Digital Scorecard which is a way to find out how well a business is using digital in along the whole customer journey. The focus is on what tools to use and how to support sales along the customer journey. If you want to see how to use it for your company, just click here. To get in touch connect on LinkedIn.

By | 2018-06-06T15:17:55+00:00 August 16th, 2017|Strategy|0 Comments