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McElroy says GM has done a good job of leaving Cruise LLC to its own.

Why OEMs Won’t Survive Transition to Mobility

GM, Ford, Mercedes-Benz and BMW have tried and failed with car sharing or ride hailing. Tesla, with its direct connection to customers, probably will thrive in this business. But the traditional OEMs are sure to fail unless they do it in a different way.

At the dawn of the 20th century there were hundreds, if not thousands, of companies in the U.S. making horse-drawn carriages, wagons and carts. Then came the automobile, and none of them survived.

Even though the early horseless carriages were made using the same manufacturing techniques as for horse-drawn carriages, none of the carriage companies made the transition to mass-manufacturing cars.*

That’s because once a company establishes a competence in a given area of business, it’s very difficult for it to transition into something else.

Today, the auto industry is in the early stages of transitioning to a world where mobility will be sold as a service. Instead of buying units (cars), people will buy miles (mobility). So all the major OEMs are trying to figure out how they play a role in MaaS (mobility as a service), but they don’t know how to do it.

McElroy 1 - Copy.jpgGeneral Motors launched a car sharing service called Maven that failed and shut down. Ford launched a ride hailing service using Transit vans called Chariot, which failed and shut down. Mercedes-Benz launched a sharing service called car2go, and BMW started one called Drive Now. Neither one was successful, so Mercedes and BMW merged them into a new company called Share Now. It failed and shut down.

Automakers are really good at designing, engineering, manufacturing and wholesaling cars. Pay attention to that last point, because it’s a critical one. Automakers are wholesalers, not retailers. They don’t have any retail experience. They sell cars to dealers, and they in turn retail them to customers.

Even though I’ve never met a CEO from a car company who had any retail experience, the factory people are really good at telling the dealers how they should run their business. They tell them what their stores should look like, right down to what color the tiles on the showroom floor should be.

And because the factory can withhold hot-selling models unless dealers buy slow-selling ones, they can force dealers to buy whatever is coming off the assembly lines. They even hold back sales incentives unless dealers sell their quota of tires, oil and spare parts.

All this makes the OEMs think they’re really good at selling – after all, the dealers buy whatever the factory tells them to.

But this mindset will not work in the retail world of mobility services. Not even for dealers. They don’t have the right mentality for selling mobility services, either. Haggling over prices and using stalling tactics like “Let me check with the manager” can’t compete with a phone app that delivers instant results.

Soon we’re going to see several OEMs jump into the mobility segment with shared, autonomous vehicles – robotaxis, as they’re often referred to. Tesla, which has a direct relationship with its customers since it doesn’t use franchised dealers, probably will thrive in this business. But the traditional OEMs are sure to fail unless they do it in a different way.

Tom MurphyStudebaker Hawk late 1950s.JPG

Studebaker. Established in 1852, it made it all the way to 1966. Pictured is late 1950s Studebaker Hawk.

GM has done a good job of leaving Cruise LLC to its own. And it allowed Honda, Softbank and T. Rowe Price to invest in Cruise, so it’s no longer just a GM operation. That could give Cruise the independence it needs to continue operating as a startup as it ramps up its robotaxi business.

But if the solution to succeeding with mobility services is to let an outsider do it, where does that leave the OEMs? It means the car companies will become mere suppliers of vehicles for mobility companies.

The good news is, OEMs will continue to make millions of vehicles for years to come. But they no longer will be masters of their own destiny or of their industry. To use an automotive analogy, they’re not going to be in the driver’s seat. 

John McElroy (pictured above, left) is editorial director of Blue Sky Productions and producer of “Autoline Detroit” for WTVS-Channel 56, Detroit.

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