Disruption is everywhere.
From the race to put autonomous vehicles on the road, to the growth in popularity of car sharing, to the battle over car-connectivity control, today’s auto industry is under siege on several fronts.
But how far and how quickly these disruptive technologies and business models take hold, and exactly who wins and who loses, remains up for debate. Whether the paradigm shift is seen as rapid and severe or occurring more slowly, with far less destruction, depends strictly on point of view.
Traditional auto industry players are bracing against the impact from the almost daily emergence of new competitors, but they also understand firsthand the many roadblocks to bringing advanced technologies to market profitably and making new business models work. They are counting on market trends unfolding at a more measured pace and believe there will be plenty of opportunity to secure a piece of the action.
The disrupters contend current players are nearly glacial in their pace, weighed down by legacy investments that make it difficult to react quickly to emerging trends. They envision a near-overnight revolution, with new technologies such as fully autonomous driving or car-sharing services such as Uber, Lyft and Zipcar taking a firm hold in the market within five years, not 10 or 15 – and they see plenty of near-term opportunity to cash in.
Neither viewpoint is wrong, says Scott Corwin, but the reality probably lies somewhere in between, with the two camps likely to become more collaborative than combative over time.
Corwin, director-strategy and operations practice for management consultant Deloitte and the primary author behind a report titled “The Future of Mobility,” says the auto industry is “on the cusp of a pretty significant transformation.”
There are five converging forces cited by the study that will enable new technologies, modes of transportation and forms of ownership to take hold: maturing powertrain technology, lightweight materials, rapid advances in connected vehicles, shifts in mobility preferences and the emergence of autonomous vehicles.
All will pressure automakers and suppliers to evolve more quickly than they would like, but probably not as fast as the disrupters believe, the Deloitte analyst says.
“Most of what’s been written so far (in the popular press) has tried to paint things in black-and-white terms,” Corwin tells WardsAuto. “We say it is going to be gray. We come away with the view that both of these viewpoints are a little too locked in.”
The study puts it succinctly: “Change will happen systematically – a rising tide, not a tsunami.”
However, that doesn’t mean the industry is in control, either.
Automakers, the report points out, believe the best game plan is to incrementally add new vehicle technology while navigating the regulatory waters worldwide and squeezing the last bit of profit out of their current capital.
“Their view understandably is ‛We want to manage the pace of change,’” Corwin says. “(But) the disrupters don’t have this legacy (infrastructure slowing them down). They’ve done this in other industries and they see a very significant set of ways to create value that’s just waiting for these advances to take hold.”
Near-Term Upside for Car Sharing
Of the two biggest disrupters, autonomous driving and car sharing, Deloitte sees the latter as the most likely to take hold quickly, mainly because the potential cost savings will have the biggest near-term appeal for consumers. Deloitte puts the savings related to car sharing at $0.63 per mile for the average driver.
Ride-sharing services such as Uber have been adding 50,000 drivers per month and completed 140 million rides worldwide in 2014 alone, the study notes.
“In cities like San Francisco, ride sharing is cannibalizing people using their own cars,” Corwin says. “What we see over time is vehicle sales will go down and households will decide to give up the second car and mostly urban dwellers will give up the first car.
“According to our economics, if you drive less than 10,000 miles (16,100 km) a year, you might be better off just using ride sharing, car sharing and car rental to serve your personal-vehicle needs,” he adds. “That’s a fundamental change, (and) we haven’t hit the apex of that (yet).”
Autonomous driving has more hurdles, Deloitte points out, from reliability of sensors in all weather conditions to availability of 3-D mapping and concerns over cybersecurity. There also are regulatory issues and questions around how quickly consumers will adapt to cars that drive themselves.
Those could be stumbling blocks the disrupters are not prepared for, industry insiders suggest.
“When somebody says, ‛Hey, we’ve got a new entrant here who’s going to come in and revolutionize the industry’…quite often that’s fairly naïve,” Magna International CEO Don Walker tells the Financial Times.
Automakers are moving to protect their turf. Ford, Toyota, Honda, Mercedes, BMW, Audi and others already have set up offices in Silicon Valley to help speed introduction of new connectivity and other advanced technologies. Several are tiptoeing into the car-sharing business in trial programs around the country, and just about every car manufacturer is pouring engineering resources into autonomous-vehicle development.
“There’s a lot of experimentation, and they’re making some focused investments,” Corwin notes. “The question is whether it’s sufficient and fast enough. Do we hit a tipping point sooner than the auto industry thinks?
“There’s a natural tendency to keep close to your knitting, because that’s what you’re good at. But in environments where you have a lot of disruptive change, like this one, that might not be sufficient.”
Start the Evolution
The Deloitte study recommends automakers immediately begin the evolution away from simply making and selling cars and toward becoming end-to-end mobility-services providers.
Automakers seem to agree it’s time to move. Ford, for instance, expects its office in Silicon Valley to help it better connect with the technology innovators and garner a bigger piece of the marketplace action.
“Even if we get a small amount, it could be hugely beneficial to the company,” Ford CEO Mark Fields tells Forbes. “This is not about moving from an old business to a new business. This is about moving to a bigger business.”
General Motors CEO Mary Barra says there’s “a huge sense of urgency” at her company.
“There is a lot happening in this industry,” she tells The Wall Street Journal. “It is in transformation, and many times in transformation there are winners and losers. We not only want to win, we want to win and define.”
CEO Dieter Zetsche says Daimler won’t become the auto industry’s Foxconn, referring to the China-based contract manufacturer of iPhones, promising to carve out ground in these new-technology businesses.
In the end, it’s more likely the disrupters and incumbent automakers and suppliers will work together, rather than seek to drive each other out of the market.
“I’m not sure it’s an us-versus-them thing,” Mark Reuss, GM’s head of product development, tells Bloomberg Businessweek.
Deloitte’s Corwin agrees.
“Ultimately, they need each other…because of the sets of capabilities they bring,” he says. “However, the industry can’t wait to figure all this out. They need to move pretty quickly, because things are happening at a pretty fast pace.”