I love January. As the saying goes, “New Year, New You.” And new cars. LOTS of new cars, announcements and demonstrations how the car will evolve with new features, content and systems. This year the volley started early with huge announcements in week 1 at the Computer Electronics Show in Las Vegas and will continue in weeks 2 and 3 the Automotive News World Congress and North American International Auto Show in Detroit.
There are some mega-trends emerging from the recent announcements and research SAP has conducted over the past six months and will progressively make available through its social channels over the course of 2016. Economically, a number of impacts are at work. With the fall of crude oil prices and other commodities, and North American volumes hitting pre-recession levels of 17.5M units in the passenger vehicle segment, growth is expected to continue. However it will be a different kind of growth based on the evolution of the value chain, as well as general expectancy that global AGR levels will taper from 7.8% (from 2009 to 2015) to 2.8% (from 2016 to 2020) according to IHS, and the retention length of vehicles rising to over 12 years on average. OEM consolidation will likely follow in the next decade to help keep growth moderate and remove industry structural costs.
The “Future of the Car” is changing as well, from mostly mechanical and metal-based vehicles to a connected set of component platforms, plastics and next-generation materials essentially creating a rolling data center providing safety and entertainment going from Point A to Point B. Social acceptance of a fully autonomous vehicle – and the regulatory environment supporting that – is likely 5-10 years out based on current forecasts (OESA, CAR). However a connected vehicle – depending upon what your definition of “connected” is and what services that uses – is here today, both on the public highways and in prototype communities like M City.
(Image: Hewlett Packard)
What does all of this mean for SAP’s automotive OEM and supplier customers? It means companies have significant choices in product design, value chain placement (and respective participation), and customer experience to define the organization for the next few years to come. Last year I asked executives “are you buyers or sellers?” This year I am more apt to ask “are you a platform maker or owner?” as makers and innovation will rule the ability of OEMs and suppliers to not only have the profit to make acquisitions but also determine the position of the portfolio in the value chain where they will drive content. And content is profit, and profit means growth. And growth means you survive and prosper in an ebbing business cycle.
Here are some disruptions and mega-trends coming out of this month’s automotive announcements. As more become available during the month (or as forecasts change, which of course they will) I will update this post as appropriate.
Platform makers – OEMs as well as suppliers – will garner market share moving forward. Tesla, Google, Faraday, Bosch and Delphi (among others) have stated their interest and staked their claim as disruptors owning a platform. Not necessarily as a classic car company. Those companies unwilling to embark on a journey to digitize not only their product portfolio but their business operations and unleash new platform business models, will be relegated to “seller” status going into the 2020s.
Auto makers and suppliers need to stake their claim now based on these and other mega-trends to build their financial assets to continue growth throughout the balance of the decade and beyond.
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