The Automaker’s Dilemma

From Henry Ford’s ground breaking Model T, to the emergence of four wheel drives during WWII — and now Elon Musk’s self-driving EV’s, automotive consumers have enjoyed over 100 years of continuous innovation.

While these innovations have been embraced by consumers since the last century, we are at the tipping point of an industrial transition that is about to change car ownership trends forever. The transition would be underpinned by forces like digital disruption and consumer behaviour — driven by demographic shift.

Consider baby boomers who are currently the largest automotive consumers and their aging population which would be 65 by 2025 — on average. It is common knowledge that baby boomers drive much less in their peak years than when they are in active employment and when raising a family.

Millennials on the other hand will increasingly become a complex set of demography to sell to because of socio-cultural and economic factors that will continue to impact on their consumption behaviours. Automation, disruption and dis-inter-mediation that will emerge at an unprecedented scale within the next decade will also disrupt over 10 million jobs and millennials will account for over 60% of the loss. While around 4.5 million jobs would be created at the same time, new jobs would be flexible, digital and will require less travel. Consequently, millennials are going to travel less and move from job to job in quick succession; this is likely to have implications for income stability which will challenge the confidence of the millennial consumer and compel them to turn to the access economy.

There is the generation Z, the one after millennials who will demonstrate an even more complex consumption lifestyle than millennial cohorts. As the generation Z understand digital than every other generational group, their consumption behaviours are going to be influenced among other things by the digital culture. Take for instance, the increasing cost of car acquisition and insurance or the stress in identifying safe parking location in urban centres. Both millennial and generation Z cohorts will increasingly have less motivation to own a car to avoid such stress. Instead, access through digital collaborative consumption will be considered as viable option — especially as many jobs and mundane tasks such as shopping will be done online and through growing on-demand digital services.

With advances unfolding in on-demand logistic services, e-commerce providers will increase their delivery speed making same hour, same day shopping available to consumers over the next decade. This means that the average trip made for shopping will decline. At the same time, niche mobility services will proliferate — making way for better accessibility and availability of shared transport services.

Emergence of innovative public and water transport services will join the race towards a more modern world of creative mobility. The cumulative effect of such development will provide less motivation for car ownership and ride-sharing services would be compelled to respond to consumer and market changes than previously.

Within a decade from now, many ride-sharing services will become part of a wider mobility as a service package sold to travelers — enabling them to access different modes of transportation for a fraction of the cost. To meet the enormous challenges that the new industry will create, future ride-sharing services will see the need to move away from the idea of ‘fleet manager’ to providers of intelligent mobility.

Such transition will change what it means to travel as notions of inter-connectivity and experience will become important features of urban transportation.

The above trajectories will lead mobility service providers into having higher bargaining power that will make automotive marketing shift away from the single consumer — as sales target. Consider how much Toyota Prius models have been sold through partnership with UBER to thousands of drivers during the last four years. Mobility services will wield even more power in the future as they will determine most metrics of car production such as colour, interior, model, embedded software and distribution in ways that single consumers have never been able to determine. This will undermine the independence, production latitude and level at which automotive providers can sustain their operations going forward.

Similarly, while automakers are finding reasons to behave like tech disruptors, provision of intelligent mobility will be outside the remit of their capability and experience. One reason is because it would require automakers to become nimble and agile; a risk which only a few would be prepared to make.

Consider the music and publishing industry which have undergone digital transformation during the last fifteen years; the very few winners of today have managed to survive because of their constant adjustment to the industry state of flux. And the biggest winners of today have come from outside the traditional music industry. Like the music industry, disruptive forces will make automakers become relics of the old industrial revolution.

Automakers that want to survive the market transformation will have to see their future beyond the provision of manufactured vehicles or the acquisition of ride-sharing services as many have ventured into during the last few years. Invention of new car clubs will not even solve the problem.

Automakers of tomorrow will be the ambidextrous ones of today who understand that automotive innovation will not only be about joining the autonomous or ride-sharing band wagon alone but exploring and exploiting the whole space by becoming nimble, fast and agile while seeing themselves as champions of a new revolution in intelligent mobility.