The automotive industry is facing new and pressing challenges. Globalization, individualization, digitalization and increasing competition are changing the face of the industry as we know it. In addition, increasing safety requirements and voluntary environmental commitments by the automotive industry will also contribute to the changes ahead. Size is no longer a guarantee of success. Only those companies that find new ways to create value will prosper in the future.​

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THE EVOLVING AUTOMOTIVE LANDSCAPE​​

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The global automotive industry is subject to a range of factors that are increasing complexity and influencing the economic options available to automobile manufacturers. The majority of these factors interact with one another and have strong interdependencies. However, some of these factors are market-induced and, consequently, cannot be influenced directly by the automobile manufacturers.
These factors include:

 

Globalization, regionalization and market convergence – Due to the effects of liberalization, national markets are increasingly globalized. This gives OEMs the chance to expand to new markets, but also increases the threat of new entrants or increased competition in traditional markets. For example, European OEMs currently face an aggressive sales offensive by Korean OEM Hyundai. The reverse side of globalization is regionalization, which means that local tastes and consumer preferences have to be considered by companies. The concept of a standardized “world car” as promoted by Ford a few years ago would not succeed in today’s world. Another problem for an OEM is market convergence due to digitalization of almost all products and value-add processes. On the market side, the increased pervasion of products with digital technology leads to new vertical and horizontal partnerships between all kinds of companies (e.g., an electronics company as a valueadd partner for the automotive industry), thus increasingly eliminating traditional industry limits. This eventually raises the question for a company as to who is a partner and who is a competitor in the company’s field of business.

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Increasingly diversified consumer aggregate patterns of behavior – Consumers no longer accept standardized products, but want products that satisfy their individual requirements. Target groups thus have to be downsized by companies so customers will be attracted by the products offered. However, because of the increased global competition with a stronger focus on price and not on brand loyalty, consumers generally do not reward companies for their more individualized
products.

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As a result of these factors, automobile manufacturers have new demanding requirements within their field of activity:
• Accelerated modification and diversification of the product portfolio – The OEM has to shorten product lifecycles in order to react to individualized and fast-changing consumer demands with innovative products. In the past, an average product lifecycle in the automotive industry was eight years; today, lifecycles are much shorter, or at least the product’s design is often modified after just two or three years on the market. With development costs for a new model remaining on the same level or even increasing, this concurrently means a shortening of amortization time for the OEM and, potentially, lower profits.
• Pervasion of automobiles with digital technology – In 2002, digital technology in cars already averaged 22 percent of the total value of a car, with a forecasted increase to 55 percent of the total value in 2022. 1 But for an OEM, the integration of hardware and software into automobiles represents the predominant accelerator of increased functionality coupled with increasing complexity. This complexity results in over-strained car development departments, product failures, a cost explosion with respect to guarantee and warranty costs, and impact on customer satisfaction.
• Increased pressure for innovation and flexibility in development and manufacturing – OEMs’ development departments are not just overburdened by the complexity of digital technology, but also by the shortening of product lifecycles. Another aspect is the increasing number of parallel development projects since OEMs develop more and more niche models for special target groups. This certainly requires the use of new development techniques such as virtual reality. For example, this technique enabled BMW to shorten the development time of its Z4 model to just 30 months. 2 On the production side, flexible assembly lines become a key success factor to enable OEMs to react quickly to individualized consumer demands. However, flexibility cannot be ensured only by using new technology. Completely new production concepts have to be developed to systematically manage the complexity in car production. This eventually requires outsourcing of responsibilities and activities to a variety of cooperation partners, thus demanding new ways of managing cooperation partners or even the development of business webs.