73 The coming transformation of the automotive industry Marc Winterhoff, Carsten Kahner, Simon Schnurrer and Christopher Ulrich The automotive industry The automotive industry is caught in the middle of a crisis is going through a crisis of unprecedented magnitude. The entire industry is para- unprecedented in its cen- lyzed as various players disagree about whether the crisis tury-long history. Optimis- has bottomed out already. While enormous government tic commentators predict subsidies have fueled recent recoveries in the US, Europe that strong demand from and China, the outlook for automotive markets around the the BRIC countries and world is still unclear. growing market penetra- tion of hybrid or electrical Until recently, the automotive industry was predicting a vehicles will propel the in- complete market recovery and a return to former growth dustry back to growth in rates after riding out the current crisis (see Table 1). Two the wake of the financial drivers were cited for this hoped-for recovery: strong de- crisis. A more comprehen- mand in the BRIC countries and increasing market penetra- sive analysis on key driv- tion of hybrid or electrical vehicles. ers indicates that we are instead nearing the end This hopeful prediction overlooks the fact that the financial of the global automotive crisis was certainly not the sole cause of the massive col- industry as we know it. lapse in car sales. Customer demand was already changing fundamentally, rooted in growing concerns about climate change and the skyrocketing oil price, before the crisis broke. While these two well-known long-term trends with global impact had not attracted much attention from the automotive industry until then, they led to a noticeable weakening of the market and considerable segment shifts from big, luxurious to smaller, fuel-efficient vehicles. We are now near the end of the global automotive industry as we know it. In this article we will first highlight the four drivers of its coming transformation: consumers’ changing mobility preferences, government intervention related to the environment and industry structure, technology shifts and the upheaval in the competitive landscape. We will then explore how these changes will affect the rules of the game and what today’s leaders should do to stay on the winning side. Prism / 2 / 2009 The coming transformation of the automotive industry 74 75 Table 1 Two scenarios for passenger car sales development Starting from these trends, future consumers can be grouped into various “mobility types” as a function of the Passenger cars sold worldwide car and mobility concepts they prefer. These preferences (million vehicles p.a.) in turn are shaped by consumers’ sociological environment 70 ■ Financial crisis ■ Complete market recovery; global and lifestyles. We have identified seven mobility types for growth back to pre-crisis rates ■ CO debate the triad markets and three for the emerging markets (see 65 2 ■ Double-digit growth in BRICs ■ Product crisis compensates lower growth in triad Table 3). ■ 60 Structural crisis ■ Replacement investments driven by A aligned product portfolios Let’s take the “greenovator” mobility type, for example. It is 55 probably the predominant type for the triad markets, mak- B ■ Growth in BRIC markets only ing up just under 30 % of the total market there in 2020. 50 ■ Sinking demand in triad markets ■ Consumers’ growing reluctance on Greenovators link environmental awareness and a sustain- 45 car ownership and demand for new able lifestyle directly with their quality of life. Restraint in mobility solutions Growth Downturn Underutilization Normalization consumption and luxury is an essential component of their 40 understanding of culture and life – with obvious consequenc- 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 es for mobility consumption. They are primarily interested in Source: Global Insight, Feb. 2009, World market Passenger Cars without LCV; Arthur D. Little study “The Future of Mobility 2020" intelligent, sustainable and to some extent even ascetic car concepts. They will put more complex demands on mobil- ity products and services. They want integrated ecological Consumers’ changing mobility preferences mobility concepts that are oriented towards both their own personal well-being and the good of society. Especially in the triad markets (North America, Europe and Japan), car ownership in most segments has been a status symbol, with consumers continuously seeking horsepower Table 2 Trends affecting consumer demand and size upgrades. Today consumer demand is shifting Megatrends Consumer trends towards lower-cost, individualized, environmentally friendly, (20 to 30 years) (5 to 10 years) easy-to-use and easy-to-access mobility. Several mega- Participation of women in Female shift Downaging Third phase of life is active trends with a horizon of 20 to 30 years and consumer out-of-home activities trends with a horizon of 5 to 10 years are driving this shift Consumer wishes purity and Simplify Consumers’ disengagement simplicity (see Table 2). Individualization from mass movements Consumer looks for integrated Deep support support Let’s take the “mobility” mega-trend, for example. It The economic and political Silver revolution Family configurations change describes the strong quantitative growth in mobility and power of retired people Family 2.0 regularly Starting from these trends, the expansion of consumers’ mobility radius in the triad Interdependence of the world's Life is a sequence of diverse Globalization Multi-life paths future consumers can markets over the last 30 years. This trend is now visible markets and businesses experiences be grouped into various in the emerging markets too. But the gigantic benefits of Individual freely deploys his Environmental responsibility New luxury “mobility types” as a func- increased mobility have to be put against the negative ef- Neo-ecology or her own time at individual and company level tion of the car and mobility fects of pollution and congestion. Innovative car concepts Urban design focuses on Neo-cities zero-emission concepts they prefer. alone will not get us out of this quandary. Vehicle-linked Anywhere anytime access to Connectivity information and people Design appears in all price mobility will have to be integrated with other mobility Cheap chic forms. Consumers increasingly expect mobility solutions segments Expansion of the mobility radius Consumers pursue a holistic that fit with their personal attitudes toward life. They are Mobility Greenomics of individuals lifestyle looking for individualized car concepts and innovative mobil- ity concepts that go beyond the automobile. Source: Arthur D. Little study “The Future of Mobility 2020“ Prism / 2 / 2009 The coming transformation of the automotive industry 76 77 Table 3 Mobility types 2020 at city level – has become a key driver of consumer behav- ior in automotive markets globally. It has also spurred the Mobility types triad markets Mobility types emerging markets development or, in some instances, ensured the survival of existing industry structures. ■ Takes into account the socio-ecological Greenovator consequences of mobility ■ Demands innovative and sustainable solutions ■ Status, prestige, National governments and large cities set regulations and comfort ■ Heavily depends on mobility in an increasingly Premium ■ Family Cruiser Differentiation introduce specific measures. Today a heterogeneous mix of fragmented network of family and friends as winner non-harmonized incentives and penalties is in place. They ■ Actively engages in the third phase of life have a significant impact on the country-specific total cost Silver Driver ■ Has ample product experience and a high quality awareness of ownership (TCO) of a vehicle. TCO differences between € ■ Has an everyday life characterized by high countries easily run to 10,000 per year. Accordingly car High-Frequency mobility frequency ■ Low-priced medium- manufacturers must fulfill the local legal requirements and Commuter ■ Needs mobility predominantly in tomorrow’s Smart Basic class products align their product portfolios with local regulations to stay mega-cities ■ Possibility of individualization competitive. ■ Needs global mobility as a prerequisite for Global Jet Setter fulfilling the job ■ Demands exclusive premium support Notable TCO differences between countries are every- ■ Basis mobility where. Take the car-scrap programs, for example. While ■ Looks at mobility as a symbol of liberty, a fun ■ Simple and Sensation Seeker lifestyle, status and prestige cost-effective some countries, such as Germany, have not linked the car- Basic products scrap bonus to emissions, other countries, such as France, ■ Has a limited mobility budget and needs ■ Preference for Low-End Mobility mobility solutions nationally produced the US and China, have graded the bonus according to products ■ Is ready to downgrade mobility requirements carbon emissions or incentivized the purchase of electric vehicles. Likewise, strategies to regulate access to urban Source: Arthur D. Little study “The Future of Mobility 2020“ areas differ between cities. They include charges based on the number of entrances (e.g., London and Stockholm) or National governments and emission class (e.g., Milan), low-emission and environmen- In the emerging markets similar mobility types are appear- large cities set regulations tal zones (e.g., Stuttgart and Berlin), and transit restrictions ing to those that arose in the triad markets over the last