Fresh understanding of auto industry’s core business

One of the most interesting exercises companies and even whole industries undertake every now and then is to ask themselves what their core business is.

The discussion usually starts with one or other person (usually medium to senior management) saying “our business is to make widgets, or deliver such and a such a service”. That is the cue to ask the trick question, “and what do your customers do with the widgets or services?” Then, minutes, hours or days later comes the light bulb moment when the company leadership identifies what their business really is.

It always helps to have someone ask the customers as well – provided you ask the right questions. Market research too often focuses heavily on brands, and not on what it is that people do with the brands. As consumers become more educated and informed, they realise that one washing powder is pretty much as good as another – so they buy the cheapest. Shrinking buying power also encourages consumers and companies to change old habits and suppliers.

For the motor industry, the tipping point has been a combination of rising fuel prices, global warming and commoditization. With a few notable exceptions, any car within a specific class and price bracket performs pretty much the same as all the others in its sector. Differentiators include styling and the value-adds such as infotainment, Bluetooth, etc – all of which become standard over time.
As a result, OEMs have started defining their business as one of providing mobility, rather than selling cars, trucks, buses, motorbikes or bicycles. Once you do that, you free yourself from commitment to any one power train family. Those OEMs with the necessary resources are covering all bases by adding hybrids, all-electric, and hydrogen-powered vehicles to their existing mix of gasoline and diesel. Traditional gas and diesel engines are also producing increasingly more power with less fuel.
Some manufacturers have even added bicycles, motorcycles and mopeds to their mix – along with buses of various sizes. The extension of the range is a logical and necessary step once your business has been defined as one of providing mobility to the commuters of the world. Another related trend is the redefinition of ownership. If the average driver only wants a vehicle because it gets them from A to B (sacrilegious as this may sound to car guys and girls), and their needs change over weekends or holidays, then it makes sense to see ownership as a kind of rental pool, with drivers having access to vehicles designed for the purpose they need at the time. What would really boost the use of all-electric vehicles is the option to step into something with longer legs whenever you need to leave town.

Such options would also support the increasingly beleaguered dealerships. The dealer would store, manage and maintain the fleet of vehicles, which would probably differ between towns and districts. We are already seeing dealerships moving into the business of car rental.

The implications for the motor industry get really interesting. OEMs with a wide range of models in their portfolio are in the strongest position. And, if consumers and fleet operators are ready to make the change, then there is a new force on the horizon – finance houses and venture capitalists. They already have a relationship with the driving public and business fleets. It can be argued that they have already done the groundwork through lease and buy-back schemes. A large percentage of new vehicles is never really owned – the driver just pays for the right to use it until it is traded in on another model.

For OEMs, the threat is that such schemes could take market share from their own financing, which has become an essential part of the business. An independent scheme would also not have to be brand loyal. It could cherry-pick the best and most popular models from a range of OEMs – supported by a network of multi-brand or independent dealers.

Whichever way it goes, component suppliers are going to continue coming under increasing pressure to reduce costs, innovate, and work in partnership with OEMs. In this edition of Automotive Industries, we highlight some of the leaders.