Sunday, February 19, 2012

Changing Contours of Automotive Industry

This is a re post of my blog post at Infosys Manufacturing Talk 

Automotive industry which is about 11% of developed-world GDP is undergoing a transformation of sorts due to various market and non-market forces. At one end, car makers are grappling with shifting customer preferences. On other end, various political-socio-economic factors like recession, rising fuel prices, urbanization, government policies are impacting the industry dynamics. Some of the key trends which are changing the very contours of the automotive industry are:

  • Automotive design is increasingly influenced by safety, urban planning and environmental concerns: Hybrid & Electric cars will grow steadily and ICEs will dominate only till 2020. Fuel Efficiency (91%) and Safety (81%) are top consumer purchase reasons. Urban planning norms has also become important, for instance New York City laid down design guidelines for 'taxis of tomorrow'.

  • Entry of New Players & Changing Roles in Value Chain: With rise of electric vehicles, grid electricity providers will become a part of value chain. Battery, electric motor, inverter producing companies will enter the value chain in future. Urban congestion is driving Smart Mobility which would create mobility ecosystems and change the roles of various automotive players and their business models.

  • Growing importance of digital technologies to meet customer demand for extreme personalization and empowerment: A Yahoo-IMRB survey found that 62% of future car buyers say that they will look for information on internet. Customers are expecting personalized products and services. Customization is 30 % of what draws a person to a brand today.

  • A Car which goes beyond mobility: Demand for rich customer experience and features has set the stage for path-breaking 'Connected Car' concept which brings Smart Navigation, Communications, Entertainment, Increased Safety & Security, Marketing and Commerce to its customer. It is expected that consumption of telematics apps would grow by 97.5% over the next 5 years.

  • Supply Chain Risk Management: Recent supply chain disruptions like the Earthquake in Japan, Egypt unrest have adversely impacted various automotive companies. Automotive companies are coming to terms with volatility of business environment and looking for ways to rejig their operations model to become more resilient and adaptable.

  • Growing Importance of Reverse Supply Chain and After-market: EU ELV Directive 2005/293/ECmandates recovery/recycling targets of 95% by 2015 for End-of-Life Vehicles. Sustainability driven regulations will put the spotlight on reverse supply chain. The automotive recycling industry has$22 billion in sales annually in USA alone. With margins on car sales under constant pressure, After-market (which accounts for about 60% of total OEM revenues) will become key revenue source in future. Emerging markets are expected to clock 5 to 15% growth in aftermarkets.

In past, trends in automotive industry were characterized by globalization. In future, it would be characterized by changing business models and industry landscape. 

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