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Auto Industry Worries Too Much About Technology Threats

Auto Industry Worries Too Much About Technology Threats.

“automotive industry will see more change in the next 10 years than in the previous 100”

    “The only thing we have to fear is, fear itself,” said President Franklin D. Roosevelt in his 1933 inaugural address, and major auto manufacturers might bear those words in mind as they terrify themselves with worries about the future.

    In a speech to the Automotive News Congress in Munich, Germany, BMW sales and marketing chief Ian Robertson said the automotive industry will see more change in the next 10 years than in the previous 100, and warned that at this crucial crossroads any company which failed to adapt to the new technologies might be face an existential threat.

    At the same conference, Peter Fuss, partner at consultants Ernst & Young’s (EY) Global Automotive Center in Frankfurt, Germany, talked about lurking digital disrupters like Google or Apple who might strike if the auto business didn’t embrace autonomous cars and connectivity generally, although to be fair he did say he expected the industry to survive for another 100 years. He didn’t say who would control it though.

    BMW’s Robertson said the company was busily experimenting with car sharing schemes, and said the shift to connected and electric cars, and new ways of offering mobility was encouraging outside entrepreneurs and venture capitalists to challenge the status quo. Traditional high barriers to entry are toppling.

    BMW CEO Harald Krueger also pointed to the new threats looming from the artificial intelligence in general and Tesla in particular.

    “Until very recently our competitors were Mercedes, Audi and Porsche. Now we are looking at newcomers such as Tesla or Faraday Future – who knew these companies 10 years ago? And of course high tech players like Google, Apple, Baidu or Alibaba,” Krueger said in a speech after the conference.

    But Krueger also struck a brave note, saying said this would be an opportunity for BMW rather than a threat.    

    BMW’s actions mirror just about every major auto maker. For instance Volkswagen recently invested $300 million in Israeli ride-sharer Gett. GM bought a stake in Lyft and Toyota recently took a stake in Uber. More millions are being spent on developing autonomous cars too.

    All major auto manufacturers are exploring the notion that soon people won’t own cars; they will simply rent mobility when required. This is based on the rational-sounding theory that if most cars are only used for say, 4%, of the time, it make sense to just pay for when you need one. This sounds sensible, but making it into reality will take a big leap. And then there is the pursuit of battery cars. Is a battery car with twice the range and half the price of conventional ones about to appear? Or will they be bypassed by fuel-cells?

    Wasted Capital
    These are all very expensive items for research, and the industry seems baffled about which option makes the most sense. Until a firm direction is established, much capital will be wasted.

    Boston Consulting Group (BCG) put the dilemma this way in a recent report.

    “Fuelled by new technology and consumer needs, non-traditional competitors are entering the auto industry with connected software, artificial intelligence, alternative fuels, and share mobility networks. For those new entrants – such as Tesla with electric vehicle technology, Uber with its collaborative consumption model, and Google and Apple with autonomous vehicles – industry shifts signal opportunities. But for incumbents, the represent uncertainty and perhaps even an existential challenge,” BCG said.

    On the other hand, that might also be a false alarm.

    “Changes in the auto industry could also be much less dramatic, considering the many factors that must fall into place for radical new futures to unfold. Electric vehicle adoption is complicated by low oil prices, uncertainty about future tax credits, and the challenging economics of electric charging stations; autonomous vehicle adoption requires error-proof technology, regulatory clearance, and consumers’ willingness to change how they think about mobility; and shared ownership models must be customized for cities and suburbs, where people have very different mobility needs,” BCG said.

    John Wormald, managing partner of U.K. automotive consultancy Autopolis, believes the industry cassandras are getting ahead of themselves.

    “The automotive industry is well entrenched in the way it does things and there’s enormous investment involved. Like a supertanker, it’s not going to change direction quickly, but I don’t see anything in the marketplace suggesting a sudden embrace of self-driving cars or electric ones for that matter. People want their cars, and seem well satisfied with what they’re getting now,” Wormald said in an interview.

    “Individual transport is not going away in a hurry unless there’s some disruption like a huge oil supply problem. Certainly one day things will change and we will no longer have the kinds of vehicles we have now. And probably the large fast and powerful cars made by BMW and those premium car manufacturers will be the first to be threatened when this happens,” Wormald said.

    EY, in a report, said the traditional automotive industry must be ruthless to survive.

    “(incumbents) will not out-innovate disruptors unless they view their own legacy business as an enemy. They will succeed only by confronting inherent constraints and shaking up their businesses. From the disruptor’s perspective, cars will no longer be the focal point of mobility and will become just one element of a much larger platform of experiences tailored to the multi-faceted needs of individual customers,” EY said.

    Desperately seeking
    For Wormald, this suggests perhaps consultancies might be a bit too eager to spread worry about future threats.

    “I can’t help feeling these guys are desperately looking for the next sales pitch. Sure, in the future we will be travelling around in little electric pods and that won’t be good for those companies which now rely on strong brand image and appeals to driving pleasure. I understand their anxiety absolutely and ultimately there will be a very real threat to their existence, but when is ultimately. Only when the whole pattern of life seriously changes,” he said. 

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