The Sao Paolo-ization of the world continues apace: China is building a massive megalopolis around Beijing. It's a zone as big as Kansas, comprising urban centers whose combined population constitutes New York City times six, all connected by high-speed rail. Hard to tell if automakers should be sanguine or somber. Probably the latter. China is the last growth opportunity for cars, after all.
Urbanization is a change agent that research firm
IHS throws into the mix in its new report, which looks at five major global challenges to carmakers. All of them are compelling, especially where the connected and autonomous car world is concerned.
But the issues that maybe aren't as dazzling as new technology are ones that will have the biggest influence nonetheless, and they are also the ones automakers are certainly addressing right now, or
should be if they plan to be around for a while: too many players selling too many vehicles to a dwindling number of buyers of new cars and trucks.
If one assumes best-case scenario (a relatively healthy global economy hungry for vehicles) automakers still face a world of dwindling share and forced rationalization of manufacturing volume, regardless of how flexible their assembly operations are and/or how quickly they can respond to changing consumer demand and market fundamentals. In the report, IHS Auto director Colin Couchman writes that in 2000 IHS Auto tracked 89 OEMs offering a total of 1,544 models around the world. This year the number of OEMs will hit 97, with models up to 2,306. That's a 22% increase in OEM numbers, he notes.
On global sales volume, maturity is a bad word. IHS points out that sales are flattening in Japan and Europe, and will do so in the U.S. Because of Japan and Europe, IHS says, light vehicle sales will increase at a compounded annual rate of 3.1% through 2017. That's down from 4.7% from 2008 to 2019. In mega urbanizing China, the competition is already brutal. As Couchman points out, not playing to win there is not an option for global automakers who need to drive massive volume to be profitable (given where per-vehicle margins are today.)
And then there's the loyalty issue, partly a direct consequence of the growing ranks of brands and models. I remember back in the Pleistocene when I was a kid, you were a Ford guy or a Chevy guy, or a Dodge guy, or die-hard Beetle owner (I had three Bugs at one point.) Nowadays, with so many different vehicles from so many different brands, all churning on shorter and shorter product cycles, and all with a hyper aggressive focus on next-generation technology, automotive loyalty may become something of an oxymoron. I'm thinking that in the near future the person who says "I only buy Toyota" will be saying it in the day room.
Only half of buyers in the U.S. now stick to the brand of vehicle they bought, according to IHS. The war for the other 50% is, therefore, brutal. All of this gets tougher when one considers that younger people, the next population of prospects, are far from passionate about owning cars. That's an un-virtuous cycle right there: generation Z and whatever comes after that will have waning interest in owning cars as they move to cities and connect more solipsistically to other people via various screens, a development I, personally, deplore. More and more, cars will compete with the Internet, the people mover, and the Fresh Direct truck. Car branding will compete with the urban car as people mover, actually.
So, as IHS points out in this rather dour section of the report, automakers need to focus on keeping owners loyal and then attract new customers. NO!! Really? What's new about that? nothing. But they are right in saying that appealing to wants and needs of current and future buyers at every life stage is a lot harder now. Things are moving too fast; if the car business isn't setting a new bar every week, the consumer electronics/connected everything business certainly seems to be. A friend of a friend has a coffeemaker that knows when he's out of coffee. I think it even orders a new package via Amazon. Consumers with money expect technology that may not even exist yet. This one-degree-removed friend probably only THINKS his coffeemaker thinks for itself.
So, from my perspective, the bottom line is nimble organization; nimble way beyond manufacturing. Automakers have to be the change agent they used to be. Flexibility is already table stakes, so it has to be in terms of what the company actually perceives its purpose to be today, tomorrow, and next year; whether it's car sharing, connected cars, self-driving cars. We are at a point now where the products themselves will change what brands mean, not the other way around. Even brands with rock solid equity will be in serious trouble if they think they can rely on that anchor to keep the brand from being lost at sea. “The ultimate driving machine” might end up a completely meaningless distinction in an age where the ultimate driving machine is one you don't actually drive.