Leading Automotive 2.0

For the last 100+ years the Automotive industry and its supply chain network have had very little innovation from a process standpoint. The tiered level supplier structure remains mostly identical and the flow of relationships and responsibilities have only been slightly modified for incremental gains around margin, quality and logistics.

The most significant transition is Automotive OEM’s bringing more work in-house. This is done for several reasons, ranging from accelerating innovation to perceived financial gains. An in-house model can work well in areas that require the OEM to establish a leadership position and ensure that technologies are being used to their fullest as part of the entire vehicle system. At the other end of the spectrum, Automotive OEM’s are outsourcing entire vehicle subsystems to the supplier market, encompassing engineering, manufacturing planning and validation through to actual production and assembly delivery. A visible example of this is the high-end, lower production volume Mercedes G-Class which is completely built and delivered, badging and all, to Mercedes for distribution to their dealership network.   

In every variation of this process, even the extreme case of Magna delivering complete vehicles to Daimler, the auto OEM is one step removed from the end customer - a very dangerous position to be in. Today, the firm which owns the relationship with consumers commands the entire orchestration of B2B and B2C commerce. They can constantly improve offerings, add new revenue streams and manage the single point of contact to enhance customer value. Behind the scenes there are multiple commodity providers vying for business, and they too are coming up with new business models to own the relationship with consumers. Consequently, within the next 10 years the new face of the Auto2.0 industry will be unrecognisable.

Auto 2.0 will be dominated by firms that own and operate the software and interface systems which build a new and more efficient value chain. A multitude of articles have been written about Autonomous vehicles and the next generations of potential consumers who do not have the same passion to own their cars. There has been far less coverage on which major disruptions will pierce the auto industry. Consumers will have lost the concept of brand loyalty to a specific auto OEM, especially in signing up for a big debt that they need to pay off every month. There will be a shift from ownership towards any medium that can conveniently transport them from point A to B with the least friction and highest level of comfort. Organisations already leveraging these ride sharing capabilities include Uber, Lyft and Grab and they are rapidly displacing the necessity of ownership. There are OEM’s that are investing in technology to varying degrees, but these are very big and slow-moving giants that may not be nimble enough to capture the market share. The next category to look at is today’s supplier network. Many suppliers have been very aggressive in buying up technology, spinning off businesses and separating the old from the new. Finally, you have a whole new breed of up and coming software ventures, some of which are probably starting in someone’s basement today. They will prove to have the best AI and sensing equipment to support Autonomous vehicles, understand the customer demographics, and create new revenue models that outsmart the giants of today. 

This entails significant implications for Auto2.0, a customer will be loyal to Lyft, Waymo, Joe’s Jalopies and a number of other names we haven’t seen yet. What happens to the ones that missed the market? They become the supply network. The companies with the software that is cutting-edge own the revenue stream and win the war. All they require is a supply chain network to provide them with the vehicles, which are now the commodity. There are suppliers that are better positioned to gain the “relationship” with the consumer, and a strong contender is the interior/seating suppliers. This is really the only area of the vehicle consumer’s can interface with. By creating the most appealing customer experience within the cockpit, consumers are going to be driven to request vehicles based solely on interior comforts. 

I couldn’t be more excited to be working in the automotive industry today. It takes me back to the memories I have as being a kid and believing anything is possible. Now more than ever I hold that statement to be true. The question is who is going to be innovative enough to define that vision and march their team to victory against all odds. Today is a good day, it’s a day of growth, which means it’s a day of living.

About the Author

John Auld is an Account Executive for Mindsphere, Industrial Internet of Things at Siemens