Quo Vadis, Automative Industry? - Four Possible Scenarios for the Evolution of the Automobile

The global auto industry is now mature, and technological innovations are far more dynamic than growth. Sales in regions like East Asia simply aren't enough to offset the near-stagnation in most of the West. Industry consolidation and intense competition both look likely to continue, if not intensify, in coming years. INSEAD Professor of Technology and Operations Management Christoph Loch, in collaboration with Dr. Markus Seidel, General Manager of Product Line Management Merchandising and Lifestyle at the BMW Group and Satjiv Chahil, chairman of mobile content publisher MDM, proposes four "archetype visions" for the future of the auto industry.

by Christoph Loch, Markus Seidel,Satjiv Chahil
Last Updated: 23 Jul 2013

The global auto industry is now mature, and technological innovations are far more dynamic than growth. Sales in regions like East Asia simply aren't enough to offset the near-stagnation in most of the West. Industry consolidation and intense competition both look likely to continue, if not intensify, in coming years.

Manufacturers may well continue to increase the number of new models on offer. But any sustainable long-term market growth will quite probably force them fundamentally to re-examine what their products mean to consumers. INSEAD Professor of Technology and Operations Management Christoph Loch, in collaboration with Dr. Markus Seidel, General Manager of Product Line Management Merchandising and Lifestyle at the BMW Group and Satjiv Chahil, chairman of mobile content publisher MDM, proposes four "archetype visions" for the future of the auto industry.

The authors examine the existing technological enablers, first indicators, demand scenarios and supply chain implications of each archetype vision, asserting their firm belief that managers will soon inevitably be compelled to pursue one or more of these grand strategies, due to various prevailing forces dictating future market directions.

1. The Super Car

The super car scenario is based on a general continuation of current industry dynamics. Technological developments will mean more and often cheaper features for the buyer, especially if manufacturers keep on consolidating.

Cars may well become safer, cleaner and more comfortable, and although high-end on-board networks are currently more complex than some drivers feel they need, further development will inevitably move further down the road of even more data transport and information integration. (In the words of one analyst, "the Infobahn will merge with the Autobahn".) As a result, manufacturers will have to emphasise electronics, software and modular product architecture, and at the same improve product styling, especially in terms of offering better "human-machine interface" capacities similar to those now provided by consumer electronics makers (i.e., iPOD, Palm Pilot, etc.).

This will obviously have enormous implications for the industry in terms of components production. The authors believe systems design innovation will continue to shift away from the manufacturers to a host of suppliers, much as it has recently for most PC makers.

2. The Tailored Car

Loch, Seidel and Chahil feel that two new but already highly visible product technology trends may change the industry trajectory from mass marketing to greater individualisation. A huge growth in "rapid manufacturing technologies" will allow automotive companies to make parts cost-effectively in very small volumes. This will enable a further proliferation of small specialty series, down to custom-making some externally visible components for the tastes of individual consumers. Not only could manufacturers mix and match standard components, they could also customise the shape and style of their models. The authors consider the clearly profound affect this would have on brand promotion and marketing in general.

3. Brand Worlds

Most carmakers have launched far more models in recent years, but differentiation is actually becoming more difficult as major components are shared and successful models are more quickly copied. Many manufacturers are already persuading buyers to immerse themselves in "lifestyle experiences" offered by the clothes, fashion accessories and other products bearing their logos. If this trend continues, however, will carmakers see their brands lose focussed identities?

4. Multiple Transportation Modes

A good many "hybrid" road-air and road-water vehicles have been tested in the past, but have usually failed for a combination of financial and technical reasons. But congested highways and airports, as well as new technologies have renewed carmakers' desires to be able to offer safe and affordable flying cars. Some auto-makers are developing small passenger planes, and others are now rumoured to be working on hybrid vehicles, initially to be targeted at niche markets.

The authors conclude with an analysis of the implications these scenarios may have on managerial decisions. Believing that it is possible, or even likely, that several of these trends will occur simultaneously, they caution that simply sticking to the status quo of developing "super cars" may not work for most major players in the industry.

INSEAD 2004

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