The growth experienced by the U.S., European and Japanese markets since the low point of 2009 is mostly behind us. At the same time, new players are exerting increasing pressure on incumbents, introducing disrupting products and services that the latter are incapable to compete against in the short term. As a result, traditional OEMs are forced to radically and hastily transform themselved, pivoting from vehicle-focused to mobility-focused strategies. What is exactly taking place?

 

The stabilization of the triad’s mature markets is simply mechanical, as they have mainly come back to their nominal level. The potential impact on the car market of any further increase in purchasing power in these economies will be offset by two key drivers. One, authorities take measures to reduce car usage in urban areas and introduce tougher emission standards as people are increasingly sensible to environmental and congestion issues. And two, younger generations are less interested in car ownership, favoring instead open access to multi-modal mobility solutions on an as-needed basis. In a number of European countries — including Germany, where the car is a major status symbol — interest in getting a driver’s license and owning a car is dropping among millennials. 

 

In recent years, traditional OEMs have taken various initiatives to address this market transformation, but none have fully embraced — until now — the strategic pivoting that this revolution entails. Most have introduced solutions to address the environmental and regulatory shift, offering either hybrid, plug hybrid, battery or even fuel cell electric vehicles. Few have ventured into offering alternatives to car ownership and provided some sort of mobility service, such as car-sharing or ride-hailing. Even fewer have done both.

 

New players leverage emerging technologies to address the above trends and do so with unmatched agility, causing the deep turmoil we are currently witnessing at traditional OEMs. These technologies allow for disruptive solutions at an increasingly accessible cost, in the areas of energy storage, driving automation or connectivity as well as cloud services. These new players are agile, have easy access to venture capitals and are not burdened by legacy assets or culture. How do traditional OEMs react to this game changing transformation to secure their financial sustainability?

 

OEMs currently benefit from some level of customer loyalty; this must be cherished as relationship is essential to securing future revenue, whether they come from mobility services or from content streamed during future driverless journeys. OEMs must react very quickly as mobility service disruptors (Uber, ZipCar, BlaBlaCar, etc.) are establishing direct communication with mobility customers, bypassing cars via smart phones. For OEMs, mobility services will mean an alternative source of revenue (vehicles sales will likely shrink in the three markets mentioned above) as well as a means to sustain their vehicle business. How will they secure their spot in this market?

 

Existing organizations are not fit for the deployment of the strategic pivot most OEMs are initiating towards mobility services. Daimler was probably the earliest movers among OEMs, introducing Car2Go car-sharing scheme in Germany in 2009 (reportedly 2 million customers worldwide today). But a whole lot more is required now to secure OEMs’ future; the multiple moves announced in the last months attest to this.

 

Toyota, the first mover in the EV space, was restructured in April mostly to tackle the issues at stake here. A new business unit (BU), Connected Company, was created to leverage the power of cloud computing, artificial intelligence and to transform the OEM into a "mobility service platform provider.” Toyota also announced Nov 17 the creation of a “virtual” in-house venture company responsible for developing BEVs. The four person organization is designed to enable “unconventional work processes, leading to accelerated project progress and, thus, fast-to-market products”. Ford recently created Smart Mobility, a new BU dedicated to developing software, tech services and business models related to mobility. Renault/Nissan just created a startup division focusing on software development, cloud engineering and big-data analytics. Already staffed with 300 people, the team is expected to grow quickly to 1000 people, mainly developers. Volkswagen Group will create a 13th brand responsible for developing new mobility services.  Daimler is creating EQ, a new brand of products and services including mobility, energy storage for private and even industrial networks. PSA (Peugeot, Citroën, DS) has just established Free2move, an entity hosting new mobility services, including car sharing and peer-to-peer rental. And more are reshaping their organizations to adapt to the new market conditions.

 

These re-organizations are critical to drive the necessary in-house transformation in terms of competencies, business and operating models as well as culture. Traditional OEMs must significantly strengthen their ranks with programmers, but just as important, be able to create new value propositions related to mobility. They must also develop the ability to work with much shorter technology cycles and operate a radical cultural transformation to accommodate all these changes. This must take place in order to bring about new mobility services and match the agility characterized by newcomers such as Tesla or Uber. The newly created BUs are often led by people coming from the tech industry, as they best understand the disruptors and their underlying technologies. These leaders will be spearheading both the technical and the cultural transformation OEMs need to pivot from product focused strategies to ones centered on mobility services.

 

However, re-organizing may not be enough. Leveraging external resource can accelerate the required transformation and provide an edge over an OEM’s competitors by gaining access to advanced technology, data or distribution networks. For instance, Toyota has partnered with Uber to learn how they collect, manage and use their data. Volvo and Uber have established a joint project to develop a driverless car platform. GM has invested in Lyft to access mobility services and bought Cruise for its technology. VW has invested in Gett. Renault/Nissan is partnering with Microsoft, BMW with Intel and Mobileye. Daimler, Audi and BMW joined forces in 2015 to buy digital map maker Here from Nokia. The trio also launched last September an alliance with 5 major mobile telecom network equipment companies to accelerate the development of the infrastructure needed for self-driving cars. And these are just a few examples.

 

Whereas it is necessary for OEMs to engage in deep internal transformation, create strategic partnerships and possibly make acquisitions, this will not be sufficient enough to morph them into customer centric providers of mobility services. For instance, OEMs will have to develop expertise in the areas of pricing models, basic customer service (e.g. lost and found) or fleet management. The stakes are extremely high for OEMs and will require massive resources in order for them to become significants players in this new game. Nonetheless, some will fail.

 

In conclusion, the transformative changes in the business environment and in people’s behavior towards mobility combined with the emergence of enabling and affordable technologies are driving a revolution in the 125 year-old automotive industry. Traditional OEMs are engaged in deep transformations in order to pivot towards mobility focused strategies and secure their long term sustainability. But the road to success is all but a straight line.

 

Marc Amblard

Also published on LinkedIn (https://goo.gl/rQuDK2)