Vision 2030 — Why the Automotive Industry will undergo dramatic change in the next 15 years.
As we start the new year in 2016, significant change is in the air for the Automotive Industry that will present great opportunity, as well as difficulties for those who are not easily able to adapt. Anyone involved in the industry particularly those who invest heavily, must have a clear vision and understanding as to what the future might look like, and identify the opportunities and risks. Those who plan well will reap the rewards.
With this in mind, I present the top 5 changes that will impact Automotive manufacturers, dealers and the way consumers will buy and use cars between now and 2030.
1) The decline of vehicle ownership
As our cities become increasingly more densely populated it becomes more difficult for people to justify a car purchase due to the expense of storage, especially if there are alternative ways to commute to work, such as public transport or tele-commuting (work from home). This is not a new issue, but one that will continue to become significantly more important. The growth in hourly rental and membership based car share arrangements, such as Zipcar and Autoshare, point the way forward towards how customers will use a car in the future in high density urban spaces.
However, medium and lower density communities will also be impacted as people work from home and may no longer need 2 or 3 cars in the driveway when one will suffice, and perhaps use an occasional use rental when more vehicles are needed, or required for a different use.
The market growth towards car based SUVs also shows a consumer requirement for their vehicle to do more things. The vehicle must achieve good fuel economy, have decent acceleration and road holding, have plenty of space / luggage capacity, have AWD availability and be relatively cheap to purchase. Importantly, this “do all” usage requirement allows households to minimise the amount of cars that they own.
KEY POINT: As consumer’s requirements for vehicles change the market will likely soften as underlying demand (ie why people need a car) begins to slow. All these factors point to now being the golden age of the car business, with sales in Canada and US at all time record levels.
2) The rise in autonomous driving and in car entertainment
Most manufacturers, plus some tech companies like Google and Apple, are developing driverless cars that will transport the occupants like they are in a train or bus. Tesla already makes a semi-autonomous function for their Model S, which is only a small step towards full autonomy. It is likely that vehicles will adopt this as a feature, with the ability for either the driver to operate the car or the car to drive autonomously. For those who commute with a vehicle or do not enjoy driving, this will be a significant boon.
However the question becomes what do drivers do once they are commuting in their autonomously driven vehicles? It is highly likely that car users (rather than drivers) will strongly demand in car internet access to conduct work and for play (ie television streaming, gaming, internet surfing) as their hours spent driving are now liberated to do something else. This will create a massive push for high level connectivity inside the vehicle, and we are at the early stages of this innovation with the growth of Apple car play and Android in in-car entertainment systems, as well as internet connections now available on some GM models.
KEY POINT: Future vehicles will need to feature autonomous driving capability with strong connectivity and a rich in car entertainment experience as drivers are freed from the chore of driving.
3) The rise in connected ways we share the road
With the growth in autonomously driven vehicles, a parallel development will continue in the growth of the smart driving landscape. As aids to both autonomously operated vehicles and human drivers, roads, traffic lights, street signs and cars will all be able to communicate to each other and actively predict impending collisions or dangers. Practically, if you are driving a vehicle, it may slow down even though there seems to be no danger, but a few seconds later you notice the car backing out from a hidden driveway or a pedestrian crossing the road the other side of a blind corner. With these factors, safety on roads should significantly improve and accidents will continue to decline. A small town in Ontario, called Stratford, has already made significant steps towards introducing a smart roadway system with wi-fi connectivity to roadways and traffic lights, and is being used for autonomous vehicle development.
KEY POINT: Future ways in which we use the road will be much safer due to interconnectivity between road infrastructure and road users. This will likely cause a significant reduction in road accidents; and therefore a drop in insurance premiums and demand for automotive parts and repair.
4) The increase in alternatively powered vehicles
Despite the recent drop in oil prices, the long term trend for vehicles is towards alternative energy and away from fossil fuels. It is very likely that there will be some big breakthroughs in battery technology, and it will be common to get 1000km of range per charge. Charging times will drop significantly, and a common quick charge will be about 5 minutes as opposed to 30 minutes in the current Tesla supercharger, more similar to the current time it takes to fill a car with fuel.
Coming with the growth in electric vehicles will be the decrease in maintenance that a vehicle requires as electric based drivetrains are much simpler in design than combustion engines. Vehicles will also integrate ‘smart’ functionality, with active monitoring for all wear items. The vehicle will let the owner, as well as the dealer, know exactly what needs to be attended to, and software updates can be remotely downloaded via the internet connection.
KEY POINT: Future vehicle owners will enjoy much greater flexibility from electric vehicles and will need to visit the dealership less frequently. Therefore there will be an impact to a dealership’s number of Repair Orders, and to sales of parts and service time in the shop.
5) The decrease in influence of the Dealership
With the rise of connectivity, combined with consumers general distaste for the current way in which a vehicle is purchased, on line sales and sales through stores that sell multiple brands (like in most other retail industries) will grow rapidly. Much more customer friendly sales solutions will be available and a far heavier involvement of the internet in the purchase process will occur. Sales will be more likely to occur at the customer’s home or workplace, either by a salesperson, or by teleconference or 3D television, and great deals will be featured on apps like Flipp or Red Flag Deals.
A electric vehicles will reduce servicing costs for owners and smart roadways and autonomously driven vehicles will reduce accidents, the ability for a dealership to make significant profit through their fixed Operations area will be significantly reduced. Customers are also much less likely to visit a dealership for service as autonomous vehicles will be able to drive themselves to a dealership for the required maintenance.
KEY POINT: The pattern by which customers buy a vehicle and have it serviced will dramatically change the way a dealership interacts with its customers, and as customers become much less likely to visit a dealership, the requirement for impressive facilities will significantly diminish. This, combined with reduced profitability from Parts and Service, will make dealership profits harder to come by.
SUMMARY FOR 2030:
The Automotive industry will experience very significant change in the next 15 years, possibly more than at any other time in the post war period.
Overall, the automotive dealership, as we know it today, will become less important, and only very adaptable operators will be able to turn a profit. With the decline in overall vehicle demand, a reduction in demand for parts and servicing (through reduced need for maintenance, reduced accidents and customer visits) and a greater level of consumer awareness and quick buying process requirements; all point towards reduced personal dealership interaction with the customer and a significant decline in overall dealership profitability.
Like dealerships, OEMs will also be impacted by reduced sales of new cars and parts. They will need to identify the gaps and move towards a new business model that sustains profitability, and encourage dealers to move in the same direction. The time to understand the changes and indentify the impact on all parts of the business is now, as change will likely happen faster than most imagine.
About the author: James Carter is a 20 year Automotive Industry veteran and now serves as a consultant in Autonomous Vehicles and Future Automotive Planning; specializing in Sales, Marketing, Product Planning, Dealer Development, Sociographic trends and Infrastructure planning.