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Perspectives

Three Trends Shaping the Auto Industry Circa 2025

2017-10-04


The shift to self-driving vehicles and the sharing economy is about to change the nature of every player and relationship throughout the value chain.

Consumers are switching gears. As they turn their focus from vehicle features to convenience and in-car experience, consumers are also growing more comfortable with sharing cars rather than owning them — and auto sales are expected to feel the squeeze.

Motivating both changes is the car’s evolution into a mobility experience. Drivers talk their way through meetings and navigational instructions. Passengers tap and swipe to text, purchase, and the like. For many car occupants, the connected experience matters more than the ride.

What do the changes mean for the auto industry value chain? The traditional supplier-OEM-dealer model will evolve into an interconnected ecosystem of multiple players including technology companies, infrastructure and mobility service providers, and utilities. Each player will need to define its value proposition and then form partnerships to build and deliver truly differentiated products and services.

For their part, winning manufacturers will focus on car designs that are software-driven and customizable, with the mechanical parts increasingly sourced. They will need to strike a careful balance: Retaining the expertise to prevent Tier 1 supplier lock-in, while fostering an agile, digitally-driven environment.

Flexible business and operating models will be a must, as will mastering the analytics that let them get to know their customers and create individualized options. They’ll also need to participate in collaborative platforms marked by open application programming interfaces (APIs).

Three imperatives are shaping the auto industry.

In a driverless world, in-transit innovation defines market leadership.

With 75% of new vehicles shipping with Internet connectivity by 2020, car occupants will spend more transit time focused on activities other than driving. As car interiors adapt to reflect the emphasis on personal productivity, the automotive ecosystem will also evolve. Expanding OEMs’ core offerings will be an array of new entrants providing in-car mobility products and services. What’s more, Apple and Amazon are building products and services for autonomous vehicles and the digital titans may be poised to enter the mainstream automobile business along with hospitality-focused companies that offer in-vehicle services. 

Disruptive technologies may well result in cars that autonomously sense, interpret, decide, act and communicate with other automobiles, infrastructures, businesses, people and devices. The new generation of vehicles will become integral to daily activities beyond transportation: Cars will be the hub for meeting reminders and notifications on restaurant reservations and groceries, even receiving shipments delivered directly to the vehicle. 

Vehicle design is driven by purpose. 

The combination of shared mobility services and autonomous functions will stoke consumers’ interest in vehicles that excel at particular tasks. The purpose-based approach to cars might find, say, two-car families preferring a work vehicle with features that boosts their in-transit productivity, and a second vehicle highly customized for recreational purposes. 

In response to the advent of task-specific vehicles, OEMs will need to rethink product portfolios to include alterative ownership models such as subscriptions. Cadillac’s Book service is an example. Instead of buying or leasing, subscribers pay a monthly fee for on-demand delivery of Cadillac models that meet their specific need at a given time.

What about consumers who like to, you know, drive? As mass-market vehicles shift toward a self-driving future, the auto value chain will want to continue to design and build cars for hands-on types who prefer to retain control of their driving experience. Balance of the two trends will take careful planning, especially as demographics shift and new generations of drivers mature. 

OEMs transform into “original service providers”

As car ownership declines and ride-sharing services ascend, OEMs will increasingly differentiate through CX, mobility and connectivity services. They’ll evolve into “original service providers.” It’s little wonder that automakers at CES 2017 billed themselves as “mobility companies.”

Branded mobility services will reign as OEMs dive deeply into the immense wealth of consumer data at their disposal and derive the insights they need to build vehicles that proactively solve problems. What’s more, as consumers go from purchasing cars to subscribing to mobility services, and switching costs drop to zero, the pressure will be on OEMs to apply data in new, innovative ways. Like the consumer electronics industry, the auto market could see demand for new models accelerate to three-to-six month development cycles, forcing OEMs to embrace new manufacturing, sales and distribution approaches.

To learn more, read our full report, “The Road to 2025: A Vision of the Auto Industry,” or visit the automotive section of our website. 

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Three Trends Shaping the Auto Industry Circa 2025