Extreme disruption in auto: CASE, new partnerships and government
CASE: Connected cars, autonomous vehicles, ridesharing and electric vehicles are poised to form the future of mobility. Francis Farrelly explores the macro themes, new partnerships and consequences for government presented by the new ecosystem.
One of the biggest challenges in understanding the changes currently shaking the global automotive industry is adjusting perceptions around what the ‘automotive industry’ actually constitutes.
For many decades, we have understood the industry within relatively confined parameters – vehicle manufacturers, service and parts, aftermarket retail and so on. Most of the players involved had a very clear ‘automotive focus’.
But the evolving automotive market of the 21st century is much broader and infinitely more complex. There are significant shifts in the product (connected, autonomous, shared and electric – CASE), the value proposition and value chain, and how manufacturers define themselves strategically (as mobility providers) that are upending the established business model for car companies and dealers. And with that a whole new ecosystem is emerging, carrying with it profound implications for existing industry players, as well as for governments.
As part of research grant funded by Australian firm the Destination Group of Companies, which works closely with the automotive industry, I have been closely analysing the looming industry change. This has included consideration of how new developments will impact the industry’s future, particularly in the local market, and what this may mean from a marketing and leadership strategy and capability perspective.
Previous articles in this series have looked at the current state of the industry, and at the connected car as an example of the disruption ahead. This article focuses on the evolving ecosystem and significant changes at the macro level, as well as the implications for government.
Evolution of a new ecosystem
International behemoths such as Samsung, Panasonic, IBM, Google and Facebook, are now regularly mentioned in the same breath as traditional stalwarts like Toyota, Ford and BMW. This reflects the enormous changes in product that are occurring and the expertise from non-traditional players that is accelerating the progress of these developments.
Car manufacturers have invested billions in recent years, readying for the disruption that will play out over the next decade. Funds have been heavily invested in product development and creating partnerships and alliances with major technology companies, each with unique strengths that can better enable these car manufacturers to participate in the new automotive ecosystem. And of course, the new players in the ecosystem also see great financial potential in being an important link in the chain.
From a marketing perspective, these technology companies joining the automotive ecosystem come with significant expertise, including an exceptional understanding of the consumer, product and service knowledge and skills, assets (existing consumer following through Facebook, for example) and ability to offer diverse technical advancements and connectivity opportunities (like other products or services bundled with a car). Facebook, for example, is emerging as a major automotive marketplace, partnering with individuals and dealerships in a clever model that offers free listings, but in return the company gains valuable consumer insights to support targeted advertising.
The expansion of the ecosystem has occurred in alignment with each of the distinct CASE developments.
- In the connected space, new entrants include Panasonic, LG, Apple, Sony and Facebook.
- Focusing on autonomous vehicle opportunities are companies like IBM, Google and various well-funded startups like Pony.ai.
- Uber is an obvious example of a company active in the shared vehicle market.
- Dyson, best known for its vacuum cleaners but with know-how extending far beyond that (think motors, batteries, aerodynamics, vision systems and robotics), is looking to create its own path in the electric vehicle market.
British inventor and company founder Sir James Dyson has pledged production of a ‘radically different’ car, a vehicle which has been ‘developed from the bottom up’ rather than simply being a conversion of an existing model.
In May this year Dyson revealed the patents for this much-anticipated electric vehicle, which is expected to go on sale in 2021. The company is investing £2.5 billion in the project, with more than 500 staff working on it, and has created purpose-built R&D and manufacturing sites in the UK and Singapore respectively. Then there are Chinese companies like BYD who are also making electric cars, progressing at an incredibly rapid rate, building relationships and implanting themselves in the Australian market.
These are just some of the many examples of how the ecosystem is changing.
More broadly, we also then have other significant players gradually emerging in the electric ecosystem such as the energy companies and battery suppliers. In Australia a company like AGL is positioning itself to be a significant player in mobility-related services (for example, think pre-paid energy bundling that includes charging the car at home and on the road) as energy is crucial to the mobility value chain. This is something that is already being implemented in New Zealand.
Partnerships and alliances
In an earlier article I highlighted some of the alliances and partnerships that are evolving, either between manufacturers and technology companies or between two or more manufacturers, as automotive players seek to realise powerful positions in these ecosystems and in some cases to vertically integrate through the provision of product-service mobility bundles.
From a competitive perspective, ultimately what will likely emerge is those automotive companies that can develop the most effective partnerships will be successful. This is particularly so where they assume a prominent position in multiple ecosystems, and where other less prominent but nonetheless important supplier partners benefit from the success of these major players.
In this regard suppliers to the industry may also face challenges. Large capital outlays may be needed to build their capabilities, and they may not have access to such funding, driving a need for strategic alliances or other commercial partnerships.
A number of themes in the macro environment are also affecting the car industry, particularly from a marketing and consumption perspective. Issues such as urbanisation, congestion, digitisation, environmentalism and an emphasis on minimising pollution will continue to cause customers to think in new ways about mobility or minimising unproductive travel. Digitisation and internet access are also causing customers to research offerings in a new way rather than doing most of their research at the dealership – they now arrive as informed potential buyers.
Further, there are generational changes in attitudes that are relevant in the marketing context. Younger buyers are far more accepting of and fluent in technological developments (CASE developments in particular). And they have a different approach to ‘ownership’, influenced by existing share platforms and models such as Netflix, Spotify and Airbnb. The idea of sharing a car with others they don’t know is not an alien concept.
These overlapping and profound macro trends, coupled with the enormous investments and amplified competitive dynamics at the industry level, highlight that when the change really begins to happen on the ground with a diffusion of new market offerings, it is very likely that extreme disruption will happen both quickly and over an extended period.
Consequences for government
A pertinent question is what role government should play. There is a widely held view that the government response to the loss of manufacturing was too reactive and lacking in strategic focus.
On the one hand, this is a very different situation given it is about changing market dynamics rather than the end of manufacturing. Yet on the other it is similar, as it is about understanding and capitalising on changes to the market so as to create a buoyant automotive industry in Australia, including Australian-based companies profiting from this change. From that perspective I would argue the government can play a number of roles – as strategist, catalyst, integrator and overarching authority or market steward (as it has done in other deregulated industries).
I’ll elaborate on these.
Despite the complexity and the many unknowns, one thing is clear: the changing face of mobility, opportunity to propel ecosystems and the greater crossover between private and public modes of transportation means that government should be a bigger player in facilitating growth in the automotive industry than ever before.
Strategically speaking, the government will need to take a clear position on key issues such as the implications for public transport of the CASE disruption in the automotive industry, and most particularly how the automotive industry can contribute to a more plural and integrated transportation system. Its focus must be on what can be done to create a thriving industry through this change.
The government may look overseas for guidance as there are cities, countries and regions such as Singapore, Dubai and in Scandinavia where it seems they have extended planning periods, concrete aims and are working particularly hard to develop integrated mobility systems.
In the case of the electric car, the government can act as a catalyst in multiple ways. But holistic thinking coupled with careful decisions are required. For example, between targets and incentives, as they involve quite different approaches and carry different consequences. Targets will drive production numbers up, but incentives will influence demand. Merely nominating a percentage of cars to be electric by 2025 may force production ahead of demand or cause heavy downward pressure on price, which could damage the industry. There may be other unintended consequences if the government does not think about this change strategically. For example, an increase in shared vehicles before there are truly integrated and efficient public-private mobility options may draw people away from public transport rather than from private car ownership, thereby increasing rather than reducing congestion.
The government needs to adopt longer term planning, think strategically about mobility as a service, and target incentives and other investments accordingly.
We can expect the automotive industry to lobby government hard, but to do so successfully it needs a unified voice that presents clear strategic opportunities or solutions. The fact the industry is large, investing heavily, changing, and crucial to mobility, means it has very strong reason to influence government and vice versa. At a broad level, the case to government is about the potential in propelling a critically important market to industry, employment and society at large.
A thriving automotive industry (coupled with rapidly expanding ecosystems) means opportunities and employment across so many diverse areas of business that connect to the industry. Connected business include manufacturers, wholesalers and dealers, servicing and mechanics, parts suppliers, aftermarket parts and services, rental vehicles and taxi services, finance, insurance, energy providers, public transportation, tolls and parking, and media platforms and providers such as the organisations that benefit from auto advertising.
More specifically, the point to government is that, in combination, CASE offers safety, efficiency, and a highly invested, major scale, privately-funded complement to public transport. It will also be a way to modernise transport for the public over the next 50 years.
The industry might look to convince government to:
- make significant investments in in electric infrastructure and incentives
- review current regulation in the energy market to better support bundling and other new business models that will ultimately benefit consumers
- review privacy principles to promote the evolution of connected cars (and connectivity more broadly) while also protecting consumers
- spark ecosystem dynamics more generally
- work with major car companies to create mobility options (reduce congestion etc.) and to integrate with public transport
- support advancement of the ‘connected’ car (privately and publicly commissioned research shows that safety elements will reduce road toll and associated costs), and
- help to determine where Australia companies can play a pivotal role on the international stage in these ecosystems and more broadly. For example, taking a greater share of value in lithium batteries.
The government may also be looking to facilitate private-public partnerships in a way that complements public transport and wins votes. Issues such as reducing congestion and harm to the environment resonate loudly with voters. There is little doubt the government needs to do more to help invest in infrastructure and legislate (all new apartment blocks to have charging stations, capacity, batteries etc.) if it is going to get change.
There are some encouraging signs that the Federal Government is beginning to recognise the scale of work to be done. In August it announced it was investing $15 million into a network of ultra-fast charging stations on major highways. But clearly this is a drop in the ocean and may indicate a less than strategic approach.
Importantly, mobility players will be looking for legislation that considers integration across modes of transport, and takes a holistic and strategic view of the future, rather than only focusing on nuts and bolts such as electric vehicle targets or sunset clauses on diesel.
The Australian automotive sector is a massive contributor to our economy, notwithstanding the closure of manufacturing. A 2017 report predicted that even after plant closures that year, the industry would contribute $37.1 billion to the Australian economy, or 2.1% of GDP, and employ 360,000 people. While changes are occurring and will occur on a global scale, and we can learn from these lead markets, it is crucial that Australian players are targeted and positioning themselves for the future, and that the government helps to ensure in the changes lead to thriving industries in Australia. The final article in this series will focus on some of the strategic marketing implications for the automotive industry.
Francis Farrelly is professor of marketing at RMIT University.
About the research
As part of research grant funded by Australian firm the Destination Group of Companies, which works closely with the automotive industry, I have been closely analysing the looming industry change. This has included consideration of how new developments will impact the industry’s future, particularly in the local market, and what this may mean from a marketing and leadership strategy and capability perspective. Destination, in turn, is using insights from the research to create tailored programs for key automotive personnel, using experiential learning to build future-ready marketing and leadership capabilities (you can read more about these Incentive and Business Insights Programs here.