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Insight

The Auto Industry's Looming Renaissance

Innovation in a value proposition that remained steady for a century

While your car has become faster, more comfortable, reliable and safer, its value proposition as a personal transportation solution has remained steady for decades. Then, things took a slight turn at the dawn of the 21st century when auto executives installed GPS in their vehicles. Add telematics, and automakers are proving that connectivity and data can add even more value by setting insurance rates, notifying emergency services when airbags deploy or automatically activating requests for roadside assistance. Whether they knew it or not, auto executives became pioneers of the connected economy when they started transforming the automobile into another player in our digital lifestyles. 

But, the industry’s increased use of data analysis, sensors and location services is just the beginning. Over the next decade, the connected car will continue to transform the industry—while it inspires new business models in adjacent sectors that seize opportunity from a hyperconnected economy.  

Government will also step up its role. For example, the EU’s eCall technology, equipped in all new cars starting in 2019, communicates a vehicle’s exact location to emergency services in the event of a serious collision, especially valuable when the driver is unable to make a phone call (see Figure 1).

Todd Thiessen

Group Vice President, Marketing & Consumer Engagement

The connected car is at the center of the EU’s eCall initiative, which will save lives and speed help to injured people.

Drivers will increasingly opt for subscriptions

We all became participants in the growing subscriptions trend when we ditched CDs and MP3s for monthly services from Spotify and Apple Music (which offer access to thousands of songs from dozens of genres). A similar value proposition from companies like Netflix easily convinced us to stop buying DVDs and Blu-rays. Similar shifts are occurring in the automotive sector as carmakers, such as Volvo, Cadillac and Porsche, eager to find similar growth in changing attitudes about personal transportation, offer flat-fee programs that upend the traditional auto retail model with app-based monthly subscription services that provide vehicles on demand. 

Care, by Volvo for example, lets consumers avoid the $35,200 price tag to drive its all-wheel-drive vehicle through a $600 monthly subscription that includes insurance, routine maintenance, wear and tear, and roadside assistance. All of this is for zero money down (similar to a lease but with far better economics given the inclusion of insurance). To qualify, you must fit within tough guidelines stipulated by Liberty Mutual. If accepted, Volvo offers the ability to upgrade (or downgrade) to another Volvo after 12 months.

Given the industry’s 2017 decline in new vehicle sales (the first in eight years), car makers are eager to offer greater variety to drivers that need an all-wheel-drive SUV for winter, a convertible for summer or a pickup truck on moving day.  

Chinese automaker Geely (which acquired Volvo) is also aggressively joining the subscription/sharing trend. It recently launched SUV (simply called 01), which can be purchased online and includes a share button that transfers the ability to operate the vehicle to an app (allowing drivers to give digital keys to family members or friends). After Geely offered an initial batch of 6,000 SUVs (which sold out in less than three minutes), Lynx CEO Alain Visser said, “We should have offered 15,000.” The company’s 03 sedan operates on the same model. 

Geely’s experience offers a shining glimpse into an automotive future where people commit to next-generation car concepts (and the companies that offer them) sight unseen due to the promise, the services and the spirit that they represent: no dealer, no big down payments, subscription alternatives, fixed price, online and sharable. Geely’s customers say they aren’t buying a car, they are buying into a movement (similar to Tesla buyers who are known for saying, “I didn’t buy a car, I bought a Tesla”).

Overall, automotive sharing concepts and subscription models point to a fairly seismic disruption of the traditional auto dealer. Analysts forecast that a third of the dealer’s revenue pie could come from mobility services and fleet subscriptions, 30 percent from auto purchases (including revenue for helping those who want to rent their cars out when not in use) and the rest from service. Jose Puente, is already pioneering the future, offering choices between owning, leasing or flexdriving, a mobile app that lets you become a member of a car-sharing program which you can use to drive for Uber, Lyft or your own personal or business use (for example, using a car to make money from personal shopping for someone who lacks the time and inclination to shop for groceries). 

Care, by Volvo, offers a flat rate independent of age and geography, attractive in big cities where insurance fees are skyrocketing.

The modern automobile extends our digital lifestyles

In 2030, personal mobility could free us from the familiar scenario of staring at tail lights while stuck in traffic as we use “drive time” for more productive activities—allowing us to travel in ways that are cleaner, safer and cheaper. For example, the automobile will become a place where you prepare for your 9am staff meeting, where kids do last-minute studying for a quiz or movies are consumed while you travel from San Francisco to Santa Barbara. Cars will also play a role in managing our daily lives. For example, cars that proactively route us to the kids’ after-school event, to our dry cleaner, physician’s office, pharmacy or golf course. Moreover, the idea of owning a vehicle that requires a driver’s license may eventually become obsolete as cars become a fully functioning digital service that is electric, autonomous, shared, and driverless.

Innovation is also driving huge leaps in auto safety

Carla Bailo, CEO of the Center for Automotive Research, recently said in her TEDtalk: “I’ve been in the automotive business for 37 years and I’ve never seen a disruption like the one we’re seeing today.” Bailo also commented on last year’s increase in traffic fatalities (the great majority were caused by human error), admonishing “We have to stop killing ourselves with our cars.”

"Digital lifestyle convergence represents a robust business opportunity for automakers as the mobile internet intersects with the connected vehicle."
Several emerging technologies are innovating vehicle safety

Autonomous versus self-driving

Autonomous cars with forward facing seats and a steering wheel, assume functions for the driver in specific situations: self-parking, adaptive cruise control—which adjusts speed to keep a safe distance from cars ahead—and automated braking. Autonomous vehicles will likely take over driving in heavy traffic or on freeways. 

Self-driving cars omit the steering wheel — letting the vehicle assume all the driving using the same sensors, radar and GPS mapping its autonomous counterparts use. In the era of self-driving cars, personal cars will undoubtedly remain. But, fleets of shared vehicles will be a common scenario in towns and cities (where consumers and business people use their mobile device to request a ride, key in the destination, and let the self-driving vehicle do the rest). 

For example, Zoox is developing what it hopes to be the world’s first ground-up, fully autonomous mobility-as-a- service fleet in urban environments. Ryder Truck Leasing announced a similar intent, albeit in long-haul routes, when it transported hundreds of Frigidaire appliances 650 miles at a time in its self-driving trucks. Such efforts will be supported by companies such as lvl5, which uses computer vision to build HD maps for self-driving vehicles (thousands of drivers send Iv15 terabytes of driving every day over the company’s iPhone app, Payver). 

The move toward self-driving cars is also evidenced by GM’s $1 billion acquisition of Cruise, Uber’s purchase of Otto (for $680 million), Ford’s $1 billion Argo AI Initiative, and Intel’s acquisition of Mobileye ($15.3 billion).

We should note that personal ownership will continue in the age of autonomy but with extra features automakers will charge for. Self-driving vehicles on the other hand, alter the personal transportation landscape dramatically. For example, Barclays bank forecasts a reduction in vehicle sales by as much as 40 percent as self-driving taxis and other shared mobility services supplant car ownership.  

Ford Motor Co. believes autonomous vehicle interiors could resemble a kitchen or office conference room

How four OEMs are expanding their value propositions to include mobility services

As cities grow, so does the smart mobility discussion

Fifty years ago, only New York City housed over 10 million people. Today there are over 20 such cities, mostly in Africa and Asia (where driving and parking consumes 40% of the auto’s gasoline consumption).  Tomorrow’s car will run cleaner, safer, smarter, and more efficiently, a discussion which naturally moves toward smart mobility and puts data, information, and options in the hands of the traveling public—in order to optimize the use of fixed resources, while promoting efficient movement throughout the urban space.

This future scenario will be driven by an unprecedented collaboration of manufacturing, services, design and imagination between government and business. Given the future that is developing, auto executives and their partners should include key questions about the future of mobility in their strategic planning, for example:

How is our business impacted by:

  • The disappearance of B2C auto insurance 
  • A huge decline in highway accidents 
  • Newfound mobility of the young, elderly and the disabled
  • New energy business models
  • New data highways and cyber security solutions emerging to run transport networks
  • New government policies needed to regulate the new ecosystem 
  • Digital lifestyle convergence

Consumers are open to innovations stemming from technology and from providers outside the traditional auto industry. In a recent Gartner survey:

  • 27% of respondents said they would definitely consider buying a fully self-driving car if it was available; 41 percent said they would consider it.
  • 32% of respondents said they would definitely consider a car from Google, 30 percent would consider a car from Apple.

 

Consumers are open to innovations stemming from technology and from providers outside the traditional auto industry

In a recent Gartner survey 27% of respondents said they would definitely consider buying a fully self-driving car if it was available; 41 percent said they would consider it. 32% of respondents said they would definitely consider a car from Google, 30 percent would consider a car from Apple.

Conclusions and recommendations

Aggressively plan for a wave of disruption the industry hasn’t experienced in decades.

The evolution of the connected automobile is encouraging new levels of collaboration amongst auto companies and their partners, governments, societies and consumers. Such cooperation is encouraging a wealth of connectivity techniques to improve auto efficiency and safety while integrating personal transportation more fully into the consumer’s digital lifestyle. Innovation is wide ranging, from vehicle-to-vehicle and vehicle-to-infrastructure opportunities that draw upon data analytics to new digital business models arising from smart mobility services.

The connected car has far-reaching impact on industry, government and society. 

The auto sector, known for its relationship with other sectors, will impact financial services, retail and commerce, manufacturing, insurance and other service verticals as cross-industry experiences flourish. Major consumer electronics and internet businesses are investing in the automotive space, realizing the opportunity of a connected vehicle.

As disruption and innovation continue their unstoppable trends on the auto industry, its executives should: 

  • Think beyond the automobile when designing connected car experiences. It is especially critical to think outside the box when identifying opportunities with partners and alliances as you explore opportunities to integrate digital lifestyle content and services into your offerings. Uber’s alliance with Spotify is just one example that should inspire creativity amongst the auto industry’s partner and alliance managers. 

  • Encourage executive teams and partners to seize business opportunities from real-time, connected-product and connected-customer insights from vehicle data analysis. Brainstorm all of the integrated digital content and service offerings you might launch as a result of new digital data, visible for the first time in history, that reveals where people are going, who they are with, and the type of information they require to enhance the journey. You are only limited by your imagination when it comes to integrating your products into the digital lifestyles of your customers.

  • Make sure privacy experts are involved every step of the way as you consider ways to enhance the driving experience from data you collect. Meet with local government officials that are also monitoring the value-add from connected vehicles. For example, discounts on a vehicle’s registration fee might be offered in exchange for consumers willing to participate in experiments designed to collect data from their connected vehicle.  

  • Invest in cloud-based natural-language voice recognition systems to not only enhance interior design but to make interior displays customizable. Consumers expect their automotive connectivity experience to be similar to other device experiences such as remote, over-the-air software updates and upgrades to other content and services that you provide in the connected car.

Sources

  1. Road Traffic Data: Collection Methods and Applications, by Guillaume Leduc, Institute for Prospective Technological Studies; 
    Working Papers on Energy, Transport and Climate Change. 2008. 
  2. Meet the Woman Behind the Wheel of GM’s New Car-Sharing Business
    by Valentina Zarya, Fortune, 26 January 2016.
  3. Rethinking Urban Mobility,
    by Ryan Chin,Smart Cities at the MIT Media Lab,
    TEDx Boston. 13 August 2009.
  4. CAR names mobility expert Carla Bailo CEO,
    by Nick Bunkley, Automotive News, 29 September 2017.
  5. eCall in all new cars from April 2018, DIGIBYTE, 28 April 2015. 
  6. Ford and Toyota establish SmartLink consortium to accelerate industry-driven standard for in-vehicle apps,
    Ford Media Center, 4 January 2017. 
  7. Why autonomous and self-driving cars are not the same,
    by S.W., The Economist, 2 July 2015. 
  8. Argo AI And Ford Double Down On LIDAR, Acquire Princeton Lightwave 
    by Sam Abuelsamid, Forbes, 27 October 2017. 
  9. BMW aims to reinvent urban mobility with connected scooter concept,
    by Alice Morby, Dezeen, 20 May 2017. 
  10. Ford’s smart mobility team 14,000-15,000 strong,
    by Michael Martinez, Automotive News, 15 November 2017.
  11. Mobility of the Future, examining future changes in the transportation sector,
    by Randall Field, MIT Energy Initiative, 10 April 2017. 
  12. Autonomous Car Race Creates $400k Engineering Jobs For Top Silicon Valley Talent,
    by Alan Ohnsman, Forbes, 27 March 2017. 
  13. Self-Driving Car Startups to Watch,
    by Liza Dixon, AngelList.
  14. Embark, Frigidaire®, and Ryder Partner to Pilot Automated Driving Technology,
    BusinessWire, 13 November 2017.
  15. How China’s Geely Turned a Disassembled Mercedes into a Global Car Company,
    by Trevor Moss in Shanghai and William Boston in Sweden, WSJ, 4 March 2018.