The automotive industry is facing new and pressing challenges. Globalization, individualizations, digitalization and increasing competition are pressing the face of the industry. In addition, increasing safety requirements and voluntary environmental commitments by the automotive industry have also contributed to the changes ahead. Size is no longer a guarantee of success. Only those companies that find new ways to create value will prosper in the future. I write this article to present a short overview of the automotive industry today and highlight the challenges facing the industry. The global automotive industry is subjected to a range of factors that are increasing in complexity And are influencing the economic options available to automobile manufacturers. The majority of these factors interact with one another and have strong interdependencies. However, some of these factors are market-induced and, consequently, cannot be influenced directly by the automobile manufacturers. These factors include:
1. Globalization, regionalization and market convergence – Due to the effects of liberalization, national markets are becoming increasingly globalized. This gives companies a chance to expand to new markets, but it also increases the threat of new entrants or increased competition in traditional markets.
2. Increasingly diversified consumer aggregate patterns of behavior – Consumers are no longer accepting standardized products, but want products that satisfy their individual requirements. Target groups thus have to be downsized by companies so customers will be attracted by the products offered. However, because of the increased global competition with a stronger focus on price and not on brand loyalty, consumers generally do not reward companies for their more individualized products. As a result of these factors, automobile manufacturers have new almost impossible to meet requirements within their field of activity.
3. Accelerated modification and diversification of the product portfolio – The companies have to shorten product lifecycles in order to react to the expectations of individualized and fast changing consumer demands with innovative products. In the past, an average product lifecycle in the automotive industry was eight years; today, lifecycles are much shorter, or at least the product’s design is often modified after just two or three years on the market. With development costs for a new model remaining on the same level or even increasing, this concurrently means a shortening of amortization time for the OEM and, potentially, lower profits.
4. Pervasion of automobiles with digital technology – In 2007, digital technology in cars already averaged 34 percent of the total value of a car, with a forecasted increase to 55 percent of the total value in 2017. The integration of hardware and software into automobiles represents the predominant accelerator of increased functionality coupled with increasing complexity. This
complexity results in overstrained car development departments, product failures, a cost explosion with respect to guarantee and warranty costs, and impact on customer satisfaction.
5. Increased pressure for innovation and flexibility in development and manufacturing - Development departments are not just overburdened by the complexity of digital technology, but also by the shortening of product lifecycles. Another aspect is the increasing number of parallel development projects since companies develop more and more niche models for special target groups. This certainly requires the use of new development techniques such as virtual reality. For example, this technique enabled BMW to shorten the development time of its Z4 model to just 30 months.
To conclude I’d say, Today’s tough challenges in the automotive industry require firms to find new ways to create value if they are to prosper, moreover it requires these firms to be more relevant to customers, not just because of the increasing competition, but because this is perhaps the only way to survive in this industry.
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