Thursday, November 14, 2013

Cautious Optimism in the US Automotive Industry

Executives' confidence on consumer uptake of alternative powertrains is flagging
The future is solid for cars that are powered by electricity and natural gas.  But Booz & Co. found that alternative powertrains remain a tough sell for consumers, that is, financially speaking.  Government support, in the form of subsidies and infrastructure, is key for companies and consumers alike.

Original Equipment Makers (OEMs) and suppliers have shored up their operating models
Evidently OEMs' confidence is grounded on the hard work they've done in their operations: specifically, in labor agreements, environment footprint, manufacturing capacity, and dealer network.  They've put their house in order.  On the suppliers' side, confidence comes from a greater focus on what OEMs need, as opposed to the previous be-jack-of-all-trades strategy.  Moreover, they are reaping the benefits of a more disciplined management of finances and operations.

The answer is yes, definitely
I'm not so sure how Booz & Co., or automobile executives in particular, came to view the industry as a zero-sum game.  Perhaps for the foreseeable future, it is, if in fact the US market is saturated.  But all products have a shelf life, and consumers will buy more to replace what they have and sample the latest fare.  Moreover, globally there are growing populations, especially among Millennials, in such regions as the Middle East.

That said, executives see a return to industry norms in terms of growth and a dog-eat-dog competitive landscape.  If Booz & Co. is right, then they will have to do whatever it takes to eke out an advantage and grab market share away from competitors.  Marketing, pricing, innovation and consolidation are, no doubt, among their options.

It's about doing what they've been doing well, and taking these to a higher level 
I gather that efficiency is crucial for the industry.  That is, executives must keep at optimizing costs, and re-investing savings into research and development, in order to:
  • Create cars that consumers want to own and cars that tap into their aspiration - what Booz & Co. calls continued product renaissance
  • Leverage the evolving world of media and technology, such as for smart, connected cars and perhaps even driver-less capabilities à la Google
  • Look to the global market, but take a long-term view, given the varying degrees of success among countries in Europe and emerging markets
Reference: US Automotive Industry Survey and Confidence Index, by Booz & Co. and Bloomberg.

Thank you for reading, and let me know what you think!

Ron Villejo, PhD

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