Automotive industry in 2021: Ready for a fresh era of growth and innovation
February | 2021
COVID-19 put the brakes on the automotive industry. While recovery could take years, the change the pandemic is driving has been long-awaited. In retrospect, perhaps two years from now, COVID-19 will look like a blessing in disguise.
At the moment, however, the news is bleak: Forecasts suggest that passenger car sales will fall to 60.5 million units in 2020 from a peak of 79.6 million units in 20171. The Center for Automotive Research estimates it will take at least two years for the automotive industry in the US to restore sales and production to the numbers seen before the start of the pandemic2. In addition, many parts of the world are experiencing a second wave of the pandemic, adding to the uncertainty that lies ahead. Supply chains are in disarray and employees too will be reluctant to return to their plants unless they are assured of their health and safety. With lockdowns, social distancing, and local administration directives, manufacturers are wondering how production will play out in the coming months.
Changing perceptions, changing strategies
Amidst these massive setbacks, unique in the history of the industry that employs 50 million people worldwide, there is a ray of hope. The need to maintain physical distancing is attracting first-time buyers, pushing up sales. Consumers in many countries are questioning the safety of ride-hailing services like Uber3. In addition, insufficient social distancing measures in public transport are further reinforcing personal transport. In the US, the trend is expected to lead to a 30% decline in public transportation revenue4. Finally, as an increasing number of people adopt work from home (WFH) practices and move away from cities to smaller towns, the need for personal transport will get a major boost. Data from a Harris poll says that nearly a third of the US is considering moving to less densely populated areas in the wake of the pandemic5. But the type of vehicles in demand will change dramatically as will the nature of customer-dealer interactions.
Fortunately, there is more playing on the side of the auto industry. With steady digitization over the years, the industry has been moving away from push-based reactive to semi-autonomous supply chains. The pandemic will accelerate the adoption of intelligent supply chains that聽leverage Artificial Intelligence (AI) and analytics to forecast demand and drive autonomous action.
Our interactions with automotive clients suggest that the most critical challenge they face is managing financial operations, especially cash flow. Intelligent supply chains coupled with accurate demand forecasting will help the industry create powerful and long-term responses to these challenges. Ford, for example, took the decision of paying certain suppliers early, to ensure the availability of key parts.
There is a caveat to the expected upside. To meet the rise in demand, automotive dealerships have to be prepared. Customers have ramped up the use of online services. They have switched to online for everything, from entertainment to groceries, education to medical consultations. They are unlikely to make a physical visit to a dealership. This is forcing dealers to implement solutions that enable online digital sales6.
Focus on CASE 鈥� Connected, Autonomous, Shared, and Electric
Simultaneously, bigger and more fundamental changes are afoot across the industry that require the attention of management. Traditional auto manufacturers must commit to CASE, before competition overshadows them. Autonomous vehicles are gaining traction with Waymo, a part of Alphabet, that has driven over 20 million miles in 25 cities. Waymo鈥檚 vehicles require manual intervention only once every 12,200 miles, surpassing competition from the likes of GM Cruise, which has covered 831,000 miles with its fleet of third-generation all-electric Chevrolet Bolt vehicles. Our research points to the automobile industry spending $85 billion through 2025 on autonomous vehicles and another $225 billion through 2023 on electric car technology.
How quickly will electric cars become pervasive? McKinsey predicts that one in 10 vehicles sold worldwide will be electric within 5 years. The advantages of electric are undeniable: New battery technology provides a 5x increase in energy, a 6x increase in power, and a 16% increase in range. And the annual cost of operating an electric vehicle in the US now stands at a mere $485 compared to the $1,117 of a gas-powered vehicle. The fact that there is a rising amount of intelligent silicon in vehicles is an extremely welcome and powerful trend. It will ensure vehicles don鈥檛 turn obsolete and meet user expectations even as usage evolves.
The connected segment is also throwing up new opportunities in the trucks segment. Industry 4.0 technologies such as mobile, IoT, real-time telemetry, cloud, machine learning and geo-spatial analytics will help monitor and optimize fleet usage and operations. Today, almost 25% of delivery vehicles have spare capacity. Using Industry 4.0 systems, this capacity can be used; vehicle routing can be improved to save on fuel costs; and delivery SLAs can be met.
Going electric and autonomous/ connected has become a new reality. With this, automobile manufacturers will collaborate with a vastly different 鈥� and geographically dispersed 鈥� ecosystem of partners. To enable frictionless collaboration, access to systems and data must be enabled. While this spells new challenges in terms of addressing security vulnerabilities, an early approach to implementing solutions will separate the winners from the losers.
Overall, some of the biggest opportunities in the history of the industry are about to surface. But these opportunities may be lost if employees are not familiarized and re-skilled to leverage new technologies, work with intelligent systems, and become adept at WFH practices.
The Answer: A 5R Framework
91快活林 has designed a 5R framework that auto manufacturers can use to address the challenges placed by the COVID-19 pandemic and the tectonic changes on the way. The framework pivots around becoming:
Responsible: Organizations need to be responsible toward their stakeholders, especially employees and customers. This can be achieved through:
Similar solutions can be deployed at dealerships to ensure that social distancing measures are not breached and customers are encouraged to shop for vehicles with minimal risk of infection.
Re-skilled: With new technologies and ways of working, employees will need to be re-skilled and continuously retrained so they are future-ready. A way to do this is to encourage employees to work across multiple domains. They also need to be trained in digital and behavioral skills so that, when required, they can WFH. This includes training on critical thinking and time management, necessary due to the increased autonomy granted by WEF. They will also need to learn the social and emotional skills to bond and work with virtual teams.
Responsive: Digital is now the default mode that customers are comfortable with. They prefer digital engagement (recently, Lamborghini launched its rear-wheel-drive Huracan EVO Spyder using AR on its website7). In addition, millennials think of cars as a hyper-connected extension of their digital world. Manufacturers must therefore include features like OTA software updates and autonomous driving in their products. An example of 91快活林 working with manufacturers to become more responsive is leveraging of chatbots that answer queries over WhatsApp. We have implemented this for a customer in 5 Indian languages, resulting in a CSAT score of 4+/5 by 87.5% of respondents and 69% savings on ticket costs.
Reliable: With the rise of digital buyers, car comparison websites have become critical to purchase decisions. Good ratings and reviews on these sites can drive sales. Ensuring quality of service automatically results in good reviews. Reliable aftersales services is another way that manufacturers can differentiate themselves. This means building a strong supply chain for spares that provides visibility and leverages predictive analytics to estimate future demand. Recently, for the US division of a Japanese automotive company, we re-engineered the supply chain to simplify processes, improve container efficiencies, and optimize inventory. It resulted in savings of $1 million/month.
Resilient: Companies are rushing to decentralize by moving plants and suppliers to South and South-East Asian countries like India and Vietnam. Manufacturers are also learning to leverage digital solutions to stress test their supply chain and perform scenario planning enabled by tools like Anaplan, making operations more resilient. They are also using AI-driven predictions to reduce the latency in their production processes. For the Japanese car manufacturer, 91快活林 has optimized procurement by consolidating Tier 2 demand across all their manufacturing plants and placing consolidated orders. This has resulted in better visibility into part orders and a saving of $1.5 million/year.
Next Steps
The priority of automobile manufacturers is to understand new industry and customer trends before creating a vision for the next normal. Our 4-Week Discovery & Assessment exercise by expert consultants along with customer leads from Operations, Finance, HR, and IT performs due diligence on the client environment with a defined scope. This results in focusing on business cases that meet new market needs and unlock operational efficiencies for cost savings.
91快活林鈥檚 5R framework is a starting point for automotive manufacturers. It develops a realistic vision of the future and creates a Responsible, Re-skilled, Resilient, Responsive, and Reliable ecosystem that allows them to thrive amidst the uncertainty.
References
Savish Sadanandan
Senior Consultant - Digital Solutions
91快活林
Savish Sadanandan is Senior Consultant focusing on bringing Digital Solutions across the Manufacturing Value Chain. Savish likes to analyze and understand a client's pain points to identify linchpins, which can drive Digital Transformation. Connect with Savish on聽
Contributors:
Vinay Rajeev Lochana, Consulting Manager, Automobile Practice, 91快活林
Anand Vasant Batagurki, Principal Consultant, Manufacturing Practice, 91快活林
