Excerpted from Rules of the Road for European Automotive Leaders.
Globalization and the distribution of resources to higher-growth markets and lower-cost regions, overcapacity, and the need to innovate with limited financial resources are among the greatest concerns for today’s automotive leaders. A closer look reveals the changing trends that are shaping executives’ view of the challenges to come.
The international carmaker. The phenomenon of globalization has shaped the automotive industry for years now, according to many executives, and is no longer a coming wave but a well-established reality — China has exploded, India has taken off and South America is up and running. In this global environment, automotive companies must be able to design products in two to three places worldwide and then manufacture them in five or more different regions to be competitive. Senior industry leaders are pursuing different paths to achieve these goals, from relocating to reimagining their offerings.
Moving parts. Pressure from unions and increased government regulations are shrinking margins for automotive suppliers and spurring the shift of operations and manufacturing to other regions. Manufacturing and operations, for example, are being transferred to Eastern Europe in response to increasing automotive legislation in Western Europe. This is likely to become a global trend as automotive suppliers adopt more global approaches to their business. However, a global strategy is not only a response to constraints, but also a pursuit of growth. A number of executives we spoke with pointed to the significant growth in the Asian automotive industry and, in particular, the consolidation of the industry in China, as integral to their broader global strategies.
Economic disparity. Increased growth will likely be tempered by the effects of the now widened gulf between the incomes of the upper and lower classes in Europe resulting from the economic crisis. The erosion of the middle class is dramatically changing customer buying behavior. For example, OEMs could previously benchmark a change in customer tastes, habits and behaviors in terms of cars around the age of 40, with preferences coalescing around certain brands or types of car. With demand evolving to reflect the new economic spectrum, customer tastes are more polarized, trending toward more functionality and practicality, with mobility concepts becoming more important than the actual physical product. The industry is also learning to cater to a younger consumer, one who is more likely to use a rental or car-sharing service than in years previous.
Many masters. Changing customer demands, coupled with CO2 and fuel consumption regulations in Europe and abroad, are driving automakers to develop new technologies. The result is that automobile companies are working harder to secure alliances that will guarantee both the technological and financial support necessary to pursue new initiatives.