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Existential evolution in the auto category

As the North American International Auto Show (NAIAS) in Detroit revs up this week, auto experts Daniel Binns and AJ Feld talk about shifts a hugely valuable industry that's increasingly fraught with challenges, and new growth opportunities.

Auto brands dominated the 2017 Best Global Brands report, with 15 brands represented, and is the Top Growing sector, rising 9.5 percent in total value this year to USD $256,604 million. This is impressive for an industry that can get bogged down by large legacies, infrastructures, and ingrained processes. While the speed of change is growing exponentially, many of these brands are keeping pace by responding to consumers’ evolving needs and embracing the technology that’s changing the way the world thinks about cars.

While these auto companies on top, they shouldn’t get too comfortable. A recent IBM study showed that, while 86 percent of people surveyed globally expect to buy or own a car in the next decade, only 50 percent of young respondents use a car as their primary source of transport. There are a number of factors that will either challenge auto companies’ growth or provide them with a platform to lead the mobility sector into the next decade.

Shifting relationships

First, we have to look at the macro forces affecting how consumers relate to this category. Today’s top auto manufacturers have to think about how they fit, not just into individuals’ lives, but into evolving ecosystems and infrastructures.

As mass urbanization continues at pace, car ownership becomes less attractive, or even necessary. Seventy percent of the world will be urban by 2050, and cars could quickly become a problem in fast-rising cities. Take Shanghai, where the number of registered cars rose 13 percent last year. According to INRIX’s Mobility Scorecard, Americans travel no further in their cars than they did in 2005, but spend a total of 6.9 billion more hours in them since last year. As cities become more congested, carmakers could end up choking their own markets.

This makes emerging mobility solutions more viable: whether it’s fractional ownership programs, increased use of ride share services, or car clubs that let people book by app. The booming share economy also means that younger people are less inclined to own an expensive asset that sits idle more than it’s used. Owning a car is becoming less important to a generation concerned about its environmental impact and more interested in experiences than the smug glow of showing off an expensive purchase.

Today, value, convenience, and efficiency are beginning to trump prestige, premium quality, and status. This paves the way for new design-led brands with bold propositions—from Best Global Brand Tesla, which is accelerating sustainable transportation, to those with breakthrough potential, like Gordon Murray Design’s iStream process for producing smarter city cars more efficiently.

Tech-driven role revisions

Of course, technology is heralding a new era in the automotive world, changing the car’s role in people’s lives. The car is fast becoming one more device in the Internet of Things (IoT)—a connected piece of technology that shifts the onus to the in-car experience and away from the visceral “me and the road” feeling that harks back to the days of the ultimate driving machine. This is giving rise to out-of-sector competitors like Google and Apple, both rapidly iterating new auto technologies. Today’s successful car companies need to think more like software companies than hardware engineers.

In the desire to differentiate, car companies are rushing headlong into what will rapidly become a new segment norm. They’re touting their innovation prowess and anchoring their brands to the latest buzz of electric and hybrid powertrains, autonomous driving capabilities, and connected car technologies. Whether it’s Nissan’s “Intelligent Mobility,” Audi’s “Intelligence is the new rock and roll,” or the Volvo Intelligent Driver Information System (IDIS), the category is coalescing around the idea of a car as a smart device. It’s not about creating the ultimate driving machine, but enabling you “to become the ultimate driver,” according to BMW’s Ian Robertson—even if that means letting go of the wheel.

This tech race signifies the car’s changing role in people’s lives. One of the most profound shifts we are seeing is that car companies are moving from a brand selling products to a brand providing services. In the face of flagging US sales, Ford’s senior US Economist, Bryan Bezold, sounded the death knell of the several-year sales spike that followed the financial crisis. However, Ford has proven its forward thinking by redefining itself as “both an auto and a mobility company” and introducing its Ford Smart Mobility LLC subsidiary in March 2016.

The car’s changing role means auto companies are focusing not just on drivers, but on the lives they live, moving beyond product or status symbol to become part of the customer’s actual journey. In the future car, companies will be expected to provide us with access to an ecosystem of mobility solutions integrated into both private and public sectors. And they can use their brands to build loyalty in these new ecosystems. In the future, we may become part of a company’s membership club, rather than simply owners of their products.

What the future means for today

The future starts now for top auto companies, which are evolving their existing experiences. Part of being a service brand is understanding how people shop for, buy, and maintain their cars. Tesla’s disruption to the retail experience is just the beginning. Dealership visits in the US have dropped to 1.4 visits per purchase, down from 4.5 in 2005. This means people are walking in with all their homework done online. Increasing use of e-commerce platforms, high street brand experience centers, and mobile on-demand service facilities will become a core part of what was the traditional dealership experience.

The challenge now is to remain competitive in the current space while keeping an eye toward future growth, and part of that is watching the global competitive landscape. New entrants are rapidly emerging in the traditional manufacturer’s space. Korean companies Kia and Hyundai have demonstrated strategic global growth, starting with a lower-price value offer, then swimming upstream to compete in the mid and now premium categories (e.g., Hyundai’s Genesis). Chinese manufacturers are playing the same game. In the future, we may be all marveling at the latest models from SAIC, Dongfeng, and FAW.

The fifteen car brands on this year’s Best Global Brands report prove their ability to grow significantly, despite shifting consumer behaviors, technological innovations, and emerging competitors. But as change accelerates, the top companies must continue to evolve how they think of themselves, shifting from OEMs to experience-centric brands. Those with strong brands are likely to deliver the exceptional experiences that future customers seek, while others risk getting passed by fast-rising competitors.

Contributors

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Senior Consultant, Strategy