It’s always fun this time of year to look into the crystal ball and consider what the key trends for the coming year might be. After consuming key messaging over the past several months from a number of industry related briefings and research, I’m here to offer my top 5 trends in automotive for 2017. In no particular order they are:
- Products will become smarter, smaller, and more connected as platforms
- Industry disruption and confluence will continue and accelerate
- The talent war will become critical, even a pinch point to growth
- Customer engagement will continue to grow in importance
- New digital business models will emerge, and most haven’t been created yet
Let’s break each one of these down and discuss some of the relevant proof points on each and the industry impacts for 2017 and beyond.
1. Products will become smarter, smaller, and more connected as platforms
On the topic of product design, there are a number of factors. First, vehicles continue to be designed under emission reduction guidelines. As such, the notion of “light weighting” vehicles continues at a rapid pace. New tech companies working with composites and new alloys are popping up like Internet startups in the late 1990s and early 2000s. The ability to simulate structural impact conditions with the use of very sophisticated analysis tools (along with large, massive data calculations) makes the ability to “fast fail” before committing to physical metallurgy a reality. These are all positive indicators that automobiles will become faster, lighter, and more fuel efficient.
An interesting caveat and counter-balance trend to the progress of light-weighting is the effects the industry faces as we move from “Level 1 and 2” autonomous vehicles (requiring the use of a driver/controller) to “Level 4 and 5” (generally considered by approved for driverless operation – see this funky graphic for a simple explanation of the NHTSA and SAE levels). While vehicles will have more autonomous features, the need to add redundant systems – including the weight of the driver – will counterbalance vehicle-lightening initiatives during the transition period, until Level 4 becomes more reality and less fantasy (and is approved by regulators for general population). How automotive suppliers connect in terms of their respective digital products and platforms will also evolve (see #2).
2. Industry disruption and confluence will continue and accelerate
It’s already hard to tell how much a vehicle company is a manufacturer, retailer, bank, and marketing firm these days, and those segments will continue to muddle as the industry morphs into Transportation as a Service (TaaS) business models. As vehicles move into a TaaS-based operation environment, a funny thing happens: the rate of use skyrockets from about 20-30% of total available use (when a personal vehicle is parked or idle) to about 70-80% (when fully autonomous or fully driver/consumer engaged). Automakers are considering what this means to service and aftermarket parts, particularly when the rate of use can shift to non-owner/vehicle customers. Will the current dealer infrastructure be deep and wide enough to manage demand? What about the insurance industry? Who insures the car when it is not a personally owned asset? If the vehicle is a personally owned asset, can I as an automaker share driver information with the insurance industry as it is collected? Am I allowed to sell these assets? What does this mean in terms of micro-royalties passed to connected suppliers who provide automakers the platforms to connect this information?These elements need to be factored into tomorrow’s business models, business processes, and data analytics.
3. The talent war will become critical, even a pinch point to growth
The biggest challenge most manufacturing and engineering-related companies have today is the ability to attract and retain key technical talent. Without talent to move into the new demands of the connected and autonomous industry, products, and operations, the growth rate of companies could become constrained just like any other capital asset. At the recent OESA Annual Conference, management consulting firm Boston Consulting Group identified through its survey work that the #1 issue facing the automotive industry is management, with the top area of concern there being talent management. The big fight for talent is just getting started.
Case in point: Last year I was with a company whose entire IT architecture team was approaching mandatory retirement age. Earlier this year I was with another company that needed to maintain its engineering workforce as a key to growth as it replaced retiring skilled workers and designers and built product sales volume. In short, every company in the industry has a talent-management problem, and everyone is competing for the same skilled resources in science, technology, engineering, and math. These STEM resources are of top demand in the workforce and will command attention, compensation, and flexibility in terms of how work gets done in automotive and manufacturing companies.
4. Customer engagement will continue to grow in importance
Driver consumers will continue to demand greater engagement in services and other delivery models with automakers, and automakers are extremely interested to accommodate these new, largely millennial drivers. A McKinsey study published earlier this year suggested an estimated $1.5 trillion in digital services would be rendered through connected vehicles by 2030. This represents by far the largest growth area for the automotive industry, with personal vehicle sales expected to grow modestly between 2% and 4% during that time (IHS, Frost & Sullivan, others). So how do automakers tap into that engagement model at a deeper, more meaningful level? My colleague Thomas Leisen from our organization and talent group suggests the answer is be purpose-driven and authentic. According to Thomas, when it comes to millennials in particular, “this generation is really sensitive as to whether a brand purpose is authentic or not. If millennials don’t buy your claimed purpose on the fly, not only are you throwing away a lot of money for all of your marketing campaigns, but they might also get the wrong impression.” Pushing that level of authenticity – with deep data accuracy and meaning – to driver consumers will require new and evolved thinking to capture this massive future wallet share.
5. New digital business models will emerge, and most haven’t been created yet
And this is just what we know. What about digital business models that haven’t even been created yet? According to IDC, by year-end 2017, over 70% of the G500 will have dedicated digital transformation and innovation teams. In addition to those digital (DX) transformation efforts, by 2019 40% of all digital transformation initiatives – and 100% of all effective Internet of Things (IoT) efforts – will be supported by cognitive/AI capabilities. When the industry moves into AI and machine learning concepts, the role of the human is one more of oversight and control and less one of execution: intelligent machines, building intelligent vehicles, servicing intelligent machines.
Case in point: Much like many household connected items, the first interaction with a digital device is with your phone to match/pair, personalize, and engage the product. What will the phone – or some other primary device – in the future represent? How will we use that to onboard and personalize a vehicle? These are questions that automakers are considering today, even with the rapid pace of current change, to be ready for tomorrow.
So how did I do? Long shot or bull’s eye? Check out my top trends for 2016, and listen to my crystal ball 2014 predictions from SAP Radio Coffee Break with Game Changers.
This article originally appeared on LinkedIn Pulse.