Car Manufacturers are trying to adjust to this change on both ends by investing more in features that are preferred by consumers as well as looking to build engines that are low on emission. The transition is resulting in significant supply chain changes for car manufacturers. As per Statista, in the last 20 years, the cost of electronic components in a car has almost doubled from 20% to 35% of the total car cost. This is supposed to be at 50% in the next 10 years.
On the consumption side, As app-based aggregators like Uber, Lyft, Grab and Ola continue to launch new offerings in the Market, most consumers are now comparing the total cost of ownership including maintenance and parking charges to cost of their monthly cab fares.
While Car manufacturers look to build the right strategy to tackle this perception of the consumer, the market is already moving electric cars to the mainstream market and expected to take over the market in a few years. These factors have cumulatively changed the panorama of the global auto industry, which has forced major Car Companies to initiate multi-faceted alteration in their business plan.
Bumps on the Road to Ownership
According to an article in the Asian Nikkei Review, The global slow down is triggered by softening of demand in the two fastest-growing car markets of the world, China and India.
The article states that China and India, the world’s largest and fourth-largest auto markets, both suffered double-digit drops in sales during the previous quarter ended June, putting global sales on track to shrink for the second consecutive year.
The Chinese economic slowdown and a yearlong trade war with the U.S. as well as stricter laws on emissions have dampened the consumer appetite for new cars.
Similarly, the Indian market has reported a record fall in passenger vehicle sales with a drop of around 20.55% in 2019. This has been the steepest fall in the last 18 years.
These trends can be seen to appear globally as well, with the US auto sales dropping from 2018, by 1.5% in 2019, contributing to the global market situation.
Increase in commuting times, rapid urbanization, worsening traffic congestion, increase in CO2 levels has significantly contributed to a rise in shared mobility. Uber averaged 1 million rides per day in 2015. This figure has escalated to 3.5 million in 2018. Besides this, improved coverage of public transport and availability of facilities like carpooling and sharing, have also backed this drift.
In a paradigmatic article by McKinsey & Company, it was claimed that one-third of the expected growth in car sales through 2030 will not happen because of shared mobility. In view of the fact that major disruptions like autonomous mobility and electric vehicles are also coming in, the situation is only expected to worsen for the auto industry.
Can Car Companies become Service Providers?
Apart from the low cost of ownership, the consumer today values convenience and ease of use. These traits of the consumer have helped digital natives like Airbnb, Netflix, Spotify to become multi-billion-dollar businesses. Therefore the fundamental question to ask is can car companies revive their fortunes by following the same principle. Additionally, if car ownership is reducing can car companies move towards providing end-to-end service instead of just selling cars.
Some manufacturers have already started designing future mobility solutions that realize the sharing and connectedness requirements of the consumer. For example, the Hyundai Motor Company recently repositioned themselves as a Mobility Solutions Provider that promises to provide convenient and unlimited access to safe transportation while focusing on shared, clean and connected mobility.
Companies are also working towards developing auto-lease models taking car rental services to another level. Recently, Toyota launched a service in Tokyo that allows customers to lease Lexus cars at a fixed rental along with the facility to replace their car once in six months. The US car leasing market has really picked up in the last 5 years manifesting a growth of 1.6%.
With offerings like these, major automobile companies are looking to utilize unused inventory by moving towards a subscription model. In addition to opening doors of their business to a new set of customers, this can also be seen as a lateral expansion to cope with the shrink in the conventional market.
How Can Car Companies Connect with End-users?
Automotive companies have traditionally not been involved in providing end-user technology to track fleet or execute a subscription model. Therefore, car companies can explore two avenues
A. Collaborate with Car Rentals and Aggregators
As car rentals and car-sharing continue to increase in demand with new offerings tailored for different markets, car manufacturers can tie up with them to provide inventory at lower rates to boost demand. While this will definitely utilize inventory immediately, this model might not be scalable across all markets easily.
B. Build a Direct Relationship
Car manufacturers have an ardent following across all age groups and do not have an awareness challenge. Therefore they can easily unlock revenue by implementing plug n play technology solutions like CarGain which allows them to update and distribute their fleet across different markets gaining better control and visibility of demand across markets both for short-term and long-term rentals.
The automobile industry is currently undergoing major revolutions at both the supply as well as the demand side. While self-driving cars and electric auto variants are posing new challenges and giving fierce competition to market players, the shifts in ownership patterns are also not easy to adapt to. The winds of change have already surfaced and automakers will have to strive hard to surf the rising waves. In view of this, technological awareness and readiness may just prove to be a game changer for survival in this scenario.
About the Author
Vice President – Account Management
Rasika leads the account management group for the travel business at RateGain. An industry veteran with over 25 years of experience Rasika has a deep understanding of the automobile and car rentals industry working with all top six car rentals in the world to help them compete better by using RateGain’s solutions
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