Howes: In new auto ecosystem, winning requires change

Daniel Howes

The emerging “automotive ecosystem” of the future may not be particularly kind to Detroit.

Not because the likes of this town’s automakers aren’t changing. But because they’re not changing fast enough to blunt the competitive onslaught from high-tech Silicon Valley heavyweights loaded with cash and a knack for delivering high returns on invested capital, says a new report from Alix Partners, a global consultancy.

And because Detroit’s challengers for next-generation transportation are less burdened by their past, the expectations of their employees, the conventions of leadership. Five years after Tesla Inc. introduced electric cars with a center-stack offering over-the-air upgrades and flat screens reminiscent of Apple products, “no other major automaker has moved to match the system.”

That’s not an encouraging sign. The emerging ecosystem will reward “horizontal” management of partners and suppliers, not “vertical” structures ostensibly intended to protect core assets — and to deliver the added benefit of protecting employment.

“Maintenance of employees is an excuse, and a popular push by unions and labor,” the report says. “But in what other area would a business intentionally disadvantage itself to maintain employment levels, outside of China?”

Detroit? Germany? France? Japan? Italy? All the major auto-producing nations with long, proud automotive histories and their connections to the highest levels of business and political leadership, that’s where.

The Big Disruption looming for the industry synonymous with Detroit and Stuttgart, Paris and Tokyo, isn’t just the biggest technical challenge since the moving assembly line. It will strain a transnational social compact underpinning national industrial foundations, almost certainly sowing a kind of discontent that will be difficult to manage.

But not in Silicon Valley. The disruption implicit in a radically new automotive model arguably will be much easier for companies operating in the non-union, high-tech hothouse than those with long histories, deep community ties and 80 years of bargaining with labor.

And the competition? Huge. More than 50 companies worldwide — many with “unlimited cash” — are known to be developing autonomous vehicles, Alix Partners says. It’s a “Wild, Wild West” scenario likely to produce a few huge winners and lots of losers saddled with unhappy investors who bet wrong.

A transition the firm dubs CASE — for connected, autonomous, shared mobility and electric — will transform the global auto industry, it predicts. But how and with which technologies is evolving as automakers and high-tech players push technological solutions — and consumers make inevitable choices.

Namely, a related survey conducted by Alix in May showed car-sharing to be declining among consumers even as ride-sharing offered by Uber Technologies Inc. and Lyft Inc. are fast becoming equivalent to the local taxi.

“Things are changing so quickly that it’s risky to commit billions to technologies that lock you in or partnerships that lock you in,” the report says. “Core to this is the much higher uncertainty on the winning technologies and paths forward, while there is no doubt that the major trends we coined as ‘CASE’ will transform the industry.”

It predicts as much as 25 percent of new vehicles will be fully self-driving by 2030, and up to 50 percent of new vehicles will be electrified; that ride-sharing will continue to grow in popularity, estimating that every new vehicle put into ride-sharing service replaces the need for four personal vehicles; that every single vehicle in car-sharing replaces a need for 19 personal vehicles.

Talk about a threat to the business. No wonder Ford Motor Co.’s directors moved to replace CEO Mark Fields, despite delivering record profits last year: the lifelong Ford man was perceived to be pushing the Blue Oval too slowly into a future to which none of the world’s major automakers are entitled.

After enduring the grim days of the Great Recession and two epic auto bankruptcies, the Detroit-based industry is at least seven years into a run of expanding sales and profitability, arguably its most impressive performance since the halcyon 1960s.

The run is ending, says Alix Partners. Record U.S. sales of 17.55 million units last year will slow to 16.9 million cars and trucks this year and drop to 15.2 million vehicles by 2019. Harbingers of the coming slowdown are sales incentives the last 11 months totaling 10 percent of vehicle prices and, second, high numbers of off-lease vehicles hitting the used-car market.

Not far behind will be the new automotive ecosystem, and there’s no guarantee Detroit will be in the driver’s seat when it gets here.

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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.