What Challenges Are On the Horizon for the Automotive Industry?

22 August, 2018
What Challenges Are On the Horizon for the Automotive Industry?

For nearly a century, the automobile has shaped both the global economy and the daily lives of billions of people.

However, for all of its steadiness, the industry behind the automobile has seen continuous change and is always facing new challenges. In addition to concerns about sales volume growth, experts are pointing to four main challenges that will shape the industry in the near and medium-term future. These challenges are expected to have a lot more significance for established markets than for developing ones.

Challenges The Auto Industry Is Facing

Greater costs and complexity

An increase in international policy guidelines, particularly those relating to the environment and safety standards, is expected to raise costs and complexity, as they have to be handled separate from domestic markets. An increasing number of derivatives that serve various vehicle segments and markets founded on a single platform also increases complexity. Concurrently, manufacturers will have to create alternative powertrain systems for lower-emission vehicles without being able to see what ends up being the industry standard of the future. This will call for considerable investment.

With all these pressures and flat net price development, it will be harder for manufacturers to distinguish themselves with new features while getting economic value from these factors.

Diverging markets

Emerging markets’ portion of worldwide sales is increasing from 50 percent in 2012 to 60 percent by the end of the decade, while their portion of global profits is also poised to increase by 10 percentage points. However, the positioning of existing production and supply bases is not properly lined up to foster future sales. Furthermore, there is possible for “portfolio mismatch,” as classes of smaller vehicles are developing more solidly than others, especially in fast-growing emerging markets. Finally, manufacturers have to look ahead to the Chinese aftersales market, which is estimated to grow by 20 percent each year.

Digital factors

Studies have revealed that digital channels are the principal source of customer information. For many people, the next step might be online purchasing. This could be a big opportunity for manufacturers, but it also means the likely threat of competition from online retailers and puts strain on the existing dealership framework.

Digital is also increasingly applying to the driving experience. Consumers want to mix mobility with communication. This might be another an opportunity for manufacturers, but only if they can determine how to monetize this demand.

A changing landscape

As manufacturers aim to develop new powertrain technologies, suppliers will probably offer more of the value-added content per car. Furthermore, manufacturers have to make sure that their suppliers’ production footprints, particularly in developing markets, align with future market demands and their own production plans.

Outside base case assumptions, these difficulties could bring about added risks to automotive profits. Recent limitations on China’s medication and dairy production industries could foreshadow a tightening of automotive industry polices.

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