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How Automakers Need to Change to Remain Competitive

How automakers need to change to remain competitive

In our ongoing partnership with KPMG, we continue to collaborate with industry leaders across the automotive industry to identify trends, opportunities, and solutions. In our previous installment, we explored new ways technology is driving innovation and transformation in the industry. In this story, we cover how the convergence of technology and the traditional automotive sector is prompting companies to examine and make necessary changes to their business in order to remain competitive.   

“A lot of organizations will need to be willing to go through the hard choices and the hard decisions to let go of the past an embrace the new, bold future." 

1. Technology convergence forces disruptive changes to the automotive business model

The automotive industry is going through a massive transformation. Cars are no longer simple vessels that transport us from point A to point B--they have evolved rapidly into highly complex computers that deliver a whole host of services far beyond transportation. Entertainment, communications, connectivity, and navigation are just the beginning. This convergence between technology and automobiles continues to force tremendous changes to the auto industry’s business model to remain competitive.

We are witnessing a pivot in car manufacturers’ roles: they are transitioning from being hardware to software manufacturers. “In cars today, there are more lines of code than there were on spaceships that have gone to the moon, which means that cars are becoming extremely complex,” notes Lisa Joy Rosner, CMO of Otonomo.

That pivot is signaling a complete change in the way auto manufacturers approach consumers and the way they service them. Before, once the car rolled off the assembly line, the relationship between the manufacturer and the consumer transitioned to simple periodic maintenance appointments. “Now, as software providers, car manufacturers have to maintain their relationships with drivers consistently to update their software and provide service far beyond the initial transaction,” Rosner adds.

Additionally, convergence between automotive and technology is expanding our definition of “automotive.” Over the last five years, automotive companies have been changing their mantra and marketing from being car making companies to mobility companies. “When you redefine the automobile to a version of mobility, you’re expanding the definition of automotive and transport. Add high-tech into that, and now what used to be a thing that you purchased could potentially become a service instead, which completely uproots the entire industry,” notes Liz Kerton, Executive Director of the AutoTech Council.

2. Automotive companies re-evaluate their place across the value chain

According to Jim Adler, Managing Director at Toyota AI Ventures, “Automakers are no longer competing with themselves. They’re actually competing with new, insurgent companies that really have capabilities around data and software. They’re really data native.” This competitive shift, coupled with the new business models discussed above, is forcing OEMs and the auto industry generally to learn these new capabilities so they can better compete in the new evolution of the industry.

Similarly, Brian Heckler, National Line of Business Leader, Industrial Markets at KPMG, believes these shifts are forcing automotive companies to re-evaluate where they fall on the value chain. “As new entrants from tech giants to startups continue to accelerate the pace of innovation, traditional OEM’s are going to have to decide what part of the value chain they want to operate. OEMs are wrestling with questions such as are we a design and build firm, a final assembly firm, a customer experience firm, or a safe reliable transport firm? The answers to these questions will fundamentally transform who does what in the automotive ecosystem, and who will be best positioned to remain competitive and extract value from each element of the value chain.”

3. Shifts in cultures and hiring models redefine the automotive industry

The changing business model and shifting priorities on the value chain also continue to exert pressures on both the culture and human infrastructure of automotive companies. Heckler asserts that to remain competitive, automotive companies need to focus on getting the culture right first. In his article for Industry Week, “Making the Leap to Artificial Intelligence: 4 Keys for Manufacturers,” he cites four key areas that will remain critical in this competitive landscape: conducting cultural due diligence, designing new research and development and business models for success, applying the right-minded leader or mentor, and emphasizing communication.

“Companies have to rethink where they’re going to play, the kind of skills they need, the kind of capabilities they need, and what is valuable. That change requires great leadership to be able to know when to do things, and what to do, and how to do them,” Heckler notes. “A lot of organizations will need to be willing to go through the hard choices and the hard decisions to let go of the past an embrace the new, bold future. As companies migrate through this transition and move towards their next state of where they’re going to play in the value chain, their biggest challenge is how they manage that change.”

These changes also are impacting the kinds of skills that workers in the new automotive landscape need to bring to the organization. It will be critical to have more highly-skilled technical workers in order to meet the industry’s new demands. Rosner adds that “Some of the pain points are just a fundamental shift in culture, in the types of people we have to hire, in the need to be agile, and in development cycles.”

How we can help you compete in the Age of IntelligenceTM  

Chris Obey, Flex’s Automotive President, provides perspective on how we’re uniquely poised to partner with automotive and technology customers alike in their journey to remain competitive. “When we take a look at what Flex is and what our customers think of us, they view us as a technology company coming from Silicon Valley to Detroit, instead of a Detroit company trying to go to Silicon Valley and find technology. That gives us a unique advantage.”

In addition, our broad-based experience across numerous industries provides us with a unique advantage to leverage innovation from other sectors and bring them to the automotive conversation that few can match. He adds, “When you look at automotive electronic suppliers, most of them are only automotive. When you look at the 12 different industries in which we operate at scale, we have a competitive advantage to be able to take those technologies from other industries and bring them into the car.”

Learn more about what automotive experts are saying about how to stay competitive in the Age of IntelligenceTM

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