Car Sector Changes With Connectivity & Automation

Dimitrios Matsoulis


This post summarizes an article by Hans-Werner Kaas, Andreas Tschiesner, Dominik Wee & Matthias Kaesser, published by McKinsey & Company in September 2015.

Modern cars have ever increasing connectivity and automation features. Enhanced digital controls and useful functionality like that of self-parking are just an indication of the direction the industry will have to take. McKinsey's consumer survey in Europe, North America and Asia indicates that consumers have high expectations for such features. The survey highlights that consumers willing to change brands based on better connectivity have almost doubled from 20 percent in 2014 to 37 percent in 2015. Moreover, in the same period those willing to pay connected service fees have increased from 21 percent to 32 percent. Chinese consumers are the most enthusiastic with 60 percent willing to switch brands based on connectivity.

Evidently, the automotive industry has a completely fresh and huge value pool to exploit. As the article states, it has to act with "scale, speed and agility" and start by making sense of customer behavior. Both connectivity and automation create completely new business models. The article proposes certain actions that automotive OEMs will have to take in order to remain relative in the newly shaped environment. These actions are summarized as follows:

1.  Before anything else, the first step is to recognize that the automotive industry is in a state of flux. Satisfying customers addicted to smartphone use and a fully digital lifestyle will lead to a complete transformation to new business models. Functionality, level of automation and user experience will all be critical ingredients.

2.  Although connectivity is an ever present demand, consumers still see cars as primarily transportation machines and tend to prioritize driving related conveniences over more general features like email, music, Internet browsing, etc. Applications like auto-parking and predictive braking will evolve into completely autonomous vehicles that will find their way through traffic and take care of parking issues.

3.  Pursuing end-to-end digitization both internally and on the customer front is essential in the transformation. Internal digitization is critical in building the digital tools to deal with new technologies as well as amalgamating a digital culture in harmony with what has to be achieved in products and services. In effect, OEMs will have to transform into automotive IT companies. In order to gain the necessary digital skills, IT company acquisitions and attracting the required talent are both fundamental survival skills. The article points out the very characteristic example of Tesla, as it develops all software internally like Google or Apple and updates car software much like Apple does with its smartphones.

4.  The whole process will be eased by achieving the necessary scale. One practical way to do this is for OEMs to agree on common data platforms and protocols for core real-time data like road, weather and traffic conditions. The next stage will be to use openly available APIs to create customized customer experiences. This stage will ensure brand specific experiences for several customer ecosystems that will compete in the marketplace.

5.  Customer acceptance will be achieved by alleviating customer anxiety about cyber security and car safety under autonomous driving conditions. Although these fears are not strongly imprinted in current surveys, those two areas will be vital to convince the general public to go ahead with the use of new digital road technologies.

Electrification, shared mobility and Industry 4.0 are the other three trends that are shaping the automotive industry. Interestingly, all four trends run simultaneously, are interrelated via the process of digitization and will lead to the complete transformation of the automotive industry.