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Who stole my company? The coming disintermediation of automotive in New Mobility

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"We didn't do anything wrong, but somehow, we lost." ended Nokia CEO Stephen Elop during a 2013 press conference to announce that Nokia had been taken over by Microsoft. Nokia, once the biggest, most famous mobile phone manufacturer, was swallowed up by the Apple iPhone onslaught which launched in 2007, taking the company from a dominant position to a small bit player in only a few years. James Carter, with assistance from Chris Kirby discuss the new mobility revolution.

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"We didn't do anything wrong, but somehow, we lost."

Unfortunately they did do something wrong, and it was a critical error. They failed to clearly identify and act in order to keep pace with changing technologies and consumer tastes. To quote Ziyad Jawabra; "The advantage you have yesterday, will be replaced by the trends of tomorrow."

It's far from the first time this has happened. Only a few years earlier, Kodak, the dominant player in camera film and photographic supplies was put out of business by the shift towards digital cameras. Ironically for them, not only did Kodak hold the most patents for digital camera technology, an internal corporate innovation team identified digital technology as a huge threat 10 years prior, yet management did nothing to pivot. All the while their much smaller competitor, Fujifilm, started producing desirable high end digital cameras which brought success and profitability.

It is this type industry shift that is now beginning to occur in Automotive. As the convergence of new technologies into a "CASE" platform (Connected, Autonomous, Shared, Electric) occurs, people will be able to access their mobility cheaply through pay as you go systems. The combination of these technology and customer usage changes has forecast that cost per mile drops will be in the 80% range (Barclays, Columbia University), when going from owning a vehicle today to a shared autonomous electric vehicle. As the popularity of such autonomous car sharing services grow, many current industries and businesses associated with Automotive and car ownership will begin to dwindle and finally fail.

"The advantage you have yesterday, will be replaced by the trends of tomorrow."

One of the reasons that current vehicle ownership is now so expensive is that many suppliers and "middle men" are involved in some way. To take just the vehicle, OEMs have workforces hundreds of thousands strong to design, build and manufacture a vehicle, plus all the effort by Tier 1 and 2 suppliers who also have huge teams and facilities. From there it goes to a dealer via a trucking and shipping company, both of which have many employees. When you purchase a vehicle, you need insurance, registration and may purchase additional insurance or accessories, all of which have large companies behind them to bring you that good or service. And each needs to make a profit to exist, which ultimately comes out of your wallet.

In New Mobility, a customer will be able to call up a shared taxi-bot via an app or digital assistant and take them where they need to go as a passenger. While many companies associated with automotive and vehicle ownership may be able to continue to exist with a refined version of today's business model (notably some OEMs and Tier 1s), it is expected that significant consolidation will occur, with only the fittest surviving. However, many customer facing industries (ie dealers, insurance, accessory suppliers, etc) will begin to fail outright as demand drops as their goods and services are no longer required in the customer's new paradigm of mobility.

The process of the decline of these industries is called Disintermediation, and is very commonly associated with technological revolutions that offer customers new choices and options at a much lower price. For instance, to use the previous photographic analogy, film processing centres, once everywhere, are now few and far between, catering only to a small select group of enthusiasts. The film processing centres, and their suppliers, such as those that made film, photographic paper and chemicals, processing machines and processing operators; have now been almost completely disintermediated as consumers almost exclusively use digital cameras.

Disintermediation is very commonly associated with technological revolutions that offer customers new choices and options at a much lower price

As a case study, let's look at look at some current industries and occupations connected to automotive, examine their business model and give them a 'survivability' rating for 2030.


OEMs

Right now there is a race for OEMs to prepare for New Mobility, with Autonomous vehicle development, key alliances instituted and an exploration of what post ownership at a retail level might look like. OEMs have huge legacy infrastructure tied up with their dealer networks, which is likely to become a huge burden. The current huge model proliferation will likely reduce significantly as people are much less likely to care what their transportation looks like in New Mobility. The other danger OEMs face is the break up of their tight and effective branding model as consumers low longer own nor drive, effectively cutting out a key ways to appeal to customers. It is quite likely that OEM New Mobility business will become a faceless production side to another brand, just as aircraft manufacturers are to airlines, and Foxxcon is to Apple - ie just a hardware provider in a software world.

Key thought: Manufacturer consolidation as model ranges and marketing consolidate for taxi-bots, plus pivot towards CASE vehicles and ground drones

2030 Survivability Rating: 2.5 stars


Tier 1/2 Suppliers

Tier 1/2 suppliers are utterly dependent on the fortunes of OEMs, however the product that is offered is key. Suppliers that make precision components for IC engines and transmissions (ie Linemar, Aisin, ZF) are particularly vulnerable as EVs grow significantly in popularity, but manufacturers who make batteries and entertainment systems will be extremely well positioned (Panasonic, LG Chem, Harmon). Software suppliers and developers of AI for automotive applications will also have a very bright future.

Key thought: Item dependent

2030 Survivability Rating: 1.5-5 stars


Collision Repairs

Right now the collision sector is already going through significant consolidation, particularly in Canada. Recent rises in distracted driving from smartphone usage has increased the number of accidents per million miles for the first time in 30 years, however as "Guardian Angel" technology becomes more common (Toyota are rolling out their Safety Sense system this model year) and later as Autonomous Vehicles roll out, the profits now enjoyed by large collision chains will be much smaller. As a President of large collision chain said to me, the long term future looks "very bleak".

Key thought: Consolidation followed by very significant disintermediation

2030 Survivability Rating: 1.5 stars


Dealerships

Dealerships will be a bad position as New Mobility begins to mature. EVs low need for maintenance will dramatically cut in to parts and service profits, Autonomous Vehicles inability to crash will reduce parts sales and the move to Mobility as a Service taxi-bot business model will mean there will be few profitable new car sales as most will be bought by fleets, and the upsell will be just a trick of long forgotten salesperson. To compound this, there has been almost no guidance from OEMs to date to show them what their place is in New Mobility, let alone how to survive and flourish. Luxury dealers will be less affected as it will become a status symbol to own a car, rather than use a taxi-bot service. Companies whose business is solely aimed at a dealer level (ie DMS and CRM providers) will also be significantly affacted by a large fall in private sales.

Key thought: Significant disintermediation at mainstream level, less so for prestige

2030 Survivability Rating: Mainstream 1.5 stars, Luxury 3 stars


Automotive Service Providers (Mechanic Shops)

Automotive Service Providers will be experience similar effects as dealers from reduction in vehicle service and maintenance volume from electric cars. However the aftermarket maybe better positioned than dealers to survive into New Mobility by acting as a low cost supplier to taxi-bot fleets (for charging, cleaning and maintenance), as their cost structure, particularly on a capital side is generally much lower than a typical (grandiose) dealership. However, just like is occuring in the collision sector now, significant consolidation towards large chains is likely.

Key thought: Pivot towards fleet maintenance of taxibots

2030 Survivability Rating: 2.5 stars


Automotive Accessory Suppliers

Depending on where their focus is, Automotive Accessory suppliers may or may not be disintermediated. The natural ability to upsell product at a dealership will be removed in New Mobility, but people will still have to take bikes and other equipment to different places and retro fitted electronics and upgrades for communication is a very good opportunity.

Key thought: Need pivot towards electronics and software

2030 Survivability Rating: 3 stars


Insurance Companies

As automotive makes up a very large percentage of the portfolio of any manufacturer, there will be a very significant impact when people choose to move towards Mobility as a Service. Some of this loss will be picked up by extra insurance required by OEMs and developers of autonomous vehicle systems and software, as well as fleet insurance; but it is highly likely that this will not come close to offsetting the premium loss. Those insurance companies specializing in automotive will likely be swallowed up by larger organisations.

Key thought: Pivot towards broad fleet / OEM insurance

2030 Survivability Rating: 2.5 stars


Drivers

When New Mobility arrives, drivers will be at very high risk of disintermediation, and there will likely be a lot of cut backs. Drivers will need to broaden their skill sets in similar industries or enter new industries to retain employment.

Key thought: Heavily affected by disintermediation

2030 Survivability Rating: 1 star


Parking / Traffic Police Officers

Just like drivers, heavy disintermediation will occour for Parking and Traffic Police officers. However, generally speaking people in this line of work have been generally trained for other roles, so it is likely that they can be repurposed towards other work.

Key thought: Repurposed within police force

2030 Survivability Rating: 3 stars


Petrol/Gas Stations

As the vehicle car parc pivots towards EVs, Fuel stations will begin to see a reduction in demand. Often these are located on expensive corner land to attract customers, so as such the return for the investment will be significantly narrowed, and it is likely that the land will be repurposed towards a high value need. As most people can charge from home, or a taxi-bot fleet can charge at a warehouse, the impact of adding a charging station is limited in all but the busiest transportation corridors. The one saving grace may be adding hydrogen, but this will be very dependent on the development of vehicles for hydrogen, which at this stage has begun to take a backseat to EVs. Hydrogen suitability for long haul trucking may help transportation corridor fuel stations to survive and flourish.

Key thought: Prime land and charging infrastructure in buildings will force significant disintermediation

2030 Survivability Rating: 1-2.5 stars


Banks / Finance

Just like insurance companies, the automotive sector for personal finance is huge. And just like insurance, banks will have other areas to pivot towards, though they are likely less exposed. Even still there will be a huge loss of business as people switch from car loans and leases to Mobility as a Service, which will not require a finance model. There may be some opportunity to finance taxi-bot fleets, as well as invest in new technology surrounding New Mobility.

Key thought: Significant loss of consumer business only partly filled by fleet business

2030 Survivability Rating: 3 stars


This is far from an exhaustive list and as Lukas Nekermann says: "The more layers you peel off the New Mobility onion, the more you find." However, as can be clearly seen, the coming age of New Mobility will have a dramatic impact on many different industries and business. What is clear is that where there is disintermediation for some, there is significant opportunity for others. New industries will form and businesses develop on the back of New Mobility, creating many new jobs and opportunities, most of which we haven't even thought about. Who would have thought 10 years ago that a company that specialized in disappearing messages will have a multi-billion IPO? Now Snap is a reality, made possible by the smartphone.

Who would have thought 10 years ago that a company that specialized in disappearing messages will have a multi-billion IPO?

Social scientists have consistently shown that while new technology may reduce employment in some areas, it generates much more in others. In the 19th century when mechanical looms began to replace the jobs of many weavers, production skyrocketed, prices fell and clothing became much cheaper and affordable, creating new businesses, like clothing stores and retailers, which created far more economic growth than it took away. At the same time, the loss of jobs in areas such as drivers, dealerships and insurance companies will be replaced by jobs in travel, computer coding and telecommunications.

It is worth noting that overall it is the consumer that drives the process of change, not businesses. Customers desire useful new technology that value adds to their life and drives down expenses - even if they are employed by a company that is being disintermediated. The benefit to the consumer is what drives demand, and those in their way will usually fall. Take Uber, a company that despite riding roughshod over incumbant taxi providers and city laws, provided a cheaper, cleaner, more efficient service to their customers with less friction points. Customers demanded Uber and eventually most cities rewrote their bylaws to include them. Industry and technology change is thus very difficult to block if fuelled by customer demand.

The benefit to the consumer is what drives demand, and those in their way will usually fall.

The other significant benefit of a reduction in consumer spending on mobility is the new ability for customers to spend money on other areas that they benefit problem. It is this thought that could position business who rely on consumer discretionary spending to find and develop new opportunities away from automotive and transportation to succeed and prosper.

To summarize, it is imperative that companies who are in Automotive, or businesses that face onto automotive, understand New Mobility and take a careful look at how they will be impacted. Many sectors will face significant disintermediation as customers choose new and better ways of choosing their mobility. Identifying these threats now, and looking for opportunities to pivot into new growth sectors will be key to the survival of successful businesses.

Second Annual Mobility Study Webinar - Session 2

by James Carter (Vision Mobility), Dr Dave Fish (CuriosityCX)

One in Three said that they wouldn't own a car if they didn't have to was one of the surprising insights that James Carter, Principal Consultant of Vision Mobility and Dr. David Fish of Curiosity CX, found in the data of the First Annual Mobility Study conducted in late 2016.

Last year's study, which surveyed 1,000 people aged 18 and over across the United States, focused on how people viewed different aspects of their mobility at that time and what their key needs will be for the future. Topical insights into new dealership models, remote vehicle communication, and Uber-style personal package delivery services were also studied.

For the Second Annual Mobility Study, the study has received support from Michigan State University (MSU) underscoring the prominence of the study in the New Mobility world. Jason Switzer, a Masters of Science in Marketing Research candidate at Michigan State University, has assisted in the design, development, and preparation of the study as part of his research at MSU. "With support from MSU and Jason, we can now take the Second Annual Mobility Study to the next level in research for the New Mobility community," said James Carter of Vision Mobility.


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Who stole my company? The coming disintermediation of automotive in New Mobility
Modified on Monday 12th February 2018
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