The Other Big Three

Should anyone doubt the speed at which the industry is altering its basic business tenets, the 2016 Consumer Electronics Show (CES) in Las Vegas should provide all the clarity required. Close to 200,000 attendees and exhibitors—and remember, this is a trade show, not a public show—descended upon the Strip as if they were going to the last Who concert. It took 45 minutes to get a cab. The massive halls were crammed full of people. And there were plenty among them who wanted to make an impact not on the consumer electronics industry, per se, but on the auto industry.

The energy and resources devoted by current and prospective auto OEMs/suppliers to booths and press conferences were reminiscent of SAE shows from 20 years ago. That was a time when suppliers were eager to take over design, procurement and assembly of entire modules from OEMs in an effort to optimize the supply chain and lower overall cost. At that time, Detroit’s Cobo Hall was crowded with mini assembly lines; new ideas for modules such as whole interiors, corners, front end, suspension, engine/transmission marriage; and a host of other concepts to reduce overall cost. Like anything, we over-corrected and came back to reality. CES now has that same feel.

It also became clear that the three legs which the industry will stand upon going forward are front and center. While mutually exclusive, there is a definite understanding that there is a common destiny for electrification, automated driving and the shared mobility economy. Each has an implementation path which differs from the others. Virtually every OEM understands that they need to buy into this new “Big Three” if they are to take advantage of the profit pools and shifting value chains which will emerge. Some suppliers received the memo and are sprinting toward these crossroads. Others are innocent bystanders who are not grasping the gravity of what is unfolding. Like on any highway shoulder, we’ll see roadkill.

As noted, each of these drivers has an implementation path impacted by legislation, cost, consumers and technical advances. Electrification is pushed along by the need to reduce CO2 and improve fuel economy with existing and new industry entrants within a very slim timeline. Virtually every OEM has several development programs underway to integrate Stop/Start, Mild/Full hybrid and Full battery electric vehicle iterations into their future fleets. Obviously, fuel costs and the potential for shifting legislation goalposts will impact how the industry integrates various forms of electrification.

Sharing the spotlight was automated driving. We are witnessing a consumer-driven initiative to increase safety, convenience and lower automotive fatalities. Again, the industry is stretching the bounds of legislation as OEMs are designing vehicles that push toward Level Three integration (the driver can take over control when necessary) with a myriad of sensors and cameras taking over the simple driving duties at most speeds, anticipating obstacles and altering the driving experience. As noted, this process has only started and is slated to heat up as content we now find in the luxury segments starts to bleed down into the balance of the fleet.

Last but not least is the new kid on the block: Shared Mobility or the “Mobility Economy.” Both General Motors and Ford devoted valuable resources to ensuring they can capture revenue from these sources as the dynamics of the transportation sector alter. Extending one’s mindset beyond the automobile or commercial truck infrastructure to one where public transport and all the profit pools which impact this is critical. Understanding who owns and controls future information flows, as well as the supply chain, will determine who the future players are. If the rise of Uber taught us one important fact, it’s that the consumer still wields a mighty sword.

While each of these key drivers can exist on their own, there is no doubt that each will depend on the other for implementation and full optimization over the next decade. The result is new suppliers with differing expectations for the speed of implementation and engagement emerging. Current suppliers beware. Each of these drivers will eventually impact you in some form–either in changing requirements, shifting costs within the vehicle and overall industry volume. Understanding the impact is key–that is clear.

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Michael Robinet has been a managing director of IHS Automotive since 2011. Prior to that, he was the director of Global Production Forecasts for IHS Automotive. His areas of expertise include global vehicle production and capacity forecasting, future product program intelligence, platform consolidation and globalization trends, trade flow/sourcing strategies, and OEM footprint/logistics trends.