Weekly News Review | 12 September 2016 | Automotive Purchasing and Supply Chain Automotive Purchasing and Supply Chain

Talking Point

Democratising technology may damage brands - and sales

As Volvo and Uber join forces to develop autonomous driving cars, Fiat Chrysler (FCA) enters into a partnership with Google, supplying Chrysler Pacifica minivans (large MPVs in European parlance) to integrate the autonomous and Hyundai is in discussions with Google over a potential partnership on autonomous vehicles and vehicle technology, I started to ponder on how consumers will choose between vehicles in the future.

The motivation to buy a car is changing; both the choice of a particular model of car, with their attractive but increasingly bewildering array of features and also, for many urban dwellers, whether to purchase any form of personal transport at all.

Carmakers are increasingly encouraging people to share their vehicles; no other high-cost asset sits unused for such a large percentage of its life while we work or sleep or take our leisure and the notion of car sharing is indeed what some call a ‘no brainer’. Where this will leave the OEMs is something that privately, and in some cases not so privately, is very disquieting to them. Sergio Marchionne of FCA is one of the few senior executives willing to stick his head above the parapet and speak out on this; using a new (to me) term: ‘disintermediation’, he spoke recently of how OEMs are in danger of losing control of their customer base and their technology advantage if they share too much technology.

If and when consumers choose to car share, OEMs will inevitably suffer reduced sales and they cannot increase prices in what is an increasingly competitive market; there is always a competitor, operating in the same region due to increasing globalisation, ready to seduce buyers to their brand.

The democratisation of technology may be the beginning of a slippery slope for OEMs; if the the primary development of new vehicle technologies is handled less by OEMs themselves and more by suppliers, there may be a homogenisation of features across many brands and the ‘character’ of a marque may be diluted by its technology, common to many others, instead of it being a distinguishing feature.

One question I have always asked suppliers is how much of their revenue they spend on R&D. There is no doubt that the last decade has seen a gradual move of R&D activity from OEMs to suppliers, a trend that intensified following the 2008 financial crisis, when suppliers took the brunt of industry pain. Reorganisations and portfolio realignments in the intervening period have encouraged many suppliers to be stronger and more focused on maintaining a competitive advantage in specific product sectors.

It is to their credit that they have, in the main, survived and emerged stronger in purpose and financial terms than some of their OEM customers. For suppliers were not afforded the government backing that OEMs enjoyed in the US, and many had to shutter or close plants and lay off a lot of man- and brainpower.

One might take the view that most consumers don’t know or care who makes which component in their cars and if the car is driven autonomously by a Google or Apple app or by an Uber driver, perhaps our love affair with our cars and their ‘character’ will quietly, particularly if travelling in an EV, come to an end.

Simon Duval Smith

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