I’m probably not alone in thinking that all OEMs are pretty much following the same strategic and tactical path at the moment. Nearly every major OEM has an ACES (autonomous, connected, electric and shared) strategy or, as Daimler’s Britta Seeger put it during a presentation at January’s Automotive News World Congress, a CASE strategy.
Why each OEM has such a strategy is not in dispute. As Dr Dieter Zetsche, Daimler’s chairman, says “Each of these has the power to turn our entire industry upside down. But the true revolution is in combining them in a comprehensive, seamless package.” So a move from the product being the value-defining element of the automotive industry to value being derived from the service provided.
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Also, there’s a need for companies to be seen to be following the correct strategic path as deemed by Wall Street*, Ford’s failure to be seen to adhering to this ‘group think’ briskly enough undoubtedly contributed to the ousting of Mark Fields as CEO in May 2017.
However, none of the OEMs are tangibly differentiated in what they’re doing and thus unlikely to reap clear competitive advantage. The internet and social media have given rise to the ideal idiomatic acronym for these inseparable strategies – FOMO; the fear of missing out.
FOMO and megatrends in this industry are nothing new. 10 years ago, if you didn’t have high-volume platforms or high-volume engines, you would miss out. These trends went hand in hand with globalisation, an emerging market (read BRIC) presence and low-cost country sourcing. The need for complexity reduction is another – although quite how this now sits when combined with ACES is a subject for another day. ACES and all the historic megatrends are just a price for industry participation.
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In Seeger’s presentation at World Congress, she hit on perhaps a more impactful aspect of Daimler’s recent success when she cited the design of and love for Mercedes-Benz branded vehicles (no doubt aided by the Janis Joplin classic). So, while the FOMO megatrends are important, this industry continues – and will continue to be defined – by the old axiom: product, product, product. Without that, Ford can’t invest US$11 billion in electric vehicles nor VW EUR34 billion in electric and self-driving cars. And the power of the product is inextricably linked to the power of the brand. Want proof? In Europe, out of three identical A-segment vehicles (the SEAT Mii, Skoda Citigo and VW Up) the VW version consistently accounts for 60-70% of annual build volume, proof positive of VW’s brand power compared to its stablemates.
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By GlobalDataPerhaps ironically, given the direction current ACES megatrends are taking us, AutoNation’s Mike Jackson pointed out at World Congress that the OEMs have got a lot to thank the environmentally controversial fracking process for. It’s suppressed gasoline prices and brought a US boom in light truck demand. In 2017, light trucks accounted for 63% of the US market a marked increase from the segment’s 50% share in 2012. Such a margin rich mix generates profits that allows for the spending on ACES.
Of course, the cost of not pursuing ACES is higher than embracing them, which brings the fear to the fore. As Zetsche says, the entire industry is at risk of being turned upside down as CASE could potentially decimate vehicle ownership requirements and replacement cycles. But the reality is that the powerful brands will win out in the end.
Many automotive brands are in a position similar to the shire horses of more than 100 years ago. At the beginning of the First World War, there were more than a million shire horses in England alone – today it’s estimated there are around 1,800 worldwide. Today, however there’s a thriving market for thoroughbred horses and it’s thoroughbred automotive brands that will win out in the end. Simply ACES will not put an automotive company ahead of the pack.
*As an example of how Wall Street feeds the hype, I was told recently, and quite convincingly, by a Wall Street analyst that electric school buses in the US were going to be a massive segment and help propagate the flame for electrification. However, closer investigation reveals a US fleet of just 480,000 school buses. What’s more, these buses are probably kept in operation for more than the US’s average of nine years – let’s say 12 for argument’s sake – which would give a 40,000 a year market.
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