- Dr. Martin Lockstrom

The State of the Global Automotive Industry: A Tale of Two Gears

InSIGhTS

The Macro View

If the average car has five gears, the global

automotive industry has two. Of the major

global markets, the European Union (EU)

posted a disappointing drop of -8.2% for

2012, whereas the United States (US),

Japan and China showed growth of 9%,

26% and 4.3%, respectively. Why this stark

contrast between the EU and the rest of

the world? For starters, a comparison of

the EU and the US shows that the two have

embarked on distinctively different macro

economic paths. The US, fearing a repeat of

the mistakes from the Great Depression in

the 1930s, has used its unlimited money-

printing ability to launch massive fiscal

stimulus measures by injecting trillions of

dollars into the economy.

The EU, on the other hand, kneecapped

by a “one-size-fits-all” monetary approach

and limited by external lenders, has been

forced to adopt severe austerity measures

that stymie any tendency to growth. China

is growing at a more moderate pace in

the wake of the astronomic growth right

after the financial crisis in 2008-2009.

Japan, finally, is seeing a healthy rebound

in the wake of the Fukushima disaster and

the launch of a massive fiscal stimulus

program. In sum, we see a two-gear global

automotive market – the EU in reverse, and

the remaining key markets in top gear, if

not quite overdrive.

The Consumer View

From a consumer perspective, geographic

markets are less defined by country

borders and more by the developed-

developing dichotomy. In most developed

markets, there is a trend of change in the

traditional paradigm of “car ownership” –

which is now moving towards “car usage”.

Meanwhile, in many emerging markets,

the car represents one of the key symbols

of socioeconomic status. Furthermore, in

many urban areas, especially in developing

countries, congestion and pollution are

becoming increasingly serious, calling for

new solutions for consumer convenience

and safety. So, global Original Equipment

Manufacturers (OEMs) have to delicately

balance frugality, luxury and sustainability.

new Business Opportunities Beyond the Car

This means that new business models have

to be developed in order to accommodate

changing consumer demand. For instance,

car customer value in the future will not

be so much about driving from point A

to point B, but rather about providing

the best travel experience, regardless of

whether it takes place entirely within the

car or in a multi-modal fashion involving

for instance, trains, aircraft etc. This

means that automotive OEMs have to

think beyond the driving seat about the

additional services they can deliver in a

single product in the shape of a car.

For instance, there is a whole lot to do

in terms of car entertainment; who said

that it shouldn’t be possible to provide

an app ecosystem for cars? As the share

of electronic content is continuously

increasing in cars, this is more imperative

than visionary idea. In addition, with

support from social media, a whole range

of potential new services can be created;

for instance, based on the demographic

background of the driver (or passengers),

intelligent context-sensitive information

about gas stations or restaurants can be

provided to the car even before the need

is felt.

Moreover, who says that the cars of the

future will need drivers? While driving a

car is usually a pleasurable experience,

navigating through rush hour traffic on

the daily commute, is not. Autonomous

driving is already a reality; for instance,

Google Car has logged thousands of miles

of autonomous driving. For safety and

regulatory reasons, this idea has yet to

become mainstream though. Also, who

said that cars have to behave like chaotic

individuals? With autonomous cars, the

ideal case would be one where cars not

only care about themselves, but also

make every decision, such as turning or

accelerating, by considering the behavior

of all other cars within a certain radius – as

part of a finely synchronized swarm.

© 2013 Infosys Limited, Bangalore, India. All Rights Reserved. Infosys believes the information in this document is accurate as of its publication date; such information is subject to change without notice. Infosys acknowledges the proprietary rights of other companies to the trademarks, product names and such other intellectual property rights mentioned in this document. Except as expressly permitted, neither this documentation nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, printing, photocopying, recording or otherwise, without the prior permission of Infosys Limited and/ or any named intellectual property rights holders under this document.

About InfosysInfosys is a global leader in business consulting and technology solutions. As a proven partner focused on building tomorrow’s enterprise, Infosys enables clients in more than 30 countries to outperform the competition and stay ahead of the innovation curve. Ranked in the top tier of Forbes’ 100 most innovative companies, Infosys – with $7.4B in annual revenues and 150,000+ employees – provides enterprises with strategic insights on what lies ahead. We help enterprises transform and thrive in a changing world through strategic consulting, operational leadership and the co-creation of breakthrough solutions, including those in mobility, sustainability, big data and cloud computing.

Visit www.infosys.com to see how Infosys (NYSE: INFY) is Building Tomorrow’s Enterprise® today.

For more information, contact askus@infosys.com www.infosys.com

Author Profile

Dr. Martin Lockstrom Principal Consultant, Building Tomorrow’s Enterprise, Infosys Labs

Martin is a specialist in Supply Chain and Operations Strategy, Outsourcing/Offshoring and International Management. During a six-year stint in China, he established the research and education activities at the SCM, Sustainability and Automotive academic centers at China Europe International Business School, Shanghai.

he established the first endowed chair for Purchasing and SCM in China at Tongji University, Shanghai, and was also responsible for setting up Supply Chain Management Institute China, an international network of SCM research and education hubs.

Martin co-founded Procuris Solutions, an IT company specializing in SCM-related solutions, offering consulting services to companies like Accenture, Ariba, BMW, Clariant, Dell, Dow, Ernst & Young and Intel, among others.

he has a Ph.D. in Supply Chain Management from European Business School, Germany, a bachelor’s and master’s degree in Industrial Engineering and Management, from Chalmers University of Technology, Sweden. he speaks Swedish, English, German and Chinese, has published over 50 articles and papers and presented at more than 60 conferences.

Summary and ConclusionGeely Chairman Li Shufu once said that “a car is just a couch on four wheels.” While a tad oversimplified, this comment nevertheless highlights the fact that the car as such is becoming increasingly commoditized and its value and importance are on the decline in some markets. hence,

OEMs have to ask themselves what customer value in the industry is all about. Only by doing so, will the mind be free to identify and explore new revenue streams that the industry so desperately needs.