Who stole my company?? The coming Disintermediation of Automotive in New Mobility

James Carter
Posted: 01/03/2018

“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.

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."

“We didn’t do anything wrong, but somehow, we lost.”

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 types of 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. It has been forecast that these technologies and customer usage changes will drop cost per mile by 80% (Barclays, Columbia University), when going from owning a vehicle today to a purpose built 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 (Original Equipment Manufacturers) have workforces hundreds of thousands strong to design, build and manufacture a vehicle, plus all the effort by Tier 1 and 2 suppliers (those companies who supply parts and services to OEMs) 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, government tax / registration and may purchase additional service plans 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 and 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-developing 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 (Original Equipment Manufacturers) 

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 no longer own, nor drive, effectively cutting out 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. High end manufacturers will likely have a more stable future as car ownership becomes a symbol of wealth and indulgence.

Potential Pivot: Either a supplier to Mobility Providers or develop their own direct to customer proposition.

Key thought: Manufacturer consolidation as model ranges and marketing consolidate for taxi-bots, plus pivot towards CASE vehicles and ground drones. The choice between supplier or provider may not be as simple as it seems. The space in the direct to consumer space will be very limited (3-4 companies) so the wrong choice could be almost as catastrophic as no choice at all.

2030 Survivability Rating: 2.5 stars (Luxury 3.5 stars)

Tier 1/2 Suppliers

Tier 1/2 suppliers are utterly dependant on the fortunes of OEMs, however the product that is offered is key. Suppliers that make precision components for IC engines and transmissions (ie Mahle, Linamar, 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.

Potential Pivot: Move or increased focus in producing products associated with CASE vehicles.

Key thought: Success will be dependent on the type of product that is being offered and companies should pay close attention to product development strategies.

2030 Survivability Rating: 1.5-5 stars (depending on the goods or services provided)

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 across the board this model year) and later as autonomous vehicles roll out, the profits now enjoyed by large collision chains will be much smaller. As the head of one such company said to me, the long term future looks "very bleak".

Potential Pivot: Vehicle recovery, conversion or maintenance.

Key thought: Consolidation followed by very significant disintermediation

2030 Survivability Rating: 1.5 stars

Dealerships

Dealerships will be in a bad position as New Mobility begins to mature. EVs low need for maintenance will dramatically cut in to parts and service profits, an autonomous vehicle’s significantly reduced likelyhood 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, with the upsell just a trick of a 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 affected by a large fall in private sales.

Potential Pivot: Prestige or classic (classic being any car that doesn’t drive itself) car sales or maintenance/charging centres.

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 experience similar effects as dealers from reduction in vehicle service and maintenance volume from electric cars. However the aftermarket may be 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 occurring in the collision sector now, significant consolidation towards large chains is likely.

Potential Pivot: Fleet maintenance of taxibots

Key thought: Further consolidation and change of required skills – from mechanics to programmers.

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.

Potential Pivot: Obvious pivot towards electronics and software but also to customisation of high-end taxi bots (limo bots)

Key thought: Opportunity in the market but the product offering has to be right as disintermediation will still be prolific in this area.

2030 Survivability Rating: 3 stars

Insurance Companies

As automotive makes up a very large percentage of the portfolio of any insurer, 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. Certainly insurance companies specialising in brokering motor insurance will either be swallowed by bigger companies or disappear completely. There is going to be a growing requirement for public liability insurance and insurance against cyber attacks as human (customer) risk reduced and replaced by institutional risk.

Potential pivot: Pivot towards broad fleet / OEM insurance or new insurance models, public liability or cyber.

Key thought: Significant disintermediation in this area of the market. A heavily saturated and overloaded market today that may completely disappear with New Mobility, strong pivot opportunities for companies who react quickly.

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. Given that the occupation 'driver' can be as high as 3% of those employed in some US states, there will be a significant need for governments to assist in reskilling and retraining to occupations that have long term growth potential.

Potential Pivot: Retraining and skill broadening to other areas of this market.

Key thought: Heavily affected by disintermediation

2030 Survivability Rating: 1 star

Parking / Traffic Police Officers

Just like drivers, heavy disintermediation will occur 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.

Potential Pivot: Internal police force pivot to reallocate staff to growing areas of need, such as cyber crime.

Key thought: Repurposed within police force

2030 Survivability Rating: 3 stars

Petrol/Gas Stations

As the vehicle car park 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.

Potential Pivot: Opportunities to provide charging stations and storage in heavy usage areas.

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 opportunity to finance taxi-bot fleets, as well as invest in new technology surrounding New Mobility.

Potential Pivot: Funding and leasing of the taxi bots and investments in technology

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 chat 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, almost always towards a net gain. 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 add' 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 incumbent 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 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.

James Carter
Posted: 01/03/2018

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