The Disruption of the Automotive Industry Represents a Significant 21st Century Change

October 14, 2017 – Technological innovation has always played the role of significant disruptor in almost every aspect of our human civilization. So it shouldn’t be too much of a surprise to find that the great 20th-century disruptor, the automobile, and the industry that built up around it is itself undergoing forces of change that car moguls would never have imagined.

When I was a young man the North American industry was dominated by three major manufacturers, Ford, General Motors, and Chrysler. It wasn’t always this way. In the early days of the automobile, there were many more than just the Big Three. But the cost of remaining competitive in the age of automated assembly lines and rising demand soon drove many small players out of the market. The last to go included companies like American Motors and Studebaker.

In Europe, the same kind of concentration evolved, but unlike North America, national policies protected domestic manufacturers leading to a more fragmented and diverse group of car companies. Even in Europe as the 20th century unfolded, we saw fewer and fewer players.

The arrival of South Asian competition was the next disruptive change that impacted both North American and European manufacturers. With lower labour costs and a knack for gauging what customers in foreign markets wanted, Japanese and Korean car manufacturers established themselves globally. Today Toyota and General Motors vie for who is the largest car manufacturer in the world.

21st Century Disruptive Change Doesn’t Look Anything Like What Was Seen in the 20th

Today the industry faces an emerging series of changes that bear little resemblance to what has gone before. The disruptors include:

• the Internet and the proliferation of sensors tied together by the former in what is called the Internet of Things or IoT
• the rise of artificial intelligence (AI) with software that gives cars the ability to be self-driven
• a move away from fossil-fuel powered vehicles to electric vehicles (EVs) and more climate-friendly and less carbon emitting alternatives
• new materials that can absorb impacts and shape-shift back to pre-impact form making vehicle repair less needed
• the rise of mobility as a service completely redefining the transportation paradigm

IoT and its Impact on the Automotive Industry

According to a Gartner report, there will be 250 million connected cars on the road by 2020. These will be vehicles containing sensors that not only improve the safety of your daily personal commute but also alter the way we drive. Gartner may be too optimistic with that number but I share with you my latest experience in driving from Toronto to Atlanta and back over busy highways and in urban streets.

My new car is a Toyota RAV4 Hybrid. It has sensors that provide radar, lidar and images of the road ahead, to the side and even behind. It has blind spot and pedestrian detection, lane veering and correction, adaptive cruise control, and onboard navigation. In leaving Toronto I entered the daily destination and let the vehicle guide me. On the highway each day I barely touched the brakes as the adaptive cruise control adjusted my speed to the vehicles around and in front of me. When it rained my windshield wipers operated automatically adjusting speed to the amount of precipitation falling. It was, for me, a remarkable demonstration of automotive technology advancement from my previous vehicle bought in 2006.

When we ran into a roadblock because of an accident, taking a detour didn’t mean we would inevitably be lost. Instead, the car adapted to the changed routing and plotted an alternate way to get to our destination. And as I wound through the mountainous, off-highway roads because of the detour, the car even advised me to take a break because it sensed a change in my driving behaviour (all those sinuous curves had me touching the centre line from time to time). And all of this capability came from sensors and cameras tied to an onboard computer system that sensed what was happening around the vehicle and to me the driver.

That’s what cars today are capable of doing, and not even high-end, expensive ones. So once cars are connected and talking to each other expect a whole different ballgame with vehicles becoming aware of driver health and alertness and being able to bring a car to a halt when detecting danger to driver and occupants.

We, today,  are less than a decade away from seeing this level of technology deployed on a global scale.

Autonomous Vehicles are More Software Than Hardware

Google and Apple are not car manufacturers in the classical sense. The former is a software giant. The latter creates gadgets from iPads to iPhones to iMacs. But both are in the automotive business these days creating software algorithms that will produce self-driving, autonomous vehicles. They are joined by old guard car manufacturers like Ford, General Motors, Toyota, and new guard companies like Tesla.

The estimated date when autonomous vehicles become ubiquitous ranges from the mid-2020s to 2030. Autonomous vehicles will use IoT technology and AI to make them far safer than their human-driven predecessors. And once cars are self-driving it will mean a change in who owns these vehicles, or just uses them as needed for commutes.

It is fair to say that those living in rural areas will still buy cars. But urban commuters may forego ownership and instead just summon an autonomous car as needed to get from point A to point B.

We Are Accelerating Away from Fossil-Fuel Powered Cars

China has recently announced a total transition to EVs and other zero-carbon vehicles beginning in the mid-2020s. Volvo, Daimler-Benz, Volkswagon, Ford, General Motors, Toyota, and others have committed to expanding production of EVs and fuel-cell cars. The United States is building EV-friendly highway corridors by populating them with charging stations. Tesla is rolling out an EV charging network. Japan has more charging stations per capita than any other country in the world with maybe the exception of Norway. The latter gives preferential treatment to EV owners on its local ferries, on toll highways, and when parking in cities.

By 2030 the car landscape will be significantly different from what we see today. China today has scores of EV car companies with names we have never seen before. Some will make it to North American and European markets. Traditional manufacturers that don’t transition to EVs will find themselves losing market share and the confidence of a public committed to reducing carbon pollution.That means impacts will be felt on the fossil-fuel infrastructure that has been in place to service the internal combustion engine and diesel-powered vehicles from the dawn of the automobile age.

Impacts will be felt on the fossil-fuel infrastructure that has been in place to service the internal combustion engine and diesel-powered vehicles from the dawn of the automobile age. Service centers and gas and diesel pumps today predominate. In 2030 they will live side-by-side with an equal number of fast charging stations and other zero-carbon refueling technologies.

Cars Will Become Shape-Shifters

Today the first materials with a memory are in laboratories and being field tested. These materials can deform and reform. They are self-repairing. They even restore finish and colour.

What does that mean for an industry built to service fender benders and collision repair? That’s an industry worth close to $200 billion U.S. today. And what about the companies that provide vehicle insurance for collision and damage? Or about the lawyers that get involved in accident litigation?

Mobility-as-a-Service Changes Who Buys and Owns Cars

The future of car ownership is in flux, particularly for urban commuters. Millennials are already less interested in owning or leasing cars than their parents. The reasons are numerous. First, cars are expensive and millennials are still finding their way in the job market which is being disrupted by many other 21st-century technology phenomena. Second, urban millennials are environmentally conscious and less willing to contribute to carbon pollution and global warming, prepared to use public transit and mobility-as-a-service operators like Uber and Lyft to get around.

Without traditional buyers, to whom will manufacturers sell their vehicles? Will Uber, Lyft and other fleet operators like Hertz, Budget, Enterprise, and Avis be the principal consumers of EVs and autonomous vehicles that roll off assembly lines in the late 2020s? In the case of the latter, the business paradigm will be dramatically different from a car-for-hire service.

Or will the manufacturers become fleet operators themselves, providing a service to consumers of all kinds, from freight hauling to passenger commutes? Some speculate that manufacturers will enter into partnerships with mobility-as-a-service companies offering ride-sharing to governments, companies and individual consumers.

An Uncertain and Disrupted Future

The automotive industry, software developers, insurance companies, governments, and financial institutions will all face challenges as the technologies described above become integrated into cars. With vehicles bristling with sensors they will become a way for governments to collect data about the condition of road infrastructure and the environment. Even the medical profession will benefit as cars observe drivers and note behaviour that could uncover a potential health problem. Automotive repair will change from fixing things that are broken to anticipating maintenance before things break.

Traffic management with autonomous vehicles will be less fraught with bottlenecks and accidents as AI combined with IoT sense traffic patterns and improve the flow of cars and trucks. And as for auto thieves, I’m not sure there will be much of a market for stolen vehicles or parts since embedded sensors within components and materials will serve as an alarm beacon almost impossible to block from a prospective buyer or the police. So much for Grand Theft Auto. And maybe so much for traffic cops.

In an article appearing in The Market Mogul today, the author writes about the “two accelerating forces that will govern the automotive industry’s future.” They are fragmentation or convergence, and regulatory pull and consumer push. Regulatory pull will induce technology adoption at a faster pace, responding to issues like government environmental policy. Consumer push will reflect attitudes on the part of the next generations of car buyers. All in all, the industry and its supporting cast are in for a rollercoaster ride over the next  10 to 15 years.