COVID-19 put the brakes on the automotive industry. While recovery could take years, the change the pandemic is driving has been long-awaited. In retrospect, perhaps two years from now, COVID-19 will look like a blessing in disguise.
At the moment, however, the news is bleak: Forecasts suggest that passenger car sales will fall to 60.5 million units in 2020 from a peak of 79.6 million units in 20171. The Center for Automotive Research estimates it will take at least two years for the automotive industry in the US to restore sales and production to the numbers seen before the start of the pandemic2. In addition, many parts of the world are experiencing a second wave of the pandemic, adding to the uncertainty that lies ahead. Supply chains are in disarray and employees too will be reluctant to return to their plants unless they are assured of their health and safety. With lockdowns, social distancing, and local administration directives, manufacturers are wondering how production will play out in the coming months.
Changing perceptions, changing strategies
Amidst these massive setbacks, unique in the history of the industry that employs 50 million people worldwide, there is a ray of hope. The need to maintain physical distancing is attracting first-time buyers, pushing up sales. Consumers in many countries are questioning the safety of ride-hailing services like Uber3. In addition, insufficient social distancing measures in public transport are further reinforcing personal transport. In the US, the trend is expected to lead to a 30% decline in public transportation revenue4. Finally, as an increasing number of people adopt work from home (WFH) practices and move away from cities to smaller towns, the need for personal transport will get a major boost. Data from a Harris poll says that nearly a third of the US is considering moving to less densely populated areas in the wake of the pandemic5. But the type of vehicles in demand will change dramatically as will the nature of customer-dealer interactions.
Fortunately, there is more playing on the side of the auto industry. With steady digitization over the years, the industry has been moving away from push-based reactive to semi-autonomous supply chains. The pandemic will accelerate the adoption of intelligent supply chains that leverage Artificial Intelligence (AI) and analytics to forecast demand and drive autonomous action.
Our interactions with automotive clients suggest that the most critical challenge they face is managing financial operations, especially cash flow. Intelligent supply chains coupled with accurate demand forecasting will help the industry create powerful and long-term responses to these challenges. Ford, for example, took the decision of paying certain suppliers early, to ensure the availability of key parts.
There is a caveat to the expected upside. To meet the rise in demand, automotive dealerships have to be prepared. Customers have ramped up the use of online services. They have switched to online for everything, from entertainment to groceries, education to medical consultations. They are unlikely to make a physical visit to a dealership. This is forcing dealers to implement solutions that enable online digital sales6.
Focus on CASE – Connected, Autonomous, Shared, and Electric
Simultaneously, bigger and more fundamental changes are afoot across the industry that require the attention of management. Traditional auto manufacturers must commit to CASE, before competition overshadows them. Autonomous vehicles are gaining traction with Waymo, a part of Alphabet, that has driven over 20 million miles in 25 cities. Waymo’s vehicles require manual intervention only once every 12,200 miles, surpassing competition from the likes of GM Cruise, which has covered 831,000 miles with its fleet of third-generation all-electric Chevrolet Bolt vehicles. Our research points to the automobile industry spending $85 billion through 2025 on autonomous vehicles and another $225 billion through 2023 on electric car technology.
How quickly will electric cars become pervasive? McKinsey predicts that one in 10 vehicles sold worldwide will be electric within 5 years. The advantages of electric are undeniable: New battery technology provides a 5x increase in energy, a 6x increase in power, and a 16% increase in range. And the annual cost of operating an electric vehicle in the US now stands at a mere $485 compared to the $1,117 of a gas-powered vehicle. The fact that there is a rising amount of intelligent silicon in vehicles is an extremely welcome and powerful trend. It will ensure vehicles don’t turn obsolete and meet user expectations even as usage evolves.
The connected segment is also throwing up new opportunities in the trucks segment. Industry 4.0 technologies such as mobile, IoT, real-time telemetry, cloud, machine learning and geo-spatial analytics will help monitor and optimize fleet usage and operations. Today, almost 25% of delivery vehicles have spare capacity. Using Industry 4.0 systems, this capacity can be used; vehicle routing can be improved to save on fuel costs; and delivery SLAs can be met.
Going electric and autonomous/ connected has become a new reality. With this, automobile manufacturers will collaborate with a vastly different – and geographically dispersed – ecosystem of partners. To enable frictionless collaboration, access to systems and data must be enabled. While this spells new challenges in terms of addressing security vulnerabilities, an early approach to implementing solutions will separate the winners from the losers.
Overall, some of the biggest opportunities in the history of the industry are about to surface. But these opportunities may be lost if employees are not familiarized and re-skilled to leverage new technologies, work with intelligent systems, and become adept at WFH practices.
The Answer: A 5R Framework
Wipro has designed a 5R framework that auto manufacturers can use to address the challenges placed by the COVID-19 pandemic and the tectonic changes on the way. The framework pivots around becoming: