6 Factors Influencing Digital Transformation in the Automotive Industry

May 25

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Will the automotive industry take advantage of current digital transformation opportunities before it’s too late? For years the automotive industry centered business around its core valuation proposition: getting you from point A to point B. While consumers did have the option to choose a luxury, economic, fuel-efficient, sport, or utility vehicle, the overall goal was always centered on mobility. And like any traditional market that’s been stuck in its ways for too long, disruption was bound to happen—and it did.Today, there is a greater need for both personalization and interconnectivity in the car-buying experience. There are large trends across all consumer-facing industries towards integration. Drivers don't expect to enter a bubble in their cars, they expect seamless connectivity. As information availability has empowered consumers, who expect efficiency and personalization in all products, the automotive industry is finding the need to become fully digital in order to justify its price in a technologically competitive market.The manufacturers that meet two key goals will experience prolonged success in the industry. First, they must redefine value for consumers through novel products and services. Second, they must pursue innovation through an agile, customer-centric approach. Both of these goals will be reached through successful implementation of digital tools and resources.Digital transformation in the auto industry doesn’t end there either. There are many other factors and new developments to explore as well.

1. Connected vehicles

Internet and technology-connected vehicles are hardly new, but the potential for growth has only just begun. In the auto industry, this sector represents a potential $45B market, with a sub-industry certain to grow as automobiles integrate telematics, smart data, and other technologies.While vehicles have incorporated technology such as navigation, they have also failed to integrate with other consumer tech until recently. Connected vehicles have the opportunity to excel by providing the ability to connect with our phones, computers, accounts with other products, other vehicles, IoT, etc.Digital diagnostics already reside in many cars and trucks today, but will increase in their role and advancement. Navigation, security, multimedia, and more have laid an impressive foundation today, with automotive manufacturers likely to expand these capabilities even more so in the near future. This could include syncing cars with external sources—like smartphones and tablets—as well as the ability for cars to communicate with themselves, other vehicles, and even the cities or businesses they approach. This will require a complex network of partners across manufacturing and technology industries.

2. Autonomous vehicles

The most notorious and disruptive advancement is autonomous vehicles. Advances in connected vehicles, and even AI, make this possibility much more realistic—but there is still a massive debate to overcome before we see self-driving cars or vehicles on the road any time soon. While humans are statistically very poor drivers, many fear the commercialization of imperfect technology. Autonomous vehicles will have major implications for local infrastructure, police and safety, and urban planning. There will also be the development of robust sub-industries here, with products and services to meet new demands and needs for self-driving cars and trucks. Forward-thinking businesses need to watch this development as it unfolds and determine how they can smooth out the bumps on the road to a driverless future.

3. Operational efficiency

Automakers must use digital transformation internally in order to maximize cost-savings and efficiency. Advances in big data will allow manufacturers to target in demand micro trends. Efficient tracking of metrics can also drive massive cost reduction. And while required improvements from regulation or competition will be extremely costly for manufacturers, automakers can use advanced data technology internally or partner externally with tech companies to remain competitive. Additionally:

Manufacturers need to gain control over their supply chain through full digital integration and smart manufacturing technology. Digital can eliminate long lead times by enabling stronger communication between partners and faster production of vehicles.
Automakers will need to leverage big data to track consumer trends, reducing wasted inventory and maximizing resource efficiency. These analytics can also optimize internal production processes, reducing defects and massive recall costs. Across the board, strong understanding of manufacturing data will improve each step of the end-to-end production process. Cloud-based technologies will allow all business units to explore this information.
Vehicle manufacturers replaced dangerous jobs on their assembly line before almost any other industry. Advances in robotics and artificial intelligence will allow automakers to automate even more parts of the production process. Aside from cutting costs, this will allow car brands to reallocate human capital to more important parts of the process. The smart factory, though expensive to implement, will create huge efficiencies, safety improvements, and asset tracking that will provide substantial return down the road.

4. Retail improvement

E-commerce and omni channel retail has permeated most consumer industries—and automakers must digitize the buying process in order to improve experience for all parties, across all channels. Through the rising popularities of e-commerce in every other consumer industry, information accessibility has put the power in the consumer's hands. Auto manufacturers should allow their customers to explore their vehicles and purchasing opportunities through robust e-commerce experiences, creating a space for consumers to shop or buy online.Taken one step further and the enhanced digital capabilities may mean a cut back in inventory at dealerships as they can instead display product usability through VR.Car makers today need to keep an open mind and agile approach to these opportunities to ensure that they are able to both harness and benefit from them. If they don’t take advantage, someone else will.

5. Attracting the right talent

Leading brands will face increased competition from new technology companies as they explore new opportunities for growth. Many companies will face a so-called “innovator's dilemma,” where new technology seems irrational to explore. For these parties, myopia may lead to their defeat at the hand of nimble startups and tech companies. They should instead focus on attracting digitally native talent from the technology industry. In this way, they can import the talent needed to remain competitive, instead of confronting it head-on.

6. Making key partnerships

The growing desire for “mobility-on-demand” creates an unforeseen challenge for automakers. Altered attitudes around ownership threaten current paradigms, though not the industry in general. Startups like Uber and Lyft disrupted consumers' perceived need for personal vehicles, and are already changing the landscape of every aspect of the automotive industry, from car insurance to licensing and registration. Instead of fighting against these disruptions, the auto industry can leverage partnerships with these companies. Toyota, Ford, and GM are buying into the ridesharing phenomena through partnerships in Uber’s car financing program. GM has also invested in Lyft and was talking about exploring autonomous vehicles in Austin within the next few years. Meanwhile, Volkswagen just invested in Gett, another ridesharing app, and Fiat is currently working with Google.The opportunities for partnerships also extend far beyond the mobility-on-demand concept. Others include the following:

Government: Regulation can restrict or guide the growth of this industry. Automakers need to target the grasstops of the cities, states, and nations they operate in to influence policy. The key to these relationships will be aligning with the goals and aspirations of these policymakers. This could be the most important partner in years to come.
Tech: Automakers will maximize the efficiency of this transition with effective tech partners. This is why there are already 100+ vehicle models with Apple CarPlay by default. Automakers that want to integrate digital need to meet consumers where they already are.
Security: Last year, two hackers remotely took control of a Jeep Cherokee as it cruised down a St. Louis highway at 70mph. Though a harmless experiment, this widely publicized incident pointed out huge flaws and risks in connected vehicles. The risks for automakers exploring technology are quite substantial, both from a legal and branding perspective. They will need to build strong relationships with security experts before drawing vulnerable technology into their vehicles.

Change, inherently, creates challenges for any industry. The rapid changes we are experiencing today further ups the stakes for businesses—especially for the struggling automotive industry. Yet, focusing on the right opportunities and having a solid digital strategy will enable car companies to stay ahead of the curve and find new ways in which to grow.