How is value in the automotive industry created? Some industry observers see a transition taking place, as value moves from the vehicles themselves to the results they produce for drivers (i.e. the ability to move from one place to another). This Outcome Economy approach is playing out across the industry in several ways.
Manifestations
“People are all of a sudden starting to look at what automotive means. It is a form of transport in an environment in which people want to travel, as opposed to the ownership per se of a physical asset in the form of the vehicle,” believes Phil Harrold, Partner at PwC. “It has started to manifest itself in the rise of services like Uber, which offer more or less instant access to a kind of taxi system, albeit on a much wider basis than the old-fashioned Hackney Carriage type setup.”
This paradigm is playing out in the emergence of numerous car share schemes, which are all about providing people with access to a vehicle. This means people do not need to take on the full cost of ownership, says Harrold – they simply use the car as and when they need to.
“Sharing is the new buying,” notes Anil Valsan, Global Analyst, Automotive & Transportation at EY. “That pretty much summarises what we believe is the manifestation of this Outcome Economy in the automotive industry. The whole concept of shared mobility, where consumers are moving away from owning vehicles and becoming focused on the outcome, which is about getting from A to B, is a reflection of how the Outcome Economy is shaping the auto industry.”
Harrold also sees it playing out in autonomous vehicle development: “This area is all about looking at what people want out of a car. That is to get from A to B in reasonable comfort with flexible access to the vehicle.”
These changes raise many questions about the future of the traditional ownership models in general, and the future of the vehicle manufacturers themselves. “We are already seeing some changes, such as link-ups between OEMs and the providers of either the sharing schemes or the instant taxi services,” observes Harrold. “The OEMs are trying to work out how they will be relevant in the future and where their vehicle volumes will come from. They are entering into some of these arrangements now to enable them to have a stake in the future.”
The way that people access our traditional products is changing fundamentally. We call that a Swiss Army lifestyle – you get what you need when you need it rather than necessarily having to own it” – Mansukh (Mike) Nakrani, Ford of Europe SMART Mobility
Ford is keen to position itself at the forefront of this change and is actively working to transition itself car manufacturer to mobility services provider. “The way that people access our traditional products is changing fundamentally,” says Mansukh (Mike) Nakrani, Director, Business Associations and Ford of Europe SMART Mobility. Ford first observed the trend about six years ago and saw considerable disruption coming with the rise of the likes of Airbnb, Uber, Gett, DriveNow and many others. “We call that a Swiss Army lifestyle – you get what you need when you need it rather than necessarily having to own it.”
Generational, technological
Part of the emergence of this change could be generational. Nakrani suggests that this may be linked to the fact that the younger generation are more willing to try new things: “There is more willingness to take some level of risk, to try something new.” He goes on to note that his nephew doesn’t even have a driver’s licence: “He works in London. He loves cars, but he doesn’t really want a car. He says, ‘I can get a taxi, I can get the Tube, I can get a bus. I don’t see the need for a car.'” When presented with the choice between a new car and a new smartphone, the smartphone wins – no question.
Harrold shares similar observations. “In part, it’s about generational change and the technology- enabled generation that is coming along now. The expectation of my generation was that we all owned our own home. Speak to a 22-year-old and they have a different view on life. Now, that may be partly economic, but it’s also partly that they expect to rent. They don’t expect to own, which again plays to the notion of the Outcome Economy. That’s true of the automotive industry. The younger generation will see cars as a means to an end rather than as an end in itself,” he tells Megatrends.
Sharing is the new buying. The whole concept of shared mobility, where consumers are moving away from owning vehicles and becoming focused on the outcome, which is about getting from A to B, is a reflection of how the outcome economy is shaping the auto industry” – Anil Valsan, EY
Technology advances also play a supporting role in these developments. “Connected and digital technology is essential to be able to do what you want to do on the go,” says Nakrani. Valsan echoes the sentiment, underlining the importance of connected digital technology to enabling the Outcome Economy. “It is important to separate out connecting to the vehicle versus the connected consumer. Ideally, the vehicle is fully connected and offers consumers a seamless connected experience, from the time they book the vehicle on their mobile to stepping inside the vehicle, to having all the settings completely personalised to their preferences.”
However, Harrold suggests the level of technology required to support an Outcome Economy is minimal. Pointing to Uber, he notes, “As long as you have a mobile phone you can get a car. For the consumer that’s a fairly low tech option, but from the operating model side, the infrastructure required to connect all these drivers at different times and deliver the service is considerable. Technology has a major role to play, particularly when it comes to driverless vehicles, but at the very basic end – namely access to transport – there are some relatively low tech solutions out there.”
In Europe, perhaps you are substituting a family vehicle with some of these ride-sharing services. On the other hand, if you take an emerging market, the services are becoming a fundamental primary source of mobility for a number of consumers” – Anil Valsan, EY
Developments in this space have been moving quickly. Just five years ago, the industry debate was about the issue of mobile versus desktop. “What consumers have shown us is that mobile wins hands down,” notes Nakrani. “People do everything on a mobile that they would do on a tablet – from watching television and booking tickets for the theatre to finding out where to go and scanning into airlines. Now that those core tenets are there, the next critical piece is about intellectual capital, having the best capabilities to build technology applications that fit together well with what consumers want.”
Regional developments
Considerable regional differences are evident in the emergence of the Outcome Economy. “It is changing so quickly on a daily basis and each region is driving it in a different way,” commented Valsan. “In Europe, perhaps you are substituting a family vehicle with some of these ride-sharing services. However, if you take an emerging market, the services are becoming a fundamental primary source of mobility for a number of consumers.”
Harrold flags North America and the UK in particular as technological leaders in the trend, but cautions that both will face regulatory and legal challenges. The lead, he believes, will come from China. “The Chinese economy takes a very different approach. China’s big cities are congested and very heavily polluted, and there’s an urgency to move to more efficient vehicles and allow fewer vehicles into the cities. The Chinese government’s approach to solving problems tends to be much more direct and in a number of cases, there will be mandates for different types of vehicles, which will be introduced much more quickly than they would in the West.”
Not only is disruption coming from new corners of the globe but also new industries. “Much of this disruption is being driven by companies outside the auto industry,” said Valsan. “Not only have the adoption of car share and ride share services grown significantly, but because these models have very low entry barriers, we are seeing a significant number of new entrants, all very quickly. We see new business models tested almost every few weeks. The Outcome Economy is transforming the auto industry but it has opened significant opportunity for disruption, and even those who are disrupting the incumbents are being disrupted by further new entrants.”
There is no clarity at the moment on where these changes will happen or which companies facilitate them, but they are clearly under way. “Need is the mother of invention,” concludes Nakrani. “There are many very enthusiastic and smart people who really want to change the world for the better in this respect.”
This article appeared in the Q3 2016 issue of Automotive Megatrends Magazine. Follow this link to download the full issue.
