The automotive industry faces major structural changes.
While the traditional triad markets (North America, Western Europe, Japan) are recovering slowly from the 2008 recession, China and the other BRIC markets are experiencing rapid growth.
Mega-trends including urbanization, environmental concerns/legislation, connectivity, and "democratized mobility" are reshaping customer preferences. Especially in mature markets, younger urban customers are shifting from "owning" to "using," triggering the development of new and integrated mobility models including renting and car sharing.
These fundamental changes, coupled with developments in battery and other non-combustion technologies, also make alternative powertrains increasingly important. Electric mobility may represent a fundamental system shift. Automation in component cell production will drive down battery costs and could make electric vehicles competitive in terms of total cost of ownership within a decade. In the short-term, car manufacturers will commercialize Plug-In-Hybrids and Range Extender concepts. Electric vehicles will generate new differentiation opportunities and new markets for batteries and electric motors, suppliers and OEMs.
To succeed in this highly dynamic environment, car makers and suppliers need to relentlessly focus on delivering products and services that fulfill the customer's true needs. This is easier said than done--especially in light of the shift to alternative powertrains. While some niche products hit the bull's-eye, all too often OEMs have invested in vehicles and features that miss the mark, sometimes by a wide margin. Understanding what target customers really want and what they are willing to pay for, designing a product that clearly fulfills their needs and delivering the brand promise have become make-or-break capabilities for all OEMs.
That challenge is compounded by the pressure on OEMs to continuously improve their cost position to stay competitive. With broad and expanding product lines, OEMs need to manage the cost of complexity carefully as they build their strategies around vehicle platforms and modular sub-assemblies. Alliances and mergers are likely to continue shaping the industry as key players look for benefits from increased scale. But the added complexity that arises from combining product lines and aligning different company cultures can undercut the benefits of a big merger or acquisition, especially if it lacks a strong investment thesis and the right approach to integration.
As product quality improves and vehicle features steadily converge, it is becoming harder for automakers to appeal to customers by offering distinctive products. Increasingly, significant opportunities for differentiation exist downstream, along various customer touch points in sales and services. In addition, the industry's profit pool is migrating downstream–turning parts, services, financing and used cars into a battlefield between OEMs, suppliers, retailers, and service specialists. Because most OEMs operate with independent dealer and service networks, delivering a strong, consistent brand experience at these points of contact is challenging, but the benefits are equally large. Using Bain's unique Net Promoter® score (NPS) disciplines for building customer loyalty, we have identified significant opportunities for OEMs and retail specialists to grow by improving the customer experience.
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