While it was a boat that President Obama used to explore the Alaskan scenery, it is the automobile industry that should sit up and take notice. One anticipated result of the President’s trip, and ongoing international negotiations, is increased environmental regulation that would impact automobile manufacturers. Shifting consumer demand, expanding access to customer data, increased merger and acquisition activity and international regulatory changes are creating market uncertainty that needs to be explored and understood through robust scenario-based planning analysis. Shareholders will expect no less.
Scenario-based planning helps executives obtain an objective view of their future industry, explore competitive marketplace factors vastly different from today, and develop concrete strategies that ensure success across different possible futures. The approach begins with a thorough analysis of past and current trends, in a number of relevant industries and segments, and is built in collaborative fashion with company experts. The result is the development of specific, measureable indicators that provide an early warning of what the future may bring and enable executives to adapt their long-term strategies to a changing external marketplace.
Disruption coming from several angles: M&A, demand, technology, regulatory
This approach to planning is necessary in today's automotive market. Working from the most immediate challenge to the longer term, we begin with the impact of mergers and acquisitions in the automobile manufacturing segment. Fiat Chrysler is sure to take action, as evidenced by the vocal entreaties of Sergio Marchionne, CEO of FCAU; whether he is successful in convincing the board of directors at General Motors is perhaps unlikely, but there are other candidates. In fact, his rhetoric may be directed at just such an outcome.
Volkswagen may be just such a candidate. Surviving Board pressure, Chief Executive Martin Winterkorn was awarded a renewed contract and is likely to announce a broad reorganization, arranging VW into holding companies for its VW brand, truck business, a luxury car segment under Audi leadership, and a sports car division under Porsche leadership.
These two examples alone illustrate the turbulence that needs to be contextualized, analyzed and ultimately understood by executives across the automobile marketplace. Needless to say, that insight is not going to simply come along in the course of current day to day activities.
Shifting consumer demand, data and regulation stirs turbulence
Shifting consumer demand is another driver of turbulence, proving we need to think ahead to get a perspective on how volatile things can become. As an example, in 1985, 180 million people lived in urban areas in the U.S., 76 percent of the total population. By the end of 2015, that number is expected to reach 269 million—84 percent of the total population—and according to the United Nations is expected to grow to 312 million by 2030. This pattern exists in other major nations, both developed and emerging, raising the question of sufficient road and parking infrastructure. It is a question of when we reach the point at which there simply isn’t enough room to accommodate more vehicles, leading to the migration away from personal car ownership and toward shared solutions. Zip Car isn't the last we’ve heard in that revolution.
The data and technology explosion has caught the attention of both automobile manufacturers and consumers, and is another point of disruption with an uncertain outcome. How will suppliers of advanced electronics respond, what new gadgets will be incorporated into vehicles, how will consumers react, and, inevitably, when does this data and technology result in a driver-less car? New players such as Tesla and Google cannot be disregarded. If ever there were a definition of market disruption, this is it.
Finally, the most imminent challenge to executives running manufacturers, suppliers, and distributors is the regulatory environment. Environmental preservation is being pushed not only by President Obama but by national leaders across the globe, increasing costs of manufacturing. Higher volume is necessary to offset the increasing costs, but with the impending demand peak noted above, how does an executive reconcile the challenge? Safety features are also increasingly mandated by regulatory bodies, such as backup cameras and sensors, again pushing up costs.
Whoever drives smartest, drives most successfully
If executives only had to deal with the uncertainty brought about by one of these trends, it would be a significant task. Together, the regulatory risk, impact of data and technology, demographics and demand shifts, and mergers and acquisitions risks create a whirlwind of uncertainty that threatens thousands of jobs and indeed national economies. Executives who are intent on taking advantage of disruption to grow and expand are wise to consider the competitive environment in new ways, explore various futures, pinpoint fundamental factors that work no matter what occurs, and drive strategies that put them at the front of the pack.