Hot,
thirsty and crowded: time
for a model change
Special
report by Dr John Wormald
This
provocative report concentrates on the European automotive industry but the
problems facing it apply just as much to the industry worldwide. In their book Time
for a Model Change John Wormald and Graeme Maxton laid down some strong
challenges to the industry. The environmental pressures described in the book
– notably global warming and the cost of fuel – have escalated faster than
the book’s authors ever envisaged. This 64-page report is succinctly written and contains 50 figures to illustrate his arguments:
The
European industry is now caught in a triple vice: intensifying
Asian competition; the wastefulness of its own business model, sheltered by its
tied distribution channels; and the need for a huge increase in investment in
real technological innovation over the rather low levels of it today. The time
of reckoning has come. We must choose now between continued graceless
degradation of the industry and a complete change of business model.
The
Asian vehicle and supplier industries are into their third wave: China
and India, after Korea and Japan, and rising fast! They are deadly competitors
to the established Western players, particularly as they are so strong in
smaller vehicles, economical of both money and energy. Their know-how is growing
rapidly as their engineering and production experience continues to build. They
will have the financial resources to outspend their competitors in technological
R&D.
The
protective shield of proprietary, brand-exclusive retailing channels: the
franchised dealer system is looking more and more like the industry’s Maginot
Line; magnificently constructed but outdated and out-manoeuvrable. Extracting
near-monopoly profits from captive consumers, in order to cross-subsidise
financially weak new vehicle operations, is not a viable strategy, in the face
of informed consumers and regulators. Worse, it perpetuates the industry’s
addiction to product proliferation and over-production, at the expense of
genuine technological innovation. It also makes it very difficult for genuine
innovators to penetrate established markets.
Climate
change and the need to reduce anthropogenic greenhouse gas emissions: this
is now accepted by all but a small band of contrarians. Everyone can see the
impact on fuel prices at the pump of the conflict between tightening supply and
exponentially-increasing demand for oil. The transport sector, dominated by road
vehicles, is the fastest-growing generator of carbon dioxide and consumer of
oil. The developed world must change its approach towards motorised mobility and
the emerging markets need to avoid its past mistakes. Every lever must be
pulled, from short-term disincentives to unnecessary consumption to long-term
changes in how we live, work and play. Our whole approach to the provision of
mobility and the design of road vehicles has to change.
Business
as usual is no longer on the agenda: the
present approach that this industry takes, its products and how they are sold
and supported, only perpetuates its financial weakness and strangles creativity.
This is true both on the supply side -- where cost-down pressures on suppliers
threaten their key role in technological innovation -- and on the distribution
and service side. Vertical unbundling and restructuring is an urgent necessity.
We can achieve a more open, competitive industry, fully capable of meeting the
challenges of the 21st century. The only real enabler of competitiveness is real
competition, not the industry’s present command-and-control mode. It is indeed
Time for a Model Change.
To order a copy (PDF format only,
UKŁ200), go to: http://www.insightbureau.com/Reports/autopolis/hot_thirsty_crowded.pdf
or
e-mail: autopolisreport@insightbureau.com