Driving Transformational Change in the Auto Industry: One Huge Trend at a Time

The automotive industry is in the midst of the most seismic shift it has gone through in recent times. The last considerable shift was back in the early 1900’s, when Henry Ford dedicated himself to finding a way to bring the automobile to the masses by developing vehicles that the “everyman” could afford.

Fast forward to 2018.

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ELECTRIFICATION AND AUTONOMOUS DRIVING

Currently, the auto industry’s two massive trends—electrification and autonomous driving—are under way; and just as in Ford’s time, will increasingly become more available to the masses.

  1. Electrification-Automobiles powered by an electric motor which uses electrical energy stored in rechargeable batteries.
  2. Autonomous Driving-Driverless, self-driving cars.

Electrification/autonomous technologies will not only change the way we drive, but they also have the ability to change the way OEMs and suppliers do business together.

And as the old saying goes, “with change comes opportunity.”

INDICATIONS THAT THESE AUTO TRENDS WILL BECOME WIDESPREAD

There are many indications at play here, including:

  1. Government policies
  2. Millennials’ use of cars
  3. The rates at which we are seeing technology adoption today

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1. Numerous Government Policies Encouraging the Electrification/Autonomous Driving Shift

Due to the air pollution crisis, governments in China and Europe are shifting “away from petrol engine cars to newer, less polluting technologies.”2 China has also begun to study when it will ban the production and sale of cars using traditional fuels.2 France and Britain’s clean air strategies call for sales of new gas and diesel cars and vans to end by the year 2040.3 In Norway, the government is waiving the high taxes imposed on sales of electric cars. Today, the benefits of driving electric cars in Norway include cruising the bus lanes, riding the toll roads for free, and free electric charges among many public parking lots.4 Over in India, Power Minister Piyush Goyal said that people would “like to buy an electric vehicle when they find it cost effective.”5

2. Millennial Driving Habits

Millennials are well on their way to becoming the world’s largest generation (they currently hold that title in the United States). Millennials typically don’t want to buy cars or drive cars. Their reasons are many:

  • They are getting married later/starting families later
  • Large numbers of this generation are living in urban areas where public transportation and ride sharing options are readily available
  • They are more conscious about the environment and the effects of pollution on the Earth than any generation before them6

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3. The Speed of Technology Adoption

The pace of technology adoption continues to rapidly increase. Technology revolutions used to take decades to enter our lives and for the masses to adopt (think landline telephones or electric lighting). Today, technology is adopted faster than any other time in history. Consider these stats:

  • In 1877, based on Alexander Graham Bell’s patent, the first landline telephone was constructed. Three years later, almost 46,000 telephones were in use.7
  • The first iPhone was introduced in 2007. Within three months of its release, over 1 Million units were sold.8

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HOW CAN AUTO SUPPLIERS POSITION THEMSELVES TO TAKE ADVANTAGE OF THE NEW TRENDS?

The latest auto industry trends are creating enormous opportunities for auto suppliers at all levels. Manufacturing vehicles for electrification and autonomous driving requires manufacturing significantly different parts than before.

These are not evolutionary changes. Instead, these advances require brand new designs for thousands of automobile parts—such as a massive change to the interior of a car when there is no longer a monster engine under the hood.

Redesigned parts will be required.

Thousands of them.

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SUPPLIER COLLABORATION WITH OEMs ON COST

So in this new world of automobile design, how can suppliers stand above the crowd to create long lasting relationships with OEMs and other suppliers and, ultimately, win business?

State-of-the-art product cost management technologies allow OEMs and suppliers to quickly understand the cost implications of design alternatives created to accommodate the new technologies. Working together on these cost and design implications would save time on the quoting process and create stronger relationships between suppliers.

The ultimate collaboration between supplier and OEM?

A shared Virtual Production Environment (VPE). A VPE is built as a model of a factory to produce cost assessments. It can be configured to represent a specific plant, a class of suppliers, or a regional supply base. Costing a part with a given VPE allows you to understand the cost of manufacturing the part at the “factory” that the particular VPE represents.

WHY WOULD OEMs AGREE TO A COLLABORATIVE VPE?

  • Significantly reduce quotation time; therefore, accelerating OEMs’ time to market
  • Collaborative relationship based on real data and facts, NOT negotiation styles which can have damaging effects on the relationship over time
  • Improve margin predictability

Ultimately, if both partners are working together in the same VPE, design, cost, and time to market will all thrive.

7 WAYS OEMs AND AUTOMOTIVE SUPPLIERS BENEFIT FROM COLLABORATING THROUGH A PCM TOOL 

 

  1. Creation of a strategic and collaborative negotiation process when OEMs and suppliers have common cost models.
  2. Leveraging the 3D and 2D models as the document of record for all product and tooling cost discussions.
  3. The 3D model and 2D print become an international “language.” The 3D model becomes the international format of communication on product definition and cost.
  4. Predictably and reliably manage product and tooling cost.
  5. More responsive to quote requests and engineering change cost requests (respond to quotes within 1-2 days vs typical 2-4 week turnaround).
  6. Minimize suppliers’ need to send out request for quotes to their Tier 2 and Tier 3 suppliers. This eliminates the trickle-down effect which saves time and money.
  7. Better predictability of the margin. Tier suppliers operate on historically thin margins, so improved predictability is critical to their business financials.

 

So as the automotive business adapts to these industry-altering trends, suppliers can take advantage of strengthening relationships with a product cost management platform. To learn more about product cost management, download our eBook.

 

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1https://www.reuters.com/article/us-china-autos-changan/chinas-chongqing-changan-to-stop-selling-combustion-engine-cars-from-2025-idUSKBN1CO0XX

2https://www.nytimes.com/2017/07/26/world/europe/uk-diesel-petrol-emissions.html

3https://www.nytimes.com/2017/06/17/world/europe/norway-climate-oil.html

4https://auto.ndtv.com/news/india-aims-to-end-the-sale-of-petrol-and-diesel-cars-by-2030-1687721

5http://www.latimes.com/business/autos/la-fi-hy-millennials-cars-20161223-story.html

6http://www.elon.edu/e-web/predictions/150/1870.xhtml

7http://www.saturdayeveningpost.com/2017/01/09/history/post-perspective/100-years-iphone-early-telephone-innovations.html

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