Gareth Kennedy on September 19th, 2017
MCON attended the Big Data & Analytics Innovation Summit in Shanghai on September 6th & 7th, 2017 and found that there are two broad trends that will determine the future of the automotive industry, both in China and globally. As Esteban Remecz (Chief Information Officer, Asia Pacific, ZF) remarked companies must now adapt or perish.
Automotive Market Trends
For the past decades we have been in a golden era of selling vehicles in China requiring minimal effort of the part of dealerships. Even the global financial crisis did not completely dampen the mood in China, while it caused a significant dip in other global markets. Now the automotive market is showing signs of tightening sales while emerging technologies like electric vehicles and self-driving cars are poised to disrupt the business as usual approach 1.
From 2010 to 2015 vehicle sales in China grew by 12.3% per annually, but a slower growth rate of 5.0% is forecast for the period 2015 to 2020 2. There is also a change of sentiment in consumer behavior with used cars becoming more desirable with 47% considering purchasing a used car in 2016 compared to 18% in 2011 2. Potential fleets of shared cars will have a huge effect on customer behavior in the near future using similar business models to share bikes (see presentation by Aaron Wei, Mobike IoT Technology Director). These factors will in turn affect automotive parts sales where many European brands currently benefit from favorable image in terms of their quality, but domestic players are rapidly becoming more competitive 3.
While there is still growth in the Chinese market, success is no longer guaranteed. Until recently the growth of each brand closely followed the overall market growth but now there are clear winners and losers. For example Japanese brands (dominated by Honda, Nissan, and Toyota) as well as German brands (e.g. VW and BMW) have been able to exceed the average growth while Korean brands (e.g. Hyundai and Kia) have suffered (see the MCON analysis below). The overall sales increase in 2016 was due to the Chinese government giving a tax incentive for low capacity fuel efficient engines 4. Further effects on the market from government policies on the potential ban on petrol vehicles in 2040 5 will also complicate the Chinese market in the near-term. So how can automotive companies best secure their position and avoid being left behind on the largest automotive market in the world?
Data source: www.marklines.com
Digital Technology Trends
The Big Data & Analytics Innovation Summit covered a lot of the state of the art and technologies just on the horizon, of which I will mention a few in summary. Self-driving vehicles are rapidly approaching due to improvements in artificial intelligence such as the deep learning algorithm presented by (Janusz Marecki, Google Deepmind) and recently used to defeat the top human Go player. Machine learning clustering algorithms that can be used for fraud or anomaly detection, recommendations, pricing and forecasting based on huge quantities of data are now routinely being used by shared economy companies like Mobike (Aaron Wei) and Airbnb (Milan Shen).
Connectivity and digitization has now outpaced growth in emerging markets as being of prime importance to automotive executives 6. Internet of Things approach of sensors connected to each other and the cloud is being rapidly adopted in manufacturing and in vehicles themselves with approximately 1 TB of data generated in single vehicle. In device processing mixed with cloud computing is now being used to identify anomalies in automotive parts before they become a problem (Esteban Remecz, ZF). Connected sensors are also being used in the retail sector with customer identification and tracking providing huge quantities of valuable data. The privacy and legal questions such data acquisition raises will be a hot discussion topic for many years in these and the automotive industry.
With the flow, processing and understanding of data becoming a necessity for doing business ICT (Information, Communications, and Technology) companies are now getting into the automotive market both in regards to self-driving cars and in terms of providing the cloud infrastructure required by more traditional OEMs 6. Traditional methods of engaging with consumers, existing and potential, are in decline while digital channels are becoming more popular 2.
How To Adapt And Take Advantage Of These Trends
With both market and digital technology trends happening concurrently how have some German and Japanese brands been successful in this already changing market? At present BMW and Toyota are considered to be leading the way in market success due in a large part to their digital technological advancements 6.
The key digital technologies are (1) deploying IoT solutions at the manufacturing and vehicle levels, (2) high connectivity to a data processing and storage location and (3) big data applications to glean actionable insights from the data in real time as well as aggregate. Cloud computing platforms such as AWS (of which MCON is a partner) provide technological solutions to all 3 of these at a low cost and with relative ease of setup. The big data applications to IoT are clear but the application to customer relations is less obvious. The rise of digital methods for reaching customers highlights the need for maintaining a good relationship with customers will be increasingly important in the age of the connected car 2, 6. This requires a well maintained CRM system both at the pre-sales and after-sales levels. As an example of how this can help ongoing sales, advances in machine learning algorithms have been used in the video games industry to identify “churn” in your customer pool and create personal interventions to prevent customers becoming inactive (África Periáñez, Yokozuna Data). Such interventions can be used to identify customers before they lapse on insurance renewals or when they are ready to trade-in an old car for a new model.
- “How the convergence of automotive and tech will create a new ecosystem”, McKinsey & Company, November 2016
- “Finding the fast lane: Emerging trends in China’s auto market”, 2016 China Auto Consumer Report, McKinsey & Company, April 2016
- “The Automotive Market in China”, EU SME Centre and China-Britain Business Council, May 2015
- “China’s monthly vehicle sales post first back-to-back drop since 2015”, Reuters, June 2017
- “China mulls fossil fuel car ban, boosts electric vehicles”, China Daily, September 2017
- “Global Automotive Executive Survey 2016”, KPMG, 2016