Why we’re past the tipping point for change in the auto business
Predicting the demise of the automotive industry is something of a cottage industry in North America. Every few years a think tank makes headlines excoriating the business as the next to join the ranks of defunct models. Destined to become the buggy maker, or so goes the trope.
Of course, actual performance has made those prognostications feel overwrought and hysterical. In Canada, where more cars will be sold this year through that allegedly broken model than ever before, the disconnect is both obvious and soothing to those finding comfort in the status quo.
However, strong sales performance is a misleading tonic — an opiate for the industry’s masses.
True disruption requires specific conditions in order to take hold.
First, a revolutionary technology must be available and sufficiently democratized. In this instance, think of the shift from the horse to the car.
Secondly, consumers must be presented with a set of viable alternatives, such as shifting from cable TV to Netflix.
And finally, the customers need to be different, or engage with the world around them in a fundamentally different fashion.
With these inputs more clearly defined, it’s easy to see why the long-anticipated change in automotive has yet to materialize. In short, the fundamentals of the business haven’t changed because the preconditions for a paradigmatic shift have simply not been in place.
The presence of the first two preconditions is easily detectible. Fully electric and increasingly autonomous vehicles are a reality today, which has myriad implications for the acquisition and servicing of those vehicles. What’s more, viable alternatives to vehicle ownership abound, particularly in more urban centres where ride-for-hire services like Uber and Lyft have already upended the legacy business models, and operations like ZipCar and Maven say they can do the same in the shared ownership space.
The third precondition, however, is somewhat less obvious. Are consumers today really that different from generations past? Or, more to the point, when younger buyers ultimately make their way into the auto retail space, won’t they conform to the current operational standards?
That’s where J.D. Power’s Canadian and North American research across sales, service, ownership and the initial buyer research experience notes acute differences among generational cohorts, both behaviourally and in fundamental attitudes.
For example, nearly 50 per cent of Gen Y and Gen Z consumers today express an interest in alternate mobility types compared with approximately 10 per cent of baby boomer and preboomer customers.
Those younger buyers are also twice as likely as their Gen X counterparts, and five times more likely than their baby boomer parents to trust fully automated driving. Couple that with J.D. Power’s Canadian segmentation analysis — which shows that for nearly half of the vehicle buying public, the purchase of a new vehicle is simply the acquisition of transport and mobility as opposed to an event marked by more emotional connection — and that different buyer starts to emerge.
The statistics aside, a simple thought experiment here is illuminating.
Imagine a five-year-old today, being raised as she is by her millennial parents. Just a decade or so from entering the mobility purchase funnel, she not only has a different experience in terms of her retail realities, but also a profoundly different concept of what ownership means.
In her world, there has never been a cable television schedule. Music, games, movies, etc. have never been acquired as a physical product and are accessible at all times and in all places on demand.
Indeed, the ownership of a physical item in many instances seems wholly inconvenient and inefficient.
What’s more, she has a relationship with retailing in which those products which must be owned can always be ordered and delivered within 24 hours.
Do we really expect the automotive industry to remain immune from this fundamental migration?
No, given today’s presence of the three foundational building blocks, the only logical conclusion is that, functionally, those finding success in the automotive industry of the not too distant future — of which there will be plenty — will be different, because we’ll be different.
If you’re looking for the tipping point, it’s already in the digitally displayed rear-view mirror.