Q: Based on BCG’s broad market knowledge, what have you identified as the main trends in the automotive industry?
A: There are two main trends that relate to each other. The first is the way in which drivers use their vehicles and, in that sense, we believe car sharing will be a rising trend over the next five years. Other trends will include any alternative that removes the burden of purchasing a vehicle, disassociating car usage from ownership.
The second trend shows that personalization of privately owned vehicles will increase considerably, as customers will be able to add or remove specific components from cars, enhancing their driving experience. These include not only the vehicle’s features, but also size, shape and functionality. Moreover, the number of technological components will be customizable, which will enable drivers to monitor on-the-road behaviors, such as music preferences or frequent routes and destinations.
In terms of commercial vehicles, their personalization will refer to freight shipping and volumes, while also taking into consideration their size and shape. In terms of vehicle production, manufacturing processes will also change. Over the next 10 years, we expect production lines to develop significantly, while flexibility between both machine and human labor will allow OEMs to use their assets more efficiently, allocating their resources to multiple processes within the production line. As a result, we will see flexible production models that will give way to a wider diversity of vehicles, thus greater personalization.
Q: Do you expect OEMs to expand their business model to include technological developments or to rely on creating partnerships with specialized companies?
A: Enclosed or wholly owned systems are now a thing of the past, giving way to standardized systems provided by IT companies. For the time being, Apple is leading the way with Google closely behind, as they have now integrated their operating systems into the vehicles. However, the door is not closed to other companies that want to tackle these opportunities.
OEMs have opened their systems to ease interface transition with their own infotainment systems, forcing them to make strategic decisions regarding ownership and how much of it they wish to relinquish. By outsourcing solutions, the link with customers can be lost. Therefore, the company’s involvement in customer experience must be carefully planned before, during and after the sales process. By pinpointing the traits of customer experience they are willing to relinquish, their inclusion can exponentially improve the quality of a product. Infotainment is just one these opportunities, as the realm of possibilities for in-vehicle software is quite broad.
Q: How can companies work together to expedite the inclusion of autonomous technology into the market?
A: Autonomous technology is going through an interesting period in which there are now two completely different approaches to R&D that are competing to reach the market first. On the one hand, traditional OEMs believe the technological transition toward autonomy will happen gradually, taking away one driving control responsibility from users at a time. The first natural step would be the automation of a vehicle’s braking system, followed by enhanced highway cruise controls and other features that improve the human-vehicle control interface, but all within our current driving environment.
Technology companies like Google have developed solutions that, for the time being, only work under specific driving conditions with little-to-no uncertainty. Nevertheless, these systems are adaptable and they are programmed to continuously learn and improve their software, so they could gradually be transferred to more hectic and complex scenarios. We will have to wait and see how this trend plays out in the coming years but it will be fascinating to watch.
To achieve vehicle autonomy, on top of building a car, it is necessary to develop proper software that supports the vehicle’s functionality. A similar situation can be found in the mobile phone and software field. Google has done a solid job in software development through Android and, by offering this technology to hardware manufacturers, companies have been able to focus solely on phone functionality to ensure higher quality products. BCG believes this is precisely the approach that Google is employing in its autonomous driving developments. By creating competent software, the company can later commercialize it without engaging in actual vehicle manufacturing. This scenario might suit OEMs, as they could outsource software developments and focus on their core business of manufacturing. Although the market is aimed at passenger applications, we foresee that commercial vehicles will see this type of technology integrated first, since its implementation can be more easily achieved and its economic benefits are more traceable.
Q: Low oil prices have allowed clean energies to emerge, directly impacting Mexico’s environmental agenda. How committed is Mexico’s auto industry to developing the electric vehicle (EV) market?
A: BCG has no clear evidence that shows the government’s commitment to developing the market and we are not completely sure it will. Nevertheless, we do not believe this will hinder the availability of EVs. Vehicle manufacturing in Mexico is mainly driven by exports to the North American markets, so as long as these markets demand EVs there will be a knock-on effect on Mexico. There is no question that we will see EV production here but whether they remain in the Mexican market is another story. Affordability is an additional element that will impact their market inclusion, a barrier that has already been broken in the US using subsidies. If we do not mirror that solution, the Mexican market will be limited to a smaller number of applications that fit our economic constraints.
Q: How can BCG’s interdisciplinary team offer an integral solution to its Mexican auto clients?
A: BCG is a strategy consulting firm that helps companies to make better decisions and improve their operations. Our work with OEMs has been mostly focused on developing the management of their production facilities through better asset utilization and improved efficiency. BCG also helps its clients with aftermarket and commercial operations according to local conditions. In terms of Tier 1 suppliers and aftermarket players, we help them define their strategy regarding local and international market share growth, as well as evaluating the feasibility of product expansions and developing their distribution channels.
We have had a presence in the Mexican market for close to 40 years, at first running our local operations directly from our US offices. In 1993, we finally opened our first Mexican office in Monterrey, expanding to Mexico City three years after that. Nowadays, our local offices employ close to 100 consultants, with five Mexican BCG partners supporting us. Our partners are divided into different areas of specialization, including financial services, consumer goods and industrial goods, while our team of consultants has different types of functional expertise that range from investment decisions to manufacturing operations.