The five forces model helps determine the competitive nature of an industry, including its quality and the level of competition. The automotive industry is highly competitive, with companies constantly striving to create better automobiles than competitors. In fact, companies in the automotive industry spent $99.8 billion on research and development (R&D) in 2018. This means that new entrants would have a difficult time gaining market share in this highly competitive industry. Another factor that makes this industry so competitive is customer loyalty.
Growth stage
The automotive industry is experiencing transformations that have not been seen since the early Model T Ford. As new technologies and regulations take hold, traditional automotive OEMs are spending more money to address these trends. Interested investors have already spent between $115 and $200 billion on electric vehicles and automotive hardware since 2010.
A key driver of this change is the increase in vehicle connectivity. As more vehicles are connected, the focus on service revenue will increase. Typical aftermarket services will move into direct digital interactions with customers. New vehicles will present novel revenue opportunities throughout the vehicle’s life cycle, including charging, mobility as a service, and data monetization. As the automobile industry transitions to this new growth stage, it is critical to understand the impact these changes will have on the industry’s revenue growth.
As a cyclical business, the automotive industry is particularly vulnerable to recessions. A shortage of cash may delay a car purchase. While real GDP growth generally declines during recessions, the automotive industry experience more volatility than the overall economy. During recessions, real motor vehicle output has fallen by up to 12 times more than the economy as a whole. In addition, car sales are likely to be higher during economic times when consumer confidence is high.
Opportunities
The automotive industry is experiencing a transformation from competitive rivalry among peers to an ecosystem of collaboration. Innovation management must become the primary focus. As the automotive industry shifts from closed to open systems, companies must align their capabilities and processes to address new competitive challenges. In particular, OEMs should focus on developing technologies that differentiate their products from competitors, create value propositions that differentiate them from competitors, and adapt to new business models. There are many opportunities in this sector for the right companies to capitalize on.
One example of this is the introduction of hybrid and electric vehicles. While the cost of EVs has not yet reached the levels of combustion engines, it is predicted to be at par with gasoline-powered vehicles within the next five to 10 years. The automotive industry is also looking for logistics providers who understand lithium battery regulations. As connected vehicle technology improves, it will be more affordable for manufacturers to produce battery-powered electric vehicles. Further, more sophisticated sensor technology will provide instant data about vehicle functions and locations. These data will feed into supply chain logistics.
Another area with many opportunities is car rental. In this industry, cars are rented out for short periods. To get started, owners need a special license for such a business. Additionally, they must have a solid marketing strategy and insurance. The automotive industry is a crowded field, and finding your niche will be crucial to success. This industry has many potentials for entrepreneurs. So, what are the best opportunities in the automotive industry?
Threats
The automotive industry is no stranger to security threats. Increasingly connected cars make them more vulnerable to cyberattacks. In 2015, Fiat Chrysler recalled 1.4 million vehicles after security researchers found a vulnerability in their on-board entertainment system. Automotive companies could face a $1.1 billion fine for a security breach. Today’s cars contain 150 million lines of computer code. Hackers can exploit this to gain access to the car’s information.
Ransomware attacks have become a serious threat to automotive manufacturers. In the first quarter of 2019, Honda, Nissan, Volkswagen, Peugeot, and Kia were among the automotive companies attacked by ransomware. Even though this trend is not new, many OEMs are not prepared. For instance, a recent report by CyberAware uncovered that automotive manufacturers had exposed servers containing 800,000 documents and 215,000 employees with exposed credentials. These documents contained sensitive commercial details, invoices, and technical data.
In addition to driverless vehicles, other threats to the automotive industry include the price of tools and equipment and the increasing popularity of Uber. These changes have lowered the demand for manufactured vehicles. Despite all of these challenges, however, the automotive industry has a huge positive impact on global society. Therefore, the government should support the automotive industry as a way to keep up with the challenges it faces. The automotive industry is important for our economy.
