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Driving Through

Pipli Live –Part 2
May 5, 2014
The 2 Minute Brand
May 7, 2014

Historically, the US, Europe, and Japan – the triad was driving auto industry. In fact, economic growth of these countries was measured in terms of car production volume. In last one decade, this equation has changed with the emergence of new Auto hub: rising economic power of China, Korea, and Asia along with neo aspiration middle class has surmounted to huge auto demand and consumption in these economies.

H istorically, the US, Europe, and Japan – the triad was driving auto industry. In fact, economic growth of these countries was measured in terms of car production volume. In last one decade, this equation has changed with the emergence of new Auto hub: rising economic power of China, Korea, and Asia along with neo aspiration middle class has surmounted to huge auto demand and consumption in these economies. With the geo-economic shift of OEMs manufacturing base -suppliers and vendors to these OEMs also made move, necessitating many of them to rush for mainland China and all time favorite destination Mexico for cost and skill advantage, besides having low export cost speed to market from these economies/countries.

It is rather shocking to discover as for how China has surpassed all conventional hubs in vehicle production and consumption- naturally finding markets for suppliers as well.

U.S. market, forecasting annualized sales in North America in the near term of a relatively robust 16 million cars. While Europe is on the much weaker ground as the region is emerging fitfully from a six-year sales slump. Sales have plunged in Russia and South America —

they were down by about 25 percent and 15 percent, respectively. Meanwhile, the Indian market’s performance has been inconsistent. Growth in China — the world’s largest vehicle market — has slowed, even though investments by most original equipment manufacturers (OEMs), which are betting big on future demand, continue to ramp up. Reacting strategically to these demand shifts will be an absolute priority for industry leaders in 2015.

The key drivers for change will be: shifts in consumer demand, expanded regulatory requirements, {Tighter corporate average fuel economy (CAFE) regulations in the United States, as well as the rest of the world, are more expensive for OEMs to comply with, requiring a higher volume to amortize increasing costs.

Regulators are also mandating that more safety-related features, such as backup cameras, be included as standard equipment on new models, adding further to costs.} And increasing availability of data and information. {Information about vehicle usage and driver behavior usage is proliferating as sensors and telematics systems become more common.


These trends have both pros and con for the auto sector and can have real competitive advantage, it’s critical to understand the specific ways how these trends are affecting with-

  • Increased electronics and software content.
  • Product-mix changes made to meet regulatory requirements.
  • Next-generation platforms and platform modularization.

The adoption of these next-generation common platforms will also lead to a consolidation of suppliers that will result in a smaller number of large, global players. Stakeholders across the Indian passenger vehicles industry are likely to be impacted by fast changing events across the automotive ecosystem — be it in the operating environment, customer preferences, competition, distribution channel or supply chain.

To prepare for the years ahead, automotive companies need to raise the following five questions and assess how well they are prepared to respond to the opportunities and challenges they present:

  • Increasing urbanization and evolving customer need to have a greater influence on OEM strategies and buying behavior than reactive regulatory policies.
  • Increasing risks across value chain position OEMs to deploy range of mitigation strategies
  • Global OEMs gain market share with “glocalization,” while competition drives domestic OEMs to bridge technology gap
  • OEMs leverage digital marketing for urban consumers and non-traditional distribution channels for rural markets
  • New entrants using creative business models for mobility, in-vehicle services and after-sales support
  • Suppliers to enhance local product development capabilities, supply chain competency, and flexibility to meet diverse OEM expectations
  • Dealers to focus on managing their capital agenda, skill development and shifting revenue contribution of high-margin allied services.

Accordingly, to McKinsey report key future challenges for OEMs would be:

  • Complexity and Cost Pressure: There will be more platform sharing and more modular systems. At the same time, regulatory pressures will tighten, and prices in established markets are likely to be flat.
  • Diverging Markets: OEMs need to adapt to changing regional and segment patterns of supply and demand with respect to their production and supply base footprints, supply chains, and product portfolios; and the emerging Chinese after-sales market offers new growth opportunities.
  • Digital Demands: Consumers want more connectivity, are focused on active safety and ease of use, and are increasingly using digital sources in making their purchase decisions.

Connecting suppliers with OEMs through communication channel- broad-based strategy:

Suppliers will consolidate globally with very few and large player presence, technology partnership opportunity with OEMs will rise and safety and regulatory environment like CAFÉ implementation will unleash suppliers product and engineering innovation to meet the requirement or in simple words to be in competition.

As these transition and transformation are bound to happen coupled with innovative disruption even with Tier I suppliers, there would be need of players to match up to image and respect expectation matching with OEMs, so as to catch up and align with them on the technology front. It may be imperative for these suppliers to build a global image with robust off and online thought leadership program and connect not only with OEMs but also larger stakeholders, i.e. end users and build a perception in the entire ecosystem. Digitalization is key in Auto Industry so would be critical to connect with customers and engage with OEMS on a specific breakthrough innovation or quality precision through the extensive and tactical use of social media programs. Social Media integration to core marketing program will be essential and the necessity to beat the competition and scale quickly and globally, while connecting with entire stakeholder’s community.

The confluence of digital media, PR, and social media as taken to its new avatar going viral every industry. As Auto and Auto component is highly technology driven and digitalization is next buzz, where we hear driver-less car made by Tesla and Google, Delphi and Apple, in such a scenario it will be critical to getting connected with OEMs and entire auto ecosystem through social media. Be it a boost over FB or hashtag# on Twitter or sharing short YouTube video or even safety blog – will drive communication 4.0 in the auto ancillary sector. This does not discount traditional approach to participating in trade shows/ Auto shows and conference by SIAM or ACMA by certainly a lot more integration is going to happen over the internet and social.

The epicenter of any campaign may lay in any region but its impact should be felt global, knowing well that there is a consolidation happening where you there would less but the large player. So larger player must vie to make its presence, quality, technological advancement felt across OEMS geographical spread as well consumers at large to create a brand pull having rippling effect. Some of the key strategies that large suppliers need to adopt to beat the competition:

  • Branding alignment to that of OEMs- There should be a brand resonance
  • A global approach towards messaging and pitch, while it may be localized for different market
  • Meeting element of respect through thought position so as to work on technology partnership
  • Talking to a large audience, going beyond OEMs, reach the entire ecosystem
  • OEMS engagement over digital and social media
  • Integration of social along with conventional tactics of marketing and communications
  • Participation in editorial alongside ways of OEMs in major trade magazine and press
  • Creating a property event core to its vision and objective and then the manifestation of the same in various markets/country. Viz. safety, efficiency etc.
  • Partnership event, property creation, or even digital campaign with core OEMs
  • OEMs endorsement program
  • A larger awareness and branding program connecting to the entire ecosystem with the use of social, press and property events- by which the brand can be related.

e.g. Lighting of all important monuments in a particular region for a supplier who is into auto lighting business

communication strategy for a large global player may be localized based on the market, OEM and resale spare customer behavior and how the brand/ or product is perceived.

Two wheeler in India and that in Europe and UK or the US has its own dynamics and consumer, there is urban –rural divide in India, so one has to be careful with the same brand in the different region and accordingly play with its communication.

Overall, Tier I suppliers has to raise their bar of branding, communication and need to engage more while though positioning its brand and need to be at par with its OEMs, should it want to move away from supplier positioning and emerge globally as partners, or rather technology partners to OEMs in this era of technology disruption where next is quickly becoming now. Similarly, Suppliers need to talk about Frugal Engineering, innovation, R&D, Science to get noticed and get at par with OE.

A supplier who aims to be the global player and has done few M&As can harp upon their inorganic expansion story but the key to understanding that a plain vanilla supply story howsoever big you are is neither going to excite stakeholder or bring you close to your OE partner. To open doors of opportunity in the global space and be a technology partner, you need to demonstrate and talk about innovation in a big way to be in same thought leader platform of large Auto.

Innovation, green energy, and technology disruptions –where human intervention to car driving may vanish altogether are emerging trends, Concepts like the ‘connected car’, Tesla Motors (electric cars) and such software intervention in auto and ancillary is going to make it even for competitive and cost effective. This is also another opportunity area – ‘technology disruption’, where tier I supplier can leverage their strength and match up with OEMs, for which communication will play a critical role.

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