The auto industry has always been known as being a very competitive economic sector, but recent advances in technology have increased competition to very high levels. The impact of this heightened competitive stance are being immediately felt in the marketplace; for the most part, drivers are reaping the benefits, particularly those who are attracted to new technologies. For automakers, the future outlook may not be as positive due to shifting trends and preferences among car buyers.
In 2017, automakers are enjoying healthy profits; this has been the case since about 2012, the year when the global financial crisis entered a new period of recovery. This also happened to be a year when various new technologies started being tested and incorporated. There have been a few exceptions; Volkswagen, for example, is still dealing with the aftermath of its scandalous emissions cheating scandal. Quite a few American and Japanese automakers are also in the process of complying with the massive recall of Takata airbags. Notwithstanding these two situations, the global auto industry could be headed towards a period of diminished returns due to extremely tight competition.
Investor and Shareholder Behavior
The current operating margins of the top car manufacturers have not enjoyed such a healthy financial climate in the 21st century. Even with this financial advantage, the numbers are still behind the total shareholder return provided by the likes of the Dow Jones Industrial Average and the S&P 500; in other words, investors who mostly stuck to these two benchmarks enjoyed much better returns than those who invested in automakers stocks and corporate debt.
With regard to return on capital investment, automakers have been investing significant cash on research and development, which is something that shareholders tend to feel ambivalent about. Implementing new technologies successfully takes time plus capital expenditures; moreover, car parts are becoming expensive, which leads to a reduced return on capital. Investors tend to be not as patient as automakers would like, particularly at a time when Wall Street is collectively doing better than the auto manufacturing sector.
Smart Connection Services
There seems to be uncertainty about whether the auto industry will settle into a telematics standard. Smart connection services such as Apple Carplay and Android Auto are presented to drivers as infotainment features or advanced smartphone docking systems; however, these systems offer a lot more than just the ability to access mobile apps and stream digital music.
In the near future, driving assistance features will be added to smart connection services; these features will include lane departure alerts, stability when steering, and augmented reality to improve visual driving conditions at night. Furthermore, telematics will be expanded for the benefit of commercial fleet operators; this could very well translate into cheap auto insurance since safer driving conditions will be widely promoted.
The Autonomous Driving Future
Analysts are expecting that self-driving cars will become ubiquitous on American highways by the year 2030; to this effect, automotive engineers are already thinking about radical changes to car interiors.
It is not unreasonable to think of a future when the driver seat may actually be turned around to face the back seats; this would allow all passengers to engage in conversation or get some work done. Executive transportation services already offer some of this functionality, albeit with drivers. An autonomous driving executive limousine may include a full office environment inside, large and comfortable enough to hold meetings; moreover, these future interiors may also offer advanced touchscreen displays similar to the PixelSense technology developed by Microsoft, which allows real-time scanning of physical objects.
In the end, the auto industry will face its very own Brave New World in years to come, but it will not be an easy development. Competition will certainly continue heating up, and automakers will have to make tough decisions about how much technology they should put in their vehicles and how much of these expenses will be passed on to drivers.
by: Sia Hasan