Reinventing the wheel: digital transformation in the automotive industry
Digitalization has the potential to both recast how we use transportation and generate significant value for industry and society.
Since the days of horse and cart, people have proudly owned and lovingly cared for their vehicles. But digital is breaking that bond as it expands the boundaries of possibility. The smartphone, Internet, and wireless and cellular communication are giving us an unending supply of conveniences and services. We expect the car to bring us the same. Now it’s happening.
Demographic, market and digital trends are coming together to transform the automotive industry. The cycle of change begins with the connected and empowered consumer who is becoming more digitally conversant in all manner of electronic media. People, especially the growing ranks of digital natives, see the vehicle not as a product to buy; rather, transportation for them is a mobility experience that might take them somewhere in a single vehicle or via multiple forms of transport.
Through the twin paths of assisted driving and self-driving, cars have features unheard of not many years ago. They park themselves and cruise hands-free on highways. With the pending arrival of full autonomy, we are approaching a time when there may no longer be ‘drivers’. We will all be travelers using various forms of transportation that will be part of a seamless connected continuum coasting on roads that could be congestion-free.
Together, these developments are driving a seismic change in all aspects of transportation and, by extension, society. It is a fact that for many, access to affordable transportation is the most important factor in lifting themselves out of poverty.
The digitization of the automotive industry has the potential to generate significant value for both industry and society.
Our analysis indicates that there is $0.67 trillion of value at stake for automotive players and a further $3.1 trillion of societal benefits as a result of digital transformation of the industry until 2025.
In other words, industry stakeholders should take notice and come together to prioritize digital transformation initiatives given the potential for three times more value to be created for society than for industry.
Digital can create value for the automotive industry by breaking the mold of the entire automotive value chain as it creates greater efficiencies and cost savings. The rise of industry-leading platforms, supported by the explosion in the breadth and depth of data available, accelerates and amplifies the impact that digital technologies are having. These shifts are disrupting business models for existing players, forcing them to fundamentally reconsider their businesses.
Digital can also bring societal benefits. Today, there are real and substantial transportation costs. A driver in Moscow, Istanbul, Mexico City and Rio de Janeiro wastes more than 100 hours a year in congested traffic.¹ Each year, road accidents cost $518 billion² and are responsible for 1.25 million deaths around the world.³ Globally, air pollution from transportation causes more than 200,000 premature deaths a year⁴ and approximately 30% of the carbon dioxide (CO2) emissions behind climate change.⁵ Digitization of transportation has the potential to reduce many of these costs.
To change at the pace of digital, players across the value chain will need to think about their structure, employee skills, hiring practices, how they collect and analyze data, and how they form partnerships inside and outside the ecosystem. Our recommendations include the need for companies to consider their changing relationship with dealers and suppliers and the imperative to engage and maintain trust with consumers and their high expectations.
We raise three key questions for leaders and policy makers within the industry to consider and address:
- What incentives can cities and governments provide to prioritize self-driving and multi-modal integration?
- How can the auto industry collaborate with stakeholders in the private and public sector to save lives such as mandatory telematics solutions bundled with car sales and insurance?
- How can the auto industry create a greater democratization of the flow of profits from data platforms, in order to accelerate societal benefits such as reducing fatalities and lowering emissions?
The automotive industry is one of six sectors (along with consumer, electricity, healthcare, logistics and media) that have been the focus of the World Economic Forum’s Digital Transformation of Industries (DTI) 2016 project. An overview of the DTI program can be found here.
Our in-depth findings about the digital transformation of the automotive industry are available in a white paper, which can be downloaded here.
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