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The Engine Propelling the Auto Parts and Supplies Business

Shamanth Shankar

By Shamanth Shankar

On April 2, 2018

The sales in the auto industry regained pre 2008 levels in 2015/2016, but the first quarter 2017 brought about a new drop in market’s profits.

The reason? Car manufacturers have been largely producing more cars than the consumer demand. This coupled with the fact that people are holding on to a car for longer periods of time meant that dealers were forced to offer substantial discounts of about $3,900 per vehicle (or about 10.5% of the average manufacturer’s suggested retail price) to move new cars off the lots. The prices have also been driven down by increased competition from the used vehicles market and the consumers’ preference to take on longer loans, to reduce their monthly payments and to be able to purchase more expensive vehicles with more features.

However, car manufacturers weren’t the only ones affected by the recent slowdown in business. Auto parts suppliers, an important wheel in the transportation supply chain have also struggled to keep up with the current changes and challenges in the transportation ecosystem. To remain on top, auto parts suppliers needs to deal with everything from new materials and radical redesigns to innovative hardware and software.

Structural changes in the market – the vehicle production is migrating to the “new Detroits” in countries with a lower cost of production (especially labor costs) like China and India. More cars will be produced and supplied from within regional trade zones like NAFTA, the European Union, ASEAN, and Mercosur.

Mergers and Acquisitions – traditional players have consolidated into conglomerates (Fiat-Chrysler, Renault-Nissan) to scale, improve the efficiency of assets, and streamline distribution.

Eco-friendly, electric and hybrid cars – there is a growing shift in the customer’s interest in the climate change and how clean and renewable energy can reverse some of its adverse effects. It is expected that by 2020 up to a third of all the cars purchased in developed countries will not be propelled by an internal combustion engine. Nevertheless, despite the high demand for green technologies, the innovation costs remain high, and consumers’ willingness to spend on these technologies is low.

New Technologies (self-driving cars, powertrain technologies, interconnected cars) – the next years will see joint collaborations and joint ventures between newer players and established brands to pave the way into new markets and take advantage of the auto-making expertise of the established organizations.

Conscious consumption: car sharing– and the development of low-cost cab networks like Uber and Lyft which have been heavily backed by investors and spread worldwide in record time. User-friendly rental options like Daimler’s Car2Go and Zipcar in North America are another alternative to buying a car.

Laws and regulations – stricter environmental and safety regulations have emerged as well as the first protection laws around the autonomous vehicle technology (Department of Transportation’s Federal Automated Vehicle Policy).

The foreseeable future will bring a slowdown in the market for traditional components (brakes, suspension, steering wheels) – which will remain undifferentiated – and an up rise in the market for modern components that will enhance a system’s performance and align with the consumer’s personal needs and demands. These could include electronics and electrical components, and sophisticated Human Machine Interface technology that will gather and process parts data in real-time and enable supplier organizations to improve the level of performance, durability, and efficiency of their products.

Modern consumers think about mobility as a service rather than a product

Software engineering and systems integrations which are based on data and analytics-based services and solutions will be the biggest differentiating factor among the auto parts suppliers. Such technologies enable the use of big data to offer new types of vehicle content and corresponding consumer services like in-car on-demand food and beverage, in-car entertainment and “retail on wheels”. Auto parts suppliers need to make the transition into uncharted markets to ensure they remain relevant and establish themselves as serious competitors in these young industries where they will face off players like consumer electronics or tech giants and start-ups.

Comprehensive data management platforms, like Riversand MDMCenter,  which have the ability and the power to manage big auto parts data and organically integrate on all the organization’s levels and existing application portfolio will get you a foot in the “data” market door. Data is the fuel that differentiates the businesses who thrive in uncertain economic and social waters from the companies who remain set in stone and prefer to run on a “gut” feeling or experience without taking into the consideration the market’s changes.

The auto industry will fundamentally change in the following years, and without carefully watching and examining the newest trends and pairing this with constant efforts to reduce the cost of innovation, and adapt to the needs of the car manufacturers and users, you won’t be able to stay in business for long. Data remains the engine that propels businesses forward whether it is used to simplify (and automate) complicated supply chain logistics, experiment with different products and promotions or make the buying journey an easier and more pleasant experience.