Automotive Blog

Adaptation and Survival

Ben Moths

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As an article earlier this year in The Economist pointed out in reference to globalisation, ‘the biggest business idea of the past three decades is in deep trouble’ [The Economist, Jan 28th 2017, ‘The retreat of the global company’]. This time last year, I discussed the possibility of Brexit in a post, and after a year of unpredictable polls, we have just seen the French presidential elections throwing up more surprises. Unstable geopolitics is generally considered unwelcome in the automotive industry, and for good reason. The sector is reliant on long term planning, and equally, the assembly and supply of new vehicles is a globalised business that has long assumed ever greater free trade and open borders; both Brexit and the changes in US stated policy have openly challenged that assumption of ever greater free trade. So how do carmakers looking to plan production and new vehicle supply adapt to survive in such an uncertain and volatile developing environment?

Markets in Europe have become accustomed to a high variety offering with relatively short lead times, so that cars assembled in Europe can be ordered or amended to customer specification. Over the last twenty five years, the combination of end items offered has grown by a factor of 54, so that a typical best-selling volume model is offered in around 10 million end item combinations of powertrain, options, and other choices. This explosion in end item offering is also mirrored in the niche and platform derived new models - many of which are arguably model derivatives. 

This complexity of offering is compounded by diversity and variability of demand across European markets with very different demand patterns and sales mix. Over the last twenty years, new markets have emerged as a result of the Cold War dividend, with Eastern Europe becoming significant as both source of supply and demand, adding to the challenge of delivering the market offering in Europe. More markets of course also mean more questions for distribution, on product offering, supply and stocking, plus the demand sensing generated by local marketing and representation. Those working within manufacturers on new vehicle supply have repeatedly said, during my discussions with them in recent years, that markets have become much more volatile since the beginnings of the financial crisis, resulting in much more frequent sales retargeting in the markets and rescheduling in production.
European new vehicle supply has been invested in over the last two decades, with the aim of delivering of greater product variety, customer satisfaction and market responsiveness; major changes witnessed include the creation of open order pipelines that allow order swapping and amendment, use of centralised stocking to open up the stock pipeline, and the ability to switch market allocation later to meet shifting market demand. The agility of new vehicle supply chains in Europe is greatly enabled by the free trade agreements in place across more than 28 European Union member states plus EFTA, allowing a viable distributed supplier and customer base. In terms of logistics alone, an open, uncluttered border movement is necessary to allow effective and efficient flows of components and finished vehicles. 

So what might the future hold for new vehicle supply to European markets, in an environment where some fundamental foundations such as market access are assumptions in doubt? Some argue that the backlash against globalisation is a temporary blip. After the fall of the Soviet Union and the Iron Curtain, Francis Fukyama famously talked about the triumph of democratic capitalism as ‘the end of history’, meaning that it was inevitable, which in essence means that liberal economics and associated free trade is equally irresistible. [].

There’s certainly an element of hubris in that claim, even at the time of publication, but today with the problems of globalisation intensified by the impact of technology, in particular the increasing pace of automation, the claim that liberal economics has won the public argument is one that should be under consideration in the agendas of board rooms everywhere. Car production and supply of course is no stranger to the removal of jobs and the impact that has on communities, but the social strains of globalisation and wider job automation are anticipated by many to mean that globalisation will not only continue, but intensify as economies restructure and demands for reskilling become ever hotter as a political topic as a way of addressing the backlash against globalisation and technological change.

Two thoughts arise when considering this within a European distribution sector looking to plan for the future. One, European new car markets may evolve in very different directions, driven by different localised responses to globalisation, social change and technology. And two, vehicle assembly and supply may have to be even more modular, standardised and replicable to adapt to an increasingly diverse range of market needs.

At this stage, some of the possibilities raised by potential technology and market changes appear unlikely – for example, some I spoke to last year within carmakers suggested that simplified product and powertrain designed for replenishing shared user fleets could allow more economically viable localised final assembly within markets, which could in turn mean very different needs for finished vehicle distribution planning and operations. However, uncertainty of outcome is in the nature of evolutionary responses to a changing market environment. The peppered moth is a classically cited example of natural selection in action – the colouration of the population of the species in cities changed over a relatively short period as industrialisation intensified, from a predominantly white coloration to the darker hue that allowed greater camouflage from predators against sooty urban tree bark.

Over the next decade, changes in forms of market access, localised demand for new cars, and innovation in new vehicle design, may mean a rethink of new vehicle stocking and supply. And experimentation, risky though that can be, is probably the best response in finding new solutions that work within specific, fast changing and differentiated market environments.

Written by Ben Waller

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