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OM in the News: The Future of the Auto Industry

December 21, 2018

The future of the auto industry is going to look like the history of the cell phone, writes IndustryWeek (Dec. 18, 2018). The two even share technology: the lithium-ion battery. As the world’s automakers gradually switch from combustion to charging, some of today’s dominant car companies will share the fate of a few former titans of the smartphone. Remember BlackBerry, Nokia and Palm?

This transition will play out as electric options flood showrooms. In the next 2 years, 85 more battery-powered models will be marketed, bringing the global fleet to 357. VW is near the front of the pack, promising 20 new electric models by 2020 and another 80 by 2025. VW just announced the internal combustion vehicles being designed now will be its last!

Being first, however, is no guarantee of success. Honda’s Insight promised 70 mpg as the first U.S. hybrid in 1999. Yet the Toyota Prius, which reached the market later, became the icon of greener wheels. A crowd of copycat hybrids arrived but none came close to matching the Prius.

For the next decade, old-school car executives will try to pull off a tricky financial stunt: driving returns with gasoline engines until their electric models have enough momentum to start keeping pace. They are essentially using an old technology to fund the transition to the next. Jump to the electric too soon and the whole works will grind to a halt; jump too late and lose the EV race. Startups such as Tesla don’t have to make this awkward jump. They don’t have to worry about feeding a legacy business as it slowly winds down.

Electric drivetrains and smart manufacturing systems have the potential to open up car manufacturing–and remove the stranglehold car companies have had on the business because of the high cost of capital.  And as we note as one of our 10 strategic decisions of OM, Product Design (Ch.5) is critical. Products must be designed to a dynamic market meeting sometimes harsh capital and labor requirements and time constraints. VW, like other auto manufactures is “biting the bullet.”

Classroom discussion questions:

  1. Is VW making a wise decision? (SWOT analysis)?
  2. Where would you place EV and gasoline cars on the product life cycle curve now and in 10 years? (See Figure 2.5 in the text)

 

 

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