Automakers face a challenge in managing the future

When businesses are initially established, their success largely depends on their value proposition and unique offering to the market. This success enables companies to grow and expand. But then what?

Large organizations often become so focused on current revenue streams that they lose sight of priorities like imagining the future, identifying innovations and making smart strategic choices about where to invest. Instead, they move into survival mode, trying to maintain their current positions rather than taking the risk of transitioning into new ones.

Put differently, the challenge for companies is how to deliver on this year’s goals while simultaneously trying to position themselves to be successful in the future. This dynamic is playing out big time in the transportation industry. There is perhaps no better current example of this dilemma than traditional automakers. These companies are facing disruptive technologies such as electric vehicles, connectivity, autonomous vehicles, a change from vehicle ownership to purchasing transportation as a service, and the global emergence of subcompact vehicles. They also face an unexpected wave of new competitors such as Waymo, Tesla, Uber, Lyft and others from Silicon Valley, as well as BYD and LeEco from China.

The great challenge for senior industry executives is how to manage the decline in traditional vehicle sales until the return on new technology investments fill the void. In this way, auto executives are facing a situation similar to what traditional entertainment companies faced with the switch to streaming, or brick-and-mortar retailers with the rise of e-commerce.

The challenge presented is what strategic bets should automakers make going forward and how can they modify current business models to maximize positive outcomes for all stakeholders? Companies are having to reengage fundamental questions such as where and how they should compete.

Automakers aren’t the only one faced with challenges by a changing transportation industry. For those born since the 1980s, owning a car and getting a driver’s license aren’t the life milestones they once were. Younger buyers are more interested in ease of transportation and mobility, and with often crippling student loan debt they are thrilled not to have car payments. Students graduate college with an average of about $37,000 in student loan debt. It all adds up to $1.5 trillion across the country.

Millennials are also killing the motorcycle industry. For instance, Harley Davidson is struggling with declining sales and an aging demographic that is increasingly hanging up its boots. Being an “Easy Rider” is no longer easy for an aging customer base, and younger consumers are more interested in less expensive bikes that generate lower margins for manufacturers. To attract younger customers to the brand, Harley Davidson is setting up riding schools around the country and is releasing an electric motorcycle called the “Livewire,” which will be priced at just under $30,000. The manufacturer’s suggested retail price for the entry- level Toyota Prius is about $23,500.

In the unlikely event you are not clear on this, everyone – individuals and institutions – are living in an age of disruption. The growing challenges of globalization and the rapid spread of digital technologies and artificial intelligence offer existential threats as well as new opportunities. The younger generation will experience the consequences of these disruptions for many years to come and will witness industries in transformation through their own daily experiences as they change the way Americans live and work.

It once again shows that the late, great author V.S. Naipaul was right when he said, “The world is always in movement.”

 Originally Published: February 9, 2019

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