Networked cars

Navigating the Crisis

The car of the future. Source: IAA action press
The car of the future.
  • Why it matters

    Why it matters

    If German car makers do not adapt to new technology fast, they will not survive.

  • Facts

    Facts

    • The IAA Motorshow begins in Frankfurt on Thursday.
    • The main topic of discussion is the networked car.
    • The car industry has long defied doom sayers.
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  • Audio

    Audio

  • Pdf

Welcome to the 2029 IAA international motor show in Frankfurt. The topic on everyone’s lips is the planned German Car Union. For months, Volkswagen and BMW have been desperately negotiating a merger that they need to surive. The German government is mediating talks. The states of Lower Saxony and Bavaria both plan to support their restructuring with financial guarantees. The likewise struggling Daimler Group is withdrawing from the alliance under pressure from its Chinese majority shareholders. The Sino-Swabians want to tender themselves as premium partner to the U.S. mobility group Uber, which is already serving its customers with 70 million self-driving cars.

Is this too bleak a future? It seems so. Anybody who visits the IAA in Frankfurt these days will see an industry bursting with strength. The car companies have never been larger and the profits fatter than they have been in the in the last couple of years. The car industry recovered from the crisis of 2010 in a way no one would have dreamed possible. The boom in China, the low price of oil, and the weak euro have fueled a business model whose end had long been prophesied. Things have turned out differently. The show doesn’t belong to the electric car, but to the SUV.

But the glittering façade is crumbling. The boom in China, which was able to hide all the weakness of the past years, is over. Not only are overcapacity and price wars threatening in the Far East, new competitors are emerging. The Chinese car industry has learned its lesson and is offering inexpensive compact cars and is cutting into VW, Ford and GM market shares. But the Great Wall Motors and the state-owned Jianghuai Motor Company are not satisfied with just that. They are planning on penetrating the home markets of the established brands through South America and Eastern Europe. The battle for the private customer, who never has or wants to spend much money on a car, will become much more competitive.

 

Nothing is spreading as quickly as the Internet, and the car is the last blank spot on the worldwide web.

The electric car is also coming. The electric drive may have been a flop in Germany so far, but the technology will prevail and permanently change the industry. By the end of the decade, batteries will be twice as effective as they are now, and significantly cheaper. China’s major cities and California are already considering a zero emissions policy, which would be tantamount to a ban on conventional fossil fuel burning motors. Both regions have strong players in Tesla and the Asian battery manufacturers, who can capitalize from the tougher standards. The traditional car producers, who are still deriving their value creation from motors and transmission, are facing an adjustment shock.

Even more incalculable are the consequences of digitalization. Nothing is spreading as quickly as the Internet, and the car is the last blank spot on the worldwide web. That will change. Thanks to ever better performing mobile radio networks, sensors and graphic chips, the car will become a data receiver and producer of the first degree. It still isn’t clear, whether Google, Uber, and the Chinese Internet groups only want to penetrate the car industry with their operating systems or whether they will go right ahead and co-produce the hardware. The transition to electro-mobility affords all kinds of opportunities for companies that are not traditional car producers to enter the business.

All of these scenarios are being discussed in the car industry. Car makers can’t expect their industry to be any more protected than the producers of cameras, cell phones or computers were. That is why the upheaval is something car bosses need to address fast. Daimler’s chief executive Dieter Zetsche toured Silicon Valley with his management team. The new head of BMW, Mr. Harald Krüger, held a meeting with senior managers to thrash out strategy on the shores of Lake  Tegernsee in Bavaria. Volkswagen chief executive Martin Winterkorn is planning a company restructuring to be able to react more quickly to future trends. Company culture also has to change. Workers must have more free space to develop new projects. Concepts such as BMW’s Project I or  Daimler’s Moovel, will become more important in the future to be able to keep pace with competitors from Asia and Silicon Valley. Eventually, the changes will impact every location. The workers and the supervisory boards cannot be permitted to block this transition. They should in fact insist on it; there will be no demand for factories offering yesterday’s products.

We will know by 2029 IAA, just if and how German car companies were able to keep their dominant role. Maybe we will be looking then at the Daimler and Volkswagen Mobility Group, and the Bavarian Electroworks Munich.

 

The author specializes in the aviation and automotive industries. He is head of the mobility team. He can be reached at fasse@handelsblatt.com

 

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