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2018 Brings Challenges and Opportunities for Automotive OEMs

How automakers respond to challenges such as meeting MPG/emissions requirements, developing IoT-enabled features and expanding into new markets could determine the state of the industry in the near- and long-term.

Among trends in the automotive industry, autonomous vehicles are currently getting most of the attention, but their slow progress into the mainstream consumer market isn’t the only challenge facing automakers. Even if AV’s develop faster than expected, automotive OEMs face huge, expensive technological hurdles in other areas, including:

  • MPG/Emissions requirements
  • IoT-enabled features
  • New market expansion

How automakers respond to these challenges can determine the state of the industry in the near- and long-term.

MPG/Emissions requirements

Tightened MPG/emissions requirements, especially for vehicles sold in the U.S., Canadian, Mexico and the European Union, continue to have a significant impact on how automakers prioritize their workload.

Automakers are expected to need to improve fuel efficiency by at least 20 percent and possibly as much as 60 percent by 2025, although the Environmental Protection Agency has recently recommended rolling back current fuel economy standards.  But because Federal requirements average the total of all vehicles sold, even if an OEM builds a car that achieves 50 MPG, the maker’s other SUVs or trucks with less than 20 MPG drag the average down below the required federal MPG across their fleet. These requirements add considerable cost to new vehicle price tags — already an increasing problem for sales. Consider that an eight-year car loan now exists when just 10 years ago a six-year car loan was rare.

Meanwhile, high-MPG car sales have been disappointing while lower-MPG SUVs, trucks and crossovers are booming, a trend likely to continue for the foreseeable future given consumer preference and the relatively low cost of gas.

OEMs are looking to technological methods to provide cheaper solutions for fuel efficiency, including next-generation powertrains and chassis as well as lighter-weight materials. This has resulted in an additional engineering R&D spend as well as new production lines that require maintenance, assemblers, production workers and robotics.

Diverting large amounts of capital to address the issue may not be sustainable in the long run.

IoT-enabled features

Advancements on the road to full automation, like the development of add-on mobile services and applications related to the IoT, are in full swing at most OEMs, as are other IoT-enabled features, upgrades and new designs for dashboards and systems. Safety features from blind-spot warnings to cameras to infotainment features like smartphone mirroring on the dashboard are now considered necessary to consumers, however, the return on investment for these upgrades is unclear. A lot of expense and focus is being spent on digitization of driver experiences for automakers, especially since they aren’t very experienced in-software development and testing.

It becomes clear that the expenditure of capital, time and labor will require OEMS to choose what they will be and what their core strengths are, electric car companies, SUV/truck/crossover makers or sedan makers, for instance.

That means in a few years we could see momentous changes in the industry, including spin-offs, buyouts, mergers & acquisitions or even layoffs as automakers drop vehicle lines. This can create new industry verticals resulting from the disintegration of large parts of the industry into new forms. Or even the possible outsourcing of key manufacturing to other industries, such as the entire infotainment package, which could be handed over to a technology company.

New market expansion

Most industry growth will come from emerging markets, which comes with its own array of expenses. Creating vastly cheaper vehicles, with the attendant product design and marketing needed to launch them, as well as the need to establish manufacturing operations closer to the point of sale, is a crucial but costly move.

A recent automotive report card notes that automakers must make "product innovation a priority. Some industry players will need to undertake a broad restructuring of their value propositions ... product portfolio, finances and governance to spur the growth-propelled innovation needed to serve a global marketplace in constant flux."

Automakers drive the U.S. economy

Automakers and their suppliers are America’s largest manufacturing sector, responsible for 3 percent of

America’s GDP. No other manufacturing sector generates as many American jobs. They are also the country’s largest exporters. In fact, over the past five years, automakers have exported more than $690 billion in vehicles and parts — approximately $76 billion more than the next largest exporter, aerospace, according to the U.S. Department of Commerce.

Support in addressing challenges

In order to continue the positive contributions of the industry to local and national economies, automakers are increasingly investing in efficient methods of design, development and manufacturing of high-quality products in a cost-effective way. Partnering with an engineering services company like EASi has helped most of the nation’s top automakers stay competitive by providing onsite, near-site and offshore solutions that will keep them at the forefront of automotive production at home and abroad.

If you’d like to learn more about how automotive trends or how EASi can help your business, contact EASi now.

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