By Wang Xiaoming

Research Report Vol.19 No.6, 2017

The automobile industry paradigm centering on automobile manufacturers and characterized by large-scale production and distribution was basically developed from the invention of the streamline production mode by Henry Ford of the United States in 1913. Despite the globalized development (global design, global purchase, global production, and global distribution) of the automobile industry, and the revolution of lean production mode initiated by Toyota in Japan, the original industrial paradigm, on the whole, has been enhanced instead of being shifted. Since the start of the 21st century, with large developing countries like China and India stepping into the auto community, the scale of global automobile ownership has developed from 1 billion to 2 billion, and traditional large-scale automobile production and use modes are subject to increasingly serious resource, energy, and environmental constraints. To cope with this challenge, the technological revolution characterized by electrification, digitalization, networking, and intelligence, integrated with business mode innovation characterized by platforms and sharing, is significantly transforming the ways of automobile production, distribution, and use. As a result, the centennial paradigm of the automobile industry is facing a dramatic change.

I. Trends in the Changing Automobile Industry Paradigm

1. With consumers tending to purchase travel services instead of purchasing automobiles, the demand mode of the automobile industry will see a fundamental transformation

The first influence exerted by the advent of the Internet age is consumers’ reduced use of automobiles. The popularization of E-commerce and online shopping has transformed residents’ consumption preferences and their travel patterns in daily life, and reduced people’s needs to drive an automobile for shopping; the development of social networks has improved people’s communication efficiency, and to some extent replaced traditional modes of social intercourses and related amount of travel; the work-at-home mode base on the Internet has reduced the commuting between home and workplace by white-collars not based in offices. According to a survey done by the University of Michigan Transportation Research Institute of the United States in 2014, the average annual auto mileage of Americans had been steadily declining since its peaking in 2004. By 2013, the annual average auto mileage was 13,600 km, dropping by 9.1% from 15,000 km in 2006. The total auto mileage of American households dropped 10.2% from that in 2004.

The emergence of platform economy and the car-sharing mode have enabled consumers to shift from car purchase to travel service purchase. With the increase of car-sharing services such as Uber and Didi, and drivers and travelers on car-sharing platforms, the information cost of P2P connection services has become lower and lower, while the bilateral market of platform economy has become more and more active. As a result, personal travel service demands can be better met, and private car resources which are largely idle in their use time and space are more efficiently utilized. With the cumulative effect of platform economy and car sharing, not only are social resources more effectively utilized but also people’s consumption concept has been significantly changed, as new-generation consumers gradually develop their habit of “purchasing travel services on mobile phones” and have less and less desire for purchasing automobiles. According to a survey by the Bitcom Association in Germany, 61% of the Germans expressed that they would not consider purchasing a private car if automatic driving cars could be booked conveniently and speedily via mobile phones in the future.

The shift in consumption choices will weaken the capability of traditional car manufacturers to control the market by their brands. Behind consumers’ turn from car purchase to travel service purchase is also a comparison between the cost of a car’s full lifecycle use and the cost paid for purchasing travel services. The cost for a single rent of a car, though not low, has obvious economic and social cost advantages, as compared with the direct cost of car purchase (car purchase payment, tax payment, insurance, fueling or charging, maintenance, parking, road toll, and all sorts of inspection costs), indirect cost (time consumption costs in the course of car purchase and use, and business losses caused by information asymmetry and lack of bargaining power), and social cost (the extra expenditure of resources, energy, environment, land and urban infrastructure caused by idle automobile resources). In terms of development, consumers will become more and more inclined to purchase travel services in place of cars, and have more and more recognition of car-sharing service brands. This tendency will inevitably weaken traditional car manufacturers’ capability to control the market by their brands.

2. Electrification and modularization will transform the traditional mode of division of labor in automobile production, and a significant change will take place in the organizational form of the industry

In the traditional automobile industry, automobile manufacturers, based on their design of the automobile power system (combustion engine) and car model system, further grasp “market definition rights” such as market segmentation, brand and car model pricing, and production volume through their grasp of “product definition rights” centering on engines and car models. Over 100 years’ development, though global design, global purchase, global production, and global distribution have been realized for the automobile industry, the production systems of different manufacturers, platforms or brands vary widely. Parts, in particular, have very low degrees of standardization and generalization due to their different systems. On one hand, it is very difficult for parts enterprises producing traditional engines to accumulate strength to challenge the central position of automobile manufacturers by large-scale production; on the other hand, the industrial organizational form of vertical division of labor is solidified on a long-term basis, in which automobile manufacturers control parts supporting systems by their design of power and car model systems, and realize the differentiation of production systems by brand differentiation.

The impact of automobile electrification on the automobile industry is superficially a technical reform in the automobile driving system but will cause a drastic change in the way of production organization. First, automobile electrification will lead to the replacement of main parts such as traditional combustion engines and transmissions by parts such as batteries, electric motors, and car chargers; tremendous changes will take place in the traditional parts supporting system, and as a result the core “product definition rights” of automobile manufacturers will be divided. Second, by controlling the design and product standard of power batteries, battery manufacturers are entering the field of core “product definitions” of automobile manufacturers, and promoting product standardization, generalization and modularization by accepting orders from automobile manufacturers of different brands. Finally, with the promotion of standardization and establishment of the modularized production mode, horizontal division of labor will gradually dominate, while the organization form of vertical division of labor will be gradually be altered. Accordingly, the access threshold for automobile manufacturing will be lowered to some extent.

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