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Why Auto Industry Needs to Restructure its Core Operations

Auto Tech Outlook | Thursday, April 22, 2021

The automotive leaders will have to restructure their core operations to ensure their survival and success in the future. 

FREMONT, CA: Even before the COVID-19 crisis, the auto industry faced significant disruptions such as electric mobility, driverless vehicles, automated factories, and ridesharing. With travel severely hampered by the pandemic, and global factory closures, slumping car sales, and significant layoffs, it's reasonable to wonder what the auto industry's "next normal" would look like. The first signs of this automotive future have emerged in recent months, with the most significant industry shifts yet to come.

On an operational level, the pandemic has accelerated changes in the automobile industry underway for many years. Many of these developments are mainly positive, as the increase in online traffic and OEMs' increased willingness to work with partners, automotive and non-automotive to solve problems.

Others may have negative consequences, such as a tendency to concentrate on core tasks rather than expanding in new areas. While OEMs might be focusing on the core right now to keep the lights on, failure to look at other possibilities might hurt them in the long run.

Top 10 Automotive Engineering Services Companies - 2021Automotive managers can gain a competitive edge by reevaluating their organizational structures and operations as they manage this crisis. Radically focusing on digital platforms, transitioning to recurring revenue streams, maximizing asset distribution, accepting zero-based budgeting, and developing a resilient supply chain are five steps that can help them through this phase. Here are two of the most important steps to follow. 

Maximizing asset deployment through strategic partnerships

Automotive OEMs and suppliers face a challenge in investing in autonomous technology, connectivity, electrification, and shared mobility (ACES). Given the considerable resources needed and the urgency with which these solutions must be delivered, market players should collaborate rather than compete. After all, in the COVID-19 crisis, conventional OEMs' limited resources must be expanded even further, as cash-saving measures and cost-cutting programs leave no space for technology investments.

Collaboration with former rivals, tech players, and investors will almost certainly become an unavoidable reality for OEMs who want to remain ahead of the innovation curve and establish a future-oriented company.

Embrace zero-based income statements

A zero-based strategy will help the automotive industry make long-overdue improvements, including centralizing the production facilities, eliminating low-value operations, and drastically reducing investments in non-critical new assets. 

Given the difficulties imposed by the pandemic, the airline industry is currently taking the lead in implementing agile and zero-based budgeting methods and reconstructing income statements. OEMs and suppliers in the automotive sector should follow suit.

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