It could be a costly year for the automotive industry

May 23, 2017

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By Ray Telang

Global auto industry performance is seemingly strong – worldwide sales and profit margins are up for suppliers and automakers (OEMs). But if you look at performance indicators such as total shareholder value and return on invested capital, it’s clear the automotive industry continues to struggle, making it less attractive for investors.

Simply investing less to improve ROI is not the answer in a sector that faces ever more demands for innovation. New technologies such as ubiquitous electronics, digital services, novel powertrains and connectivity systems will be costly.

It’s estimated that the next generation of vehicles will cost OEMs significantly more now than the previous generation. Interior technologies from augmented reality heads-up displays to 3D laminated glass to complete seating reconfigurations in autonomous cars are all part of future design considerations. With new technologies come new software development needs that will further increase costs. Companies will also have to recruit specialized talent to strengthen their technical and software engineering bench. And while the automotive industry will need to focus closely on innovation, the rising costs behind regulatory standards and mitigating compliance risks will factor into operating strategies as well.

How do automotive players innovate, gain on the competition, all while improving low rates of return?

There is no easy formula, and while the solution partly lies with market consolidation, we identify other strategic channels in our 2017 Automotive Industry Trends report.

How do you see automotive players improving returns and attracting investors? And which investments by OEMs and suppliers do you think will have the biggest impact?


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