A Tale of Two Auto Industries

With a decent economy and solid consumer spending trends, the automobile industry should be humming along. But the story is a little more mixed. Indeed, recent plant closings, layoffs, and a desperate need to move into new technologies could dampen the mood at the usually raucous Detroit Auto Show this week. 

“Automakers are making long-term, transformational bets on technology,” says Bradford Marion, global sector leader for automotive at Korn Ferry. Marion says that the technology-focused CES show, held last week in Las Vegas, is more relevant to the future of the industry than this week’s car fest in Detroit. For example, BMW opted to show off a new self-driving motorbike at CES, not in Detroit. 

These transformational bets are tantalizing. On display in Detroit are cars that can drive themselves, electric vehicles that can go hundreds of miles on a single charge, artificial intelligence programming within the car itself, and other technology that is either in concept stages or close to rolling off production lines. 

The potential payoff from these bets, assuming the right ones are made, won’t be realized for many years, however. And in the near-term, the auto industry is facing a bumpy road. After years of growth, the National Automobile Dealers Association expects a sales decline this year. Signs of softness are already beginning to show. Ford, General Motors, and Toyota all reported year-over-year sales declines in December. China, England, Germany and other countries are also experiencing sales declines. 

Sales softness, coupled with the impact of the trade battle between the U.S. and China, is not only offsetting the strong macro-economic climate, but also resulting in layoffs, factory closings, and at some companies even leadership changes. “There is a lot of uncertainty around how soft the market is going to get,” says Marion. 

The trick for leaders is to manage the decline in traditional car sales until it can be offset or exceeded by the return on new technology investments. In this way, auto leaders are facing a situation similar to that faced by traditional entertainment companies with the switch to streaming or brick-and-mortar retailers with the rise of e-commerce. It’s not an easy trick to master. “You can’t ignore what is generating profits, and that is still trucks and SUVs. It is going to be a long time before any of these companies begins producing enough revenue from connected and autonomous vehicles to be profitable. It requires a different skill set to manage through that,” says Marion.

That’s why Patrick O’Meara, a senior partner with Korn Ferry’s industrials practice specializing in autos, expects both traditional carmakers and tech companies alike to heavily invest in digitally skilled talent in the near-term. “Leaders aren’t exactly sure how the future of the car industry will shake out, so right now it is about aggressively getting into the game,” says O”Meara.