Strategy+Business – August 2019

indeed, this exercise highlights the uncertainty and the need for resilience and

flexibility. But it’s important to note that none of these scenarios — and in our

view, no plausible scenario — leads to a viable future for the auto industry as a

whole if it maintains the current pattern of investment. Even if fundamentals

remain strong, the returns will not meet the expectations of investors and in-

dustry leaders.

The future in which the industry fares best is Scenario 2, in which invest-

ment is delayed: Overall industry investment slows to about half of what it was

in 2018, and other factors remain as strong as they are now. In that case, the

financial pain would be spread out over more years, during which new technolo-

gies and efficiencies could slightly improve returns from development costs. Even

that would represent an improvement of only a few percentage points of ROC

over the other two scenarios.

At the same time, though investment in the CASE future is not a panacea,

neither is business as usual. Mobility is indeed on the threshold of change. Trans-

formation of the industry will happen, just not in the time frame that current in-

vestments would suggest. Our conclusion: Earnings in the auto industry will de-

pend on automakers each finding a differentiated role. Companies that specialize

in facets of the CASE arena for which they have capabilities and experience, and

that build their strategic plans around a reasoned view of CASE developments,

have a bright future. But they have to be prepared to approach this strategy with

discipline. And OEMs that resist fundamentally rethinking their business and

their position in the industry, even if they move proactively into CASE-related

investment, may not survive.

Precepts for the industry

Not all automakers and suppliers will succeed in navigating the coming transfor-

mation. Disruption always claims victims. There is likely to be further consolida-

tion before the direction of the auto industry becomes clear. Some nameplates

will be swallowed up. Today, there are more than 20 global automakers; by 2025,

there may be only half that number. Automakers may be confronting a stark re-

ality: an array of largely unappetizing outcomes. Only the best strategies, nearly

unique to each company, will suffice.

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