Ask a futurist which cars will rule the roads in 2050 and they might describe a world in which people ride in self-driving electric pods that connect to the digital cloud and are shared by dozens of passengers every day.
Inching toward that future will be a huge capital challenge for automakers, which will face pressure on their profit margins as technology demands grow and car sales slow in markets such as the U.S. and China, according to a report released today by the New York-based consultancy AlixPartners.
In its report, AlixPartners coined a new acronym -- CASE, short for “connected, autonomous, shared and electric” -- to refer to the bundle of technologies and business models that car companies may need to embrace to remain at the forefront of the industry. Few automakers are large enough to lead in all four, says AlixPartners, a mergers-and-acquisitions specialist known for its work on the 2009 restructuring of General Motors.
These investments are “significant and incremental,” the report says.
AlixPartners’ analysis could give more ammunition to merger enthusiasts such as Fiat Chrysler Automobiles CEO Sergio Marchionne, who has cited the industry’s impending capital needs in his calls for aggressive consolidation among automakers and has openly courted General Motors as a merger partner.
But according to AlixPartners, there are other options short of mergers, such as developing one or two technologies in-house, and partnering with other automakers or technology firms for the others.
Already, there are nine arrangements in the industry today in which a car company owns equity in another, as well as 16 joint ventures, 17 assembly alliances and 15 technical alliances, the report says. These technology partnerships are already becoming more common, it adds, referring to Toyota’s new technical “marriage” with Mazda and Volkswagen’s 2012 purchase of Porsche as two recent examples.
So far, small automakers have been able to compete on their own. Suzuki and Volkswagen both spent 10 percent of their annual revenue on r&d and capital expenditures from 2010 to 2014, even though VW’s revenues were 10 times greater. Hyundai and Honda had similar revenues over that span, even though the share of spending Honda devoted to r&d and capital was more than triple that of Hyundai.