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Boris Liedtke

Management

Automakers, Don’t Listen to Henry Ford

To succeed in diverse markets, car manufacturers should invest in alternatives

Published: Monday, June 17, 2019 - 12:02

‘Any customer can have a car painted any color that he wants,” said Henry Ford in 1909, “so long as it’s black.” Ford’s strategy of standardization and efficiency made a runaway success of the Model T car and built Ford Motor Co. into one of the world’s biggest automakers. But 110 years on, standardization does not make for a successful strategy in the face of emerging transportation technologies.

For one thing, it is unclear where technological progress is headed. Whether it is self-driving or electric cars, fuel-cell-powered vehicles or something else entirely that replaces the polluting combustion engine, no one knows for sure. It’s likewise hard to predict the speed of advancement, such as faster battery charging and longer range of electric cars.

Political considerations, customer behaviors, cultures, and market characteristics further muddle the picture. In the political realm, regulations under different systems are triggering change at vastly different speeds. Centralized city states like Singapore are pushing ahead forcefully with electric car mobility and driverless technology. In China, more than 300 million electric bicycles and scooters roam city streets. Annual sales of e-vehicles there surpassed 36 million units in recent years, compared to barely 2 million in Western Europe and fewer than 300,000 in the United States in 2016.

Meanwhile in Western Europe, a political discussion favoring investment in public transportation and banning of certain combustion engines in inner cities simmers. The picture couldn’t be more different in the United States: Washington appears to have thrown out all environmental considerations for a highly disruptive and protective stance toward the American automobile industry.

Dual-lane strategy

Global automakers and their suppliers therefore need to face up to a much greater level of uncertainty. For startups or regional players, the business model can be adapted relatively easily to prevailing political, technological, and consumption trends. For global automobile behemoths accustomed to globalization and free trade, and having gone through years of consolidation to control costs and increase margins, adjusting to upheaval is an almost insurmountable challenge.

Automakers are consequently mired in dilemma. On the one hand, they wish to maintain the status quo; at risk are tens of billions of dollars’ worth of patents and production know-how as well as supply chains. On the other, inaction would endanger shareholder value and the company. Yet investing in the wrong technology would only accelerate the financial decline.

There appears to be only two sensible strategic paths forward to avoid ending up as scrap: Either break up the company into regional firms and possibly along technological lines, or reallocate resources to a broad, diversified range of technologies catering to different markets and future contingencies.

Some major automakers are already turning toward the latter, diversified road. Ford, long removed from Henry Ford’s counsel, has plunged deep into developing diverse technologies. It promises to invest $11 billion in electric vehicle production by 2022 even as it positions itself as a big operating system for the future of mobility with the help of startups. The company has also set up a tech incubator.

“The key here is to get the ideas processed really quickly and fail on some and win on others,” says Ford Mobility CFO Neil Schloss.  

Like Ford, Toyota Motor Corp. is putting its bet on a few nascent technologies as it works to kick-start more. The Japanese giant is investing hundreds of millions of dollars in autonomous-driving and robotic technologies, including a $500 million infusion in Uber to develop self-driving minivans. Closer to home, Toyota—long known for its hybrid vehicles—is partnering with Panasonic to produce electric cars that will rev up its presence in China. Toyota’s pivot from hybrid to electric vehicles that are in line with Chinese governmental policies underscores the importance of a diversified technology strategy for automakers.  

Choice through diversification

On the demand side of the equation, customers might well be satisfied only if they have a range of transport options to match their lifestyle. For short city commutes, they might opt for e-bikes and e-scooters, before switching to public transportation or shared smart cars. For the weekend drive with family in the countryside, they might choose a hybrid vehicle or a fuel cell-powered electric car.

In the meantime, their online purchases would sail across the ocean in wind-powered cargo ships. At ports, parcels would be loaded onto large diesel-powered trucks to be conveyed to warehouses. Smaller, electric trucks would then deliver the goods across the city with zero carbon emission.

Diversification makes sense in a world that is anything but homogeneous. Whether it’s from the perspective of manufacturers or consumers, developing and adapting to diversified transportation technologies presents a reliable road map to the highway of transportation of the future.

First published May 29, 2019, on INSEAD’s Knowledge blog.

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About The Author

Boris Liedtke’s picture

Boris Liedtke

Boris Liedtke is a distinguished executive fellow at INSEAD’s Emerging Markets Institute.