14 September 2015 12:04:13 IST

The road ahead for automobiles

Rather than own vehicles, many people prefer the ease of instant access to transport options.

With radio-cabs and other transportation solutions becoming popular, fewer people want to own a car

Nearly 50 years ago, a marketing professor faulted the modern manager for possessing a ‘myopic’ view of the market ("Marketing Myopia", Theodore Levitt, Harvard Business Review , 1960). He gave, by way of example, the case of managers of the New York Central Railway, who saw their business as running a railway system when, in fact, they would have been better served by seeing it as a personal transportation solution for their customers.

Such a far-sighted view of their business, he argued, would have enabled them to come up with strategic plans for their company’s future. They would, for instance, have seen quite early the changes in the business environment affecting the American railway market, as the automobile industry took customers away from the railway network.

It is a moot point whether these managers would have had the bandwidth to transform their business by providing logistics solutions to businessmen or catering to the leisure / holiday travel needs of their customers. Evidently, they spent much of their time fine-tuning the railway time-table, preferring this to the duller aspects of running a railway network, such as investments in rolling stock, signalling and communication technologies, and so on.

Long-term viability

The jury will always be out on that. But of this one can be certain — whether or not managers are able to take a distant view of their business or, for that matter, capable of refashioning it to stay contemporary and relevant in the market-place, every business or industry will face an existential crisis at some point of time or the other. How managers handle this predicament determines their long-term viability.

The automobile industry is faced with such a situation now, going by the words of Anand Mahindra, Chairman of the Mahindra Group. He spoke, the other day, of car companies being threatened by the entry of Uber and Ola and such other car-hire companies. “A lot of youngsters, who can own vehicles today, don’t want to own one, but only need access to transportation,” one newspaper quoted him as saying.

He has a point, although it might well be that not just youngsters, but even older people are looking at access to transportation, rather than being saddled with the burden of owning a car. Also, it is not so much the access to transportation per se but instant access and, that too, at a time and place of their choosing.

Mobility gamechanger

This is where conventional state-licensed taxis came up short. They were never available when customers sought their services and they, on their part, didn’t want to be prowling the city streets in the hope of securing customers as running costs had become prohibitively expensive, with rising fuel prices and State taxes.

Radio communication using mobile phones has enabled the likes of Uber and the Ola to place a car at the disposal of customers at a few minutes’ notice and at a place of their choice. This feature has become a game-changer. Technology has removed, in one fell swoop, all the drawbacks of the conventional metered taxis with their distinctive colour schemes. It is easy to see how their entry has shrunk the size of the potential market for cars, not just in India but across the world.

The average car owner — even by the standards of the American market, where many people live in the suburbs at considerable distances from their work-places and need to shop at supermarkets located in some other part of the town — scarcely puts his vehicle to more than three to four hours of use in a day. There is considerable under-utilisation of capacity for personal mobility, leading to larger volumes of car production.

How real is the threat?

This was unavoidable, as the compulsions of personal mobility overcame every other rational alternative arrangement. But aggregate the demand for personal mobility over a 24-hour period across the universe of car-owners, and the demand for cars shrinks anywhere between three-fourths to seven-eighths, depending on the average use on any given day.

As taxi-hire companies lure more and more people to use their services for personal mobility, there will come a time when car companies find the ground slipping from under their feet. The former, riding metaphorically, as it were, on a technology platform, have brought about a fundamental change in how people address their need to move from one place to another. How real is this threat and what are the implications, in management theory at least?

On the positive side, it can be said that today, managers, or at least those in the automobile industry, have moved up the knowledge chain, as Prof Theodore Levitt would have liked them to do. They can no longer be accused of seeing their business as one of producing and selling cars. Quite correctly, they regard themselves as involved in the personal mobility business. From this perspective, they are able to analyse the implication of the advent of players who possess the technology platform for aggregating the public demand for mobility, as Anand Mahindra has indicated.

Lifestyle statement

Reinforcing this technology-induced threat to the overall size of the automobile market is the gradual but unmistakable trend of cars no longer serving the purpose of enabling owners to use the ownership of cars as a means of making a lifestyle statement. Earlier, at least in the Indian context, cars helped their owners tell the world that they have ‘arrived’ in life.

There is a story, maybe apocryphal, that has the Chairman of the company making Rolex watches responding to a question from a journalist about the watch business with the answer, “I don’t know. I am not in the watch business. I am in the luxury business.” Or something to that effect.

There are only a few car-makers who can claim they are in the luxury business (like the Rolex watch, which is really not just a chronometer, in the strict sense of the term) and they happen to express it through automobiles. But otherwise, they are not into the personal mobility space at all.

If you are driving a Maserati or a Bentley or a Rolls Royce, perhaps you can use it to make a lifestyle statement. But a Nano or Maruti Alto? Not really. And why would you, when you can just as well make that statement by carrying an Apple iPhone 6 or a Luis Vuitton bag?

To read more from the Beyond the News section, click here .