The Second Automotive Reckoning: When Champion Brands Become Challengers Again

In the 1970's and 1980's the American automotive market went through seismic change. As well documented by David Halberstam in The Reckoning, the Japanese imports disrupted the insular, almost cartel-like power of American car brands in the U.S. They did so by capitalizing on the failure of a complacent industry to react to the convergence of 4 forces--inflation, an oil crisis, global political unrest, and the coming of age of Baby Boomers. In the process, they changed the value equation from styling and performance to MPG and Quality.

Today, not unlike then, there is a confluence of events that have the potential to fundamentally disrupt the current automotive status quo. Inflation, war in Russia, US political turmoil and a host of new automotive competitors are all setting the stage for rapid change. But unlike the '70's and '80's, it's not just about better MPG or quality, it's about new technology, new powertrains, new business models and new customer behaviors. if the previous reckoning was a 5 on the Richter scale, this one could be a 10!

Of course, when thinking about electrification, autonomous and connected vehicles, and new business models, one immediately thinks of Tesla. And while they do have an early advantage in defining the new landscape, early leaders don't always survive. Palm, Tivo, Betamax,  and Atari are part of a long list of innovators that eventually flamed out when their categories went mainstream. 

And the chink in Tesla's armor is beginning to show. Service problems and Musk's erratic behavior are wearing thin. Other start ups like Canoo, Byton, and Faraday Future are all struggling to survive. And even Nissan, a pioneer in electrification has just announced that they will discontinue the first successful mass market vehicle, the LEAF.

The fact is, we are still very early in the adoption curve. Even in the face of astronomical gas prices, year to date, EV's only account for 4.5% of total US vehicle sales. Thus, the playing field is still wide open. 

Everyone brand is a challenger brand

As the category experiences seismic change, both new and long established automotive brands will all become challenger brands. As such, they will need to challenge the ingredients of past success to determine what to keep, and what to leave behind as they redefine the value equation.

Writing the History of the Future 

What will it take to be successful in the electrified, autonomous, connected future? To avoid being the next sad case study, it's going to take new thinking, and new brand behaviors. And those that challenge the status quo will be setting the standards for the Post-Reckoning marketplace.

Eliminate Barriers to Accelerate Adoption

According to McKinsey, 20 times more charging stations will be necessary by 2030. Most automotive manufacturers have begun investing in charging infrastructure, but so much more will be necessary. In addition to charging stations, Hyundai is going beyond the car itself with Hyundai Home, allowing buyers to purchase a complete personal EV ecosystem inclusive of charging station, solar panels and battery storage. 

While these efforts are important, there is so much more potential to make EV's accessible, and accelerate mass adoption of EV's

• Approximately 40 million people in the US live in multiple unit dwelling,s limiting their access to home charging. What about working with property management companies and builders to electrify parking?
• As with any new technology, people are afraid to take the leap. What about offering extended test drives, or even EV weekend get away packages featuring EV friendly road trips, complete with planned rest stops and accommodations at partner hotels with vehicle charging stations?

Repurpose Existing Assets

Full adoption of EV's and connected services will mean less required maintenance and over the air fixes and upgrades that will limit the need for trips to dealerships. And, as fully autonomous vehicles accelerate ride sharing, fleets will need to be managed and maintained. 

• There are 16,000 franchised dealerships in the US. what if those dealerships were repurposed into charging rest stops with special perks available for owners?
• Those same 16,000 stations could also become storage and maintenance hubs for autonomous, ride share vehicles.
• How can brands repurpose connected services like GM's OnStar or Hyundai's Blue Link to become the go to place for for all transportation needs--from ride sharing to trip planning, to loyalty programs and more?
  

Accelerating Change Through Partnerships

Category convergence often results in partnerships to either fast track innovation or to marry complementary offerings. We are already seeing some big automotive-tech partnerships:

• Honda and Sony are partnering to enable a heretofore electric laggard to fast track battery and technology development
• General Motors ride hailing partnership with Cruise in San Francisco is helping them to fast track autonomous, connected services
• Hyundai is fast tracking digital retailing by pioneering a partnership with Amazon that allows customers to browse their local dealer's inventory on Amazon's platform

But there is so much more potential to think big with partnerships and change the value equation.

• How about a charging station/QSR brand partnership, where one can scarf down a free burger and fries while fast charging their vehicle?
• What about a joint venture with a BP, or Shell to repurpose gas stations as charging stations?
• Taking it even further, how about a Google partnership that syncs your calendar with Google Maps to ensure that your car seamlessly gets you everywhere you need to be when you need to be there?
• Or even, forging a partnership with Meta to repurpose vehicles that sit idle for 20+ hours per day to take fantastic, life-sized journeys into the Metaverse?

Tapping into their DNA

Finally, each brand must chart an authentic future that taps into the heart and soul of the brand. Stretching their unique strengths in new ways will help them stand out in the new landscape. Clearly Chevy and Ford are ‘finding new roads’ by bypassing small electrified vehicles and leaning into their truck heritage instead. And Hyundai, is already offering what might be dubbed as ‘America’s Best Battery Warranty’.
 
But will all brands DNA be so easily transferrable? BMW’s electrified vehicles have been advertised using ‘The Ultimate Electric Driving Machine’ as their EV tagline. But what does that really mean for an autonomous future? And Toyota, the leader of the first Reckoning could become the laggard of the second Reckoning if they don’t rethink the definition of quality beyond the sheet metal. 
 
The next few years will set the stage for the next few decades. The brands who behave as true challengers are likely to be the brands who win.

The New Automotive QDR--From Hardware to Software to Experiences

 The Origins of QDR

Anyone who has ever worked in Automotive knows those three simple letters--Q, D and R. Different manufacturers may refer to them in different sequence, DQR, QRD, QDR, etc, but they all stand for the same assumed three gold standards of automotive brand excellence--Quality (fit and finish), Dependability and Reliability (that the car won't break down, that it will start when you need it, etc.)

The power of these magic letters dates back to the 1970's and 80's when cars were, well, not so good. Breaking down on the side of the road was commonplace. So were new cars with sheetmetal gaps big enough to poke several fingers through. Cars were made with planned and unplanned obsolescence. When it wasn't a matter of choice but a matter of need to replace your car every 3-5 years because it was ready for the great junkyard in the sky. As a matter of fact, odometers did not have the capability to record anything over 99,999 miles because cars seldom reached that milestone.

Then the Japanese came and established new quality norms. Robotic assembly and more sophisticated engineering pushed the overall industry standards higher and higher, and the quality gap between brands became smaller and smaller. Today, no one wonders if their car will start when they turn the key. Today, the average car lasts 200,000 miles plus--and odometers can accommodate those miles.

Yet, to this day, QDR is still touted by many industry insiders and experts as the ultimate test of brand value.

The Changing of The Guard?

But there are some indications that the consumer definition of quality might be evolving away from indiscernible differences in sheetmetal and mechanical excellence in ways that are more aligned with the evolution of cars themselves.

• In 2021, Tesla leapfrogged Lexus and Mercedes and closely challenged BMW for the US luxury sales crown. 
• Tesla also had an astounding 184% increase in Interbrand's brand value calculation. An increase that catapulted Tesla's ranking on Interbrand's 100 most valuable brand rankings from unrated in 2019 to 40th place in 2020 to 14th place in 2021! 
• Tesla ranked first in two Consumer Reports consumer surveys -- 'Most Liked Car Brands' and  Model 3 ranked first in their 'Most Satisfying Car' survey. 

All of this despite the fact that Tesla ranks 3 from the bottom in both JD Power's Initial Quality and Vehicle Dependability Surveys. Contrary to its consumer surveys, Consumer Reports itself rates the brand second to last on on reliability. 

How can this be? Could this indicate that there is a real tipping point in category values? Is there a new consumer definition of Automotive Quality? One that is more consistent with the evolution of cars from transportation machines to electronic devices on wheels?

If one Googles 'reasons to purchase a Tesla', some key themes consistently appear across various sources. These are 'charging network/superchargers, safety, autopilot confidence, technological features (eg mobile service, smartphone as key, infotainment, etc), and low operating costs'. The environment seems secondary, or perhaps cost of entry. No one mentions quality, dependability or reliability, like they do for Lexus or Mercedes.

Towards a New Value Equation

Tesla's purchase reasons seem more aligned with key technology quality factors. They're much more about HOW things work than IF they work. No one expects their mobile phone not to start, but they do expect it to offer a seamless experience. They do expect flawless connectivity. They do expect over the air upgrades. And more and more, they expect it to help them navigate through life.

What Does it All Mean? Claiming Leadership For Tomorrow

So what does this mean for legacy car brands? What should they do to ensure that their quality perceptions move one step ahead of the evolution of the category? How can they build a bridge to the electrified, autonomous, service provider future that lies ahead? 

• First, they should stop thinking about product as sheet metal and bells and whistles and start to think more holistically about product as integrated customer experiences.  They should build ecosystems to remove silos between product and services, and between physical and digital environments. They should  develop new services and new infrastructures that enhance user experiences.

• Second, they should lead in shifting their brand narratives to better reflect the changing category values--not by promising the distant future today, but by laying the breadcrumbs to tomorrow. The narrative should highlight active safety to raise comfort levels necessary for impending autonomy. It should demonstrate how in car technology connects them to the rest of their lives. And it should highlight ownership services that go beyond the sheetmetal.

• Finally, they should measure success with a new set of quality KPI's that move away from static quality to better reflect dynamic customer expectations. KPI's should place value on seamlessness across touchpoints, reliability of software, and overall ease of use.

This represents the biggest opportunity in a long time for brands that have traditionally been Tier 2 brands to leapfrog the perennial Tier 1 winners. What starts in luxury trickles down to mainstream. Brands that  embrace this change will deposition the leaders to be the leaders of the future.

Because in the future QDR will stand for Quality of experiences; Reliability for looking out for their users; Dependability because they help customers to navigate seamlessly through all facets of ownership and usage.