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    New Mobility: Why OEMs Benefit from Lifecycle Costing

    20/02/2019, Author: Rüdiger Stern

    Car manufacturers are undergoing a strategic shift, expanding their function beyond mere vehicle manufacturers toward a new role as mobility providers. The classic business segment is being disrupted by new mobility solutions. At the same time, pressure from global crises is increasing. The journalist Franz Hubik recently commented in the German business newspaper Handelsblatt that the "successful car sales model" is endangered by the changes in world trade (US customs duties, Brexit) and the declining demand for new vehicles, especially in the important Chinese market. Companies in the automotive industry will not be able to avoid changing and adjusting their costing through flexible systems.

    The manufacturers recognized the need to change their business model years ago: In the future they will no longer be mere vehicle manufacturers. Instead, they will be mobility solution providers. Market analyst Roland Berger predicts a sea change in the automotive sector ecosystem. Over the next ten years, carsharing and ridesharing models will make up an increasing share of the overall mobility market. By 2030, only 45 percent of miles will be driven by people in private cars.  Traditional OEMs and their suppliers run the risk of being among the biggest losers in this scenario. Companies like Volkswagen and Ford are responding. As early as 2017, Volkswagen declared its intention to change from a car manufacturer to a global mobility provider. Ford has been working on new mobility solutions for some time now. With its spin-off Ford Smart Mobility, the automaker is currently investigating the performance of vehicle data and its potential as a predictive tool to meet future traffic challenges.

    Must read: Calculating mobility of the future

    BMW and Daimler have already started this transition with their DriveNow and car2go carsharing programs. However, they see competition in start-ups such as Uber, transportation companies like DB Rent and smaller initiatives such as Stadtmobil. They each offer their own advantages, whether as an asset-poor platform model in the case of Uber, the ability to link up with other modes of transportation in the case of DB Rent or the local approach of Stadtmobil.

    The decisive advantage OEMs have is of a more entrepreneurial nature: They are the only businesses that can incorporate, calculate and optimize every factor in their costing, from vehicle design to end-of-life. This flexibility can be decisive, because price fluctuations are more the rule than the exception, especially in the mobility market. For example, the cost of operating a vehicle rose by 36 percent between 2000 and 2018, according to the Federal Statistical Office of Germany.

    The ability to compute the cost of a vehicle across its entire lifecycle gives OEMs an advantage. They are the only market players with a bird’s-eye view of costs of production, provisioning, wear parts or tires, spare parts or scheduled maintenance. This makes design costing a powerful tool for optimized development processes; target costing can calculate better profit margins across the entire lifecycle. This gives OEMs a decisive edge compared to other mobility providers, who cannot begin costing until a vehicle is actually purchased.

    But this also requires a method of costing that provides a comprehensive overview of all the factors involved. Participants throughout the lifecycle must work with consistent data, costing must take place across multiple departments, and suppliers must be closely involved. In an era of global ERP chains and international production facilities, local conditions such as wage costs, taxes, exchange rate fluctuations and customs duties must be a transparent part of the computations. Many OEMs will need to equip themselves for this new age.

    Today OEMs usually cost parts and vehicles over the production period and on an annual basis. To enable analyses that cover the entire lifecycle and consider changes in maintenance costs, manufacturers must implement modern costing systems that seamlessly link to ERP and CRM systems. This is the only way for major OEMs to achieve their strategic objective and transform their companies from transport hardware manufacturers to mobility solutions providers.

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    Photo Rüdiger Stern

    Rüdiger Stern

    Vice President Professional Services FACTON | President FACTON Inc. (North America)