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Ahead of the Curve Auto Supplier Blog

May 18, 2016

Disintermediation: A gateway to the OEMs?

You only have to have one eye open to see that the auto industry is changing faster than at any time in recent history. Consider the onslaught of disruptive technologies and services coming on line: electric vehicles, connected cars, self-driving autonomous cars, “on-demand” vehicles like Uber and Lyft and car-sharing services like Zip car. 

Added to all these new technologies and changes in vehicle performance is the question of how automotive vehicles sales will be impacted in the future. Will self-driving vehicles and on-demand rides cut into or add to sales? How about the new millennials who say they don’t want to own a car, that they’ll repopulate the cities and walk or ride a bike instead or use the car share? What will their impact be on industry volumes a decade from now? That’s a question for the sales guys to sort through.

OEMs and suppliers, meanwhile, should be thinking about an issue raised by FCA CEO Sergio Marchionne, regarding how cars will be manufactured in the future. Speaking specifically about FCA’s recently announced technology deal with Google, Marchionne noted that while the auto business has been highly vertical for its entire history with car makers manufacturing everything from the seats to the engines, “this next phase will disintermediate a lot of those processes . . .  and help shape the next phase of the automobile industry.”

Disintermediate? The dictionary defines “disintermediate” as “the elimination of an intermediary in a transaction between two parties.” In this particular case, it sounds like Mr. Marchionne is using the term in a different way, i.e., to signal that OEMs understand that in order to get the best technology for their vehicles, they’ll have to  partner with technology companies and “disintermediate” themselves from the idea that they can do it all on their own.

Marchionne is just one man speaking (albeit an industry leader) but his comment represents a sea change in thinking for car companies that believed they can and should do everything themselves. If he’s right it should open new doors for suppliers. Automakers will focus solely on the things they do best while partnering with others to provide expertise and know-how in new technologies and features that will, in the end, produce even better vehicles for the customer.

Marchionne’s comment also harkens back to his recent statement that OEMs “usually come into the dialogue with a high degree of arrogance as we know how to make cars.” Maybe he’s signaling to tech companies and others that his company is more willing to be a partner, not a controller, making FCA a more attractive partner who may be interested in a truer partnership or seek contract manufacturing.

Regardless of Marchionne’s reasoning, smart suppliers who may have been shut out in the past or who have new technologies, products, processes or systems that could benefit auto manufacturers might want to knock on OEM doors again. Disintermediation may crack those doors open a bit and allow new companies into the automotive arena. 

Warner Norcross & Judd’s Southfield-based Automotive Industry Group works exclusively with and represents over 200 automotive suppliers. We understand their needs and we help them to understand and navigate the choppy waters of automotive relationships, whether it’s joint development agreements, cross-licensing, supply agreements or other contracting issues.

Disintermediation may make those waters even choppier which could prove to be a once-in-a-generation opportunity for the supply community.  

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