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Risk in Context

Managing Risk in an Evolving Automotive Industry

Posted by Darren Howlett August 02, 2017

The automotive industry is entering a new era, driven by the increasing move toward electric and hybrid-powered vehicles and the development of autonomous technology. The shift towards a model that is mechanically driven to one that is technology driven means that technology giants such as Google, Apple, Microsoft, and Tesla are expected to play a greater role in the future. 

Established operators will now need to rethink their existing models and the way that profits are distributed in the automotive value chain. The industry will need to adapt business models to new trends and find new ways to cooperate and collaborate with these technology players in order to thrive. 

Cooperation and collaboration with players from outside the industry will become one of the challenges for future success. For example, original equipment manufacturers (OEMs) will potentially generate more revenue from products and services that support the vehicle throughout its lifecycle, such as data and connectivity services. OEMs will need to adapt current processes across functions to incorporate new connectivity components — for example, over-the-air software updates for cars already in use and assessing how to provide vehicle access to third-party providers, such as apps or map data. 

This new environment will give rise to new risks, such as cyber and business interruption, and will likely lead to new regulatory exposures as governance is put into place around new technology. 

Preparing for Uncertainty

Automotive managers are well versed in operating in a complex environment. But as the industry is set to look much different in 10 to 15 years, incumbent players and new entrants will need to assess how these new challenges alter their risk profiles. We suggest you consider the following actions to be prepared for this new way of working: 

  • Align your risk management with corporate strategy and develop scenario planning to better understand the impact new risks have on your organization and your business objectives.
  • Be vigilant of new risks to identify trends that will require specific attention — for example, as your business interruption risk moves from the tangible to the virtual.
  • Build a portfolio view of your insurance coverage to ensure there are no gaps as professional indemnity, cyber, and product recall risks converge.
  • Understand cybersecurity, including implications of data collection, sharing, and storage, particularly when forming new partnerships and joint ventures.
  • Develop an active multi-tier supplier risk management strategy as new alliances are formed with non-traditional suppliers, particularly in the technology space.
  • Implement a culture that is risk-agile and make sure employees are prepared with the necessary skills to ensure that compliance efforts keep pace with innovation and growth.

Rethinking business models and being ready for new risks will better position you to face the rapidly changing environment to come. 

Related to:  Automotive , Transportation

Darren Howlett

Transportation and Engineering Practice Leader