Car makers will need to act more like technology, software and consumer electronics companies with more highly customized products, quicker introduction of new, "sexy" models, and nearly flawless quality to address competition from new entrants in the business, according to a new KPMG study (www.kpmg.com).

These new entrants, from technology giants to startups, operate at faster clockspeeds and are accelerating the pace of innovation in the auto industry.  Automakers must now reconcile the industry's rigorous standards of Six Sigma Quality and a traditional 5-7 year powertrain and vehicle platform clockspeed with a new "sexy, dynamic experience" that includes things like the upgrading of sensors, actuators, and displays in 18 to 36 months and quarterly over-the-air upgrades of software. Thus, KPMG says the auto industry faces the clockspeed dilemma: the need to serve multiple paces at once.

"Consumers expect as a given that cars get increasingly better fuel economy, better looking and safer on the road," said Gary Silberg, National Automotive Leader for KPMG. "But the entrance of tech disruptors has created new expectations about the customer experience. Just look at how the iPhone changed the consumer experience and how we interact with our mobile devices. Auto companies must solve the clockspeed dilemma today or risk becoming obsolete very quickly."

For the first time, the auto industry faces competitors who are used to responding to far greater numbers of consumers and operating with hundreds of millions of units rather than the millions with which automakers work. That larger economy of scale gives them the potential for quick and impressive payback, and it enables them to achieve a faster pace of innovation. Now they are advancing on the auto market with its one billion cars on the road. 

Automakers are familiar consumer expectations that focus on building a reliable, fault-tolerant car, and their innovation is intended for scaled metal bending and assembly, geared toward what KPMG calls the "Robust Industrial Machine." The Robust Industrial Machine requires a 5–7 year clockspeed for powertrains, vehicle platforms, and other essential mechanical elements to provide a reasonable return on investment.

However, new consumer expectations have emerged, where technology innovation and payback periods are faster like those found with consumer electronics, software, and communications. The speedier paces of innovation come out of consumer demand for what KPMG calls the "sexy, dynamic experience.”

The characteristics of the Sexy Dynamic Experience are already familiar ones in the market:

° Products repeatedly evolve and improve after purchase.

° Products are flexible, able to create environments or experience that is configurable with a consumer's tastes or usage situation.

° New enhancements are reverse compatible. They not only improve performance but work with earlier platforms.

Silberg points out that "the power of the Sexy Dynamic Experience to drive innovation and to change markets should not be underestimated: sexy can kill robust, especially as consumers begin to see sexy as more important than robust.”

Most traditional automotive players acknowledge the multiple challenges but have not fully come to terms with their effect on the ability to innovate. There is a means of addressing these challenges and achieving faster-paced innovation.  Silberg adds, "first, however, a simple truth: There's no single answer to innovating successfully, no one-size-fits-all solution."