Uncertainty is the new normality – and business needs to deal with it Essay

Geopolitical uncertainties, growth imbalances and economic power shifts: these developments represent the “new normality” in which we operate today. One-time certainties are being consigned to the past; uncertainty is becoming our constant companion. We are experiencing a volatility in economic affairs such as we have not witnessed for many years. Who would have thought, for example, that the price of oil could fall so dramatically in the wake of the fracking boom and a global slowdown in demand?

“One-time certainties are being consigned to the past; uncertainty is becoming our constant companion.”

At the same time globalization has entered a new evolutionary phase; the days when this process was one-way traffic are long gone. Asia, in particular, is amassing capital on a gigantic scale. New competitors – global competitors to be seriously reckoned with – are appearing in many sectors, including ours. The power relationships in the global economy are shifting, so it is important that trade barriers between the industrial nations continue to be dismantled – even if the popularity of the concept of free trade has sadly diminished in recent times. The current negotiations on the Transatlantic Trade and Investment Partnership provide a clear illustration of how important a free trade agreement is when it comes to establishing common standards and regulations to facilitate trade.

When talking about the “new normality” we cannot overlook the radical social changes taking place around us, changes with impacts on our business that we are only beginning to glimpse. The so-called “shareconomy” has already changed many aspects of modern life – from finding somewhere to stay in foreign cities all the way to taxi rides. We share our data with co-workers in the cloud – and the automobile as a shared asset has also become a central component of various business models.

The disruptive impact of digitization is transforming operational paradigms across many sectors: Who decides what the markets of the future will look like? Will our future competitors be the same as those we face today? With digitization our industry is facing a further shift toward automation – yet above all we will be seeing the emergence of new business models, relating not just to infotainment but also to areas such as mobility services and after-sales. At the same time a more general increase in environmental awareness combined with more stringent environmental legislation is also generating new business models and new competitors.

The continuing development of low-emission drive systems is the second major technological revolution directly impacting our industry. Electric mobility is a key pillar when it comes to reaching the EU’s CO2-targets for 2020. And yet we still cannot tell which technology will come to the fore. So the current challenge is to configure a phased transition to the new energy-efficient technologies. Given the uncertainties mentioned above, however, this also means higher levels of risk and major expenditure for both R&D and production.

Above all, the challenge now is to re-align the way we think and operate in order to confront effectively and successfully the technological and economic change to which our business is exposed. This requires solid finances, creativity, flexibility and speed of response, robust business models outside our established markets, a further diversification and regionalization of our product portfolio, and a sustained drive to localize production and procurement. Because in the volume segment we can only remain competitive if we significantly increase local value creation. Given an annual procurement volume of €145.5 billion and the fact that a large proportion of our sales revenue is generated in foreign currencies, ensuring the highest possible level of localization is an important factor in hedging against currency fluctuations.

We will also need to make considerable investments in our products in order to deliver shorter product cycles and meet regulatory requirements. To generate the funds we need to fuel this journey into our automotive future, we need to generate an ongoing increase in our efficiency. With our modular matrixes we are ideally equipped to achieve this: they provide the perfect basis for delivering economic efficiency in production and a rapid response to changes in our operating environment – be they shifts in customer preferences or new CO2 legislation – across the whole of our portfolio.

“The disruptive impact of digitization is transforming operational paradigms across many sectors.”

As yet we don’t know exactly what the automobile of the future will look like. But as a robust company that is well positioned in terms of both finance and strategy, we will come up with innovative answers. With respect to the key issues for the future, however, we are to some extent dependent on regulatory, fiscal and social factors – and thus also reliant on politicians setting wise parameters, as well as creating and preserving room for entrepreneurial initiative. Since the economic and financial crisis, however, the regulatory environment has become increasingly dense. Conversely, trust in companies, indeed in the entire market economy system, is diminishing. Politics and business must therefore work together to seek a healthy balance between necessary regulation and entrepreneurial freedom, in order to maintain an attractive economic system founded on personal responsibility and individual initiative.

“Who decides what the markets of the future will look like? Will our future competitors be the same as those we face today?”

Hans Dieter Pötsch, Member of the Group Board of Management
responsible for Finance and Controlling