The North American automotive industry’s road to resilience

The North American automotive industry is a major driver of the region’s economies. In the United States alone, the industry contributes 5 percent of GDP (equivalent to about $1.2 trillion), generates $151 billion in exports, and employs about ten million people, which is 5 percent of the entire US workforce.¹“Alliance for Automotive Innovation releases new economic data,” Alliance for Automotive Innovation, January 29, 2025. Every dollar invested in vehicle manufacturing creates more than four times the value for the wider economy.

Globally, the automotive industry is under pressure from growing competition from new entrants, rapid technological changes, and unprecedented economic and geopolitical volatility. To retain their global position and manage risk in the long term, North American OEMs can strengthen their partnerships with stakeholders across the value chain and reaffirm their positions in the broader automotive ecosystem.

This article describes the challenges automotive OEMs are contending with and the ways they can extend their reach while becoming more resilient and competitive. In a follow-on article, “Shaping the next ‘ARC’ of the North American automotive industry,” we outline a comprehensive action plan for OEMs to move toward a sustainable future.

The challenges facing the North American automotive industry

The North American automotive industry has long been a global leader, holding advantages in brand heritage, expertise, and sheer scale. Yet as new auto manufacturers emerge and foreign brands gain a stronger foothold globally and locally, North American brands are under more pressure to secure their stake in the game. And as consumer preferences continue to become more diverse, the need for optionality will only deepen this pressure.

Increasing competition and new entrants. Over the past two decades, incumbent North American automakers²Includes North American brands of automakers that have operated for many years (since before 2000) and are headquartered in North America (Canada, Mexico, or the United States). have seen their global market share decline sharply, dropping from about 28 percent in 2000 to about 12 percent in 2024, which equates to a decline of more than 0.5 percentage points per year in market share (Exhibit 1).

Image description: A line chart shows the global market share for the largest (by revenue) automakers. It shows that incumbent North American OEMs have lost significant market share to Chinese OEMs and new entrants since 2000. European-headquartered incumbents’ share was 23% in 2024, down from 29% in 2000. North American–headquartered incumbents’ share was 12% in 2024, down from 28% in 2000. Chinese-headquartered incumbents’ share increased to 12% in 2024 from 1% in 2020. Chinese disruptors’ share increased to 6% in 2024 from 0.1% in 2006. Last, North American disruptors’ share increased to 2% in 2024 from 0.1% in 2015. Source: S&P Global Mobility data on light-vehicle sales, Nov 2025 End image description.

Within the United States, established incumbents have lost market share to foreign OEMs (namely, Japanese and South Korean OEMs) with strong brand reputations for quality and reliability, as well as a perceived superior value. As tech-native disruptors (including Tesla and Rivian) reached meaningful scale, they also exerted growing pressure on incumbents. Although US trade protections help insulate domestic companies to some extent, North American OEMs continue to lose share overseas, particularly to Chinese OEMs.

Divergent consumer preferences. Consumer demand in North America is largely heterogenous, driven by regional and demographic differences in purchasing priorities. According to the 2025 McKinsey Mobility Consumer Pulse Survey, both urban and rural car buyers rank price as their top criterion for purchase, but urban buyers’ average budgets are 1.5 times those of rural buyers, and they place a greater emphasis on technology and sustainability. At the same time, across the United States, younger consumers are nearly three times more likely to consider new US electric vehicle (EV) brands, underscoring that age is a critical determiner of preference and further emphasizing differences in consumer preferences across profiles.³The 2025 McKinsey Mobility Consumer Pulse Survey, which was conducted online, ran February to March 2025 and covered China, France, Germany, India, Italy, Saudi Arabia, the United Arab Emirates, the United Kingdom, and the United States with a total of 25,904 respondents. The sample includes about 3,000 car owners per market, of which 1,000 were EV owners. When averages are shown, the data is weighted to represent car parc market shares. The sample composition of EV owners and ICE owners is representative of brand market shares in each country and representative of demographics. The McKinsey Center for Future Mobility has conducted this survey since 2016.

Uncertain pace of the powertrain transition. While regulation has accelerated electrification in Europe, EV skepticism in North America has led auto manufacturers to maintain flexibility across internal combustion engine (ICE) vehicles, hybrid vehicles, and battery electric vehicles (BEVs). Moreover, the long-term outlook for EV adoption has shifted: Projections for BEV penetration in 2030 fell from 43 percent in in the first quarter of 2024 to 37 percent in the second half of 2024.⁴McKinsey analysis. This variability hinders OEMs’ ability to align vehicle production with evolving demand expectations.

In the face of these challenges, North American automotive companies must take steps to reenforce their partnerships, mitigate risk, and optimize their manufacturing capabilities.

Compete as an ecosystem to strengthen the North American value chain

To remain competitive, North American OEMs can move beyond stand-alone operations deeply focused on siloed automotive R&D and instead collaborate with each other, suppliers, software pioneers, and other industry leaders. Building an ecosystem like this will help disseminate operational, commercial, and technical know-how and strengthen the value chain.

Partner to drive innovation across four critical technologies

The technology industry’s open-source movement demonstrates how competitors can collaborate to accelerate innovation, reduce costs, and create shared value. Using open-source ecosystems such as Kubernetes, Linux, and TensorFlow, competitors including Google, IBM, and Microsoft codeveloped foundational software that now powers global AI, cloud, and computing infrastructure. This collaboration created an estimated $8.8 trillion in economic value and helped firms save more than three times the development costs they would incur if they were building software independently.⁵Manuel Hoffmann, Frank Nagle, and Yanuo Zhou, The value of open source software, Harvard Business School working paper, number 24-038, January 2024. By pooling resources together and developing common platforms, tech leaders accelerated the innovation cycle and freed up capital to focus on differentiation opportunities higher in the stack.

North American OEMs have the same opportunity. To lead globally, North American OEMs can compete through collaboration rather than avoiding it. In the race to lead in autonomous vehicles and advanced driver-assistance systems, software-defined vehicles, e-powertrains, and semiconductors—four critical technologies shaping the next era of mobility—shared software architectures and open data standards could eliminate redundant R&D, shorten time to market, and build resilience against global disruptors. By codeveloping foundational technologies, OEMs can focus on differentiation, layering proprietary IP, design, and user experience on top of shared platforms. This model is already emerging: One European incumbent OEM recently partnered with a US disruptor to create an open, software-defined vehicle platform compatible with any EV.

Form cross-industry alliances

As mobility becomes more digital, participating in a broader ecosystem where technology, data, and consumer experience are codeveloped with cross-sector leaders is becoming critical. Beyond partnering within the auto sector to maximize returns on R&D, leading international disruptors also form targeted partnerships and make strategic investments across industries to differentiate their products, consumer experience, and operating models.

For example, in the past decade, the top five automakers in China, which hold a similar share of regional volume as incumbent North American OEMs, have announced more than 300 external investments—1.5 times more than the volume of their North American peers. These investments include more than $350 million in joint investments, compared with $33 million in joint investments from North American OEMs. Notably, compared with North American OEMs, Chinese OEMs allocate a four-times share of capital to nonautomotive sectors to achieve operational and commercial synergies (Exhibit 2).⁶S&P Capital IQ; McKinsey analysis.

For example, one Chinese OEM colaunched retail stores with an appliance brand to drive cross-selling, while another expanded consumer credit access and enhanced aftermarket bundles through consumer finance investments. One backed an AI-powered mobility reward platform to boost engagement by embedding itself into a cross-industry loyalty ecosystem.⁷Analysis conducted using S&P Capital IQ.

Although these examples are broad, Chinese OEMs’ cross-sector investments are strategic, reflecting each company’s core priorities and its long-term operational strategies (see sidebar, “Investments that reimagine the role of automotive OEMs”).

North American OEMs are beginning to explore similar partnerships: In October 2025, an incumbent OEM announced the integration of Google’s Gemini AI assistant into its vehicles by 2026. However, collaboration remains limited. Over the past ten years, only 3 percent of patents from major North American technology players have been mobility-related,⁸Analysis conducted using Patsnap. highlighting an opportunity for automotive and automotive-adjacent industries to drive joint technology development and pull more nonautomotive innovation into the mobility space. To regain competitiveness, North American OEMs can shift from pilot partnerships to consistent cross-sector collaboration and innovation.

Manage volatility

The automotive industry has experienced volatility as disruptions from geopolitical tensions, socioeconomic shocks, and environmental and health crises have affected its operations and overall performance. To build resilience, companies can better anticipate and mitigate risks while designing operations with flexibility and optionality in mind.

Invest in digital supply chain intelligence

The potential economic and operational upsides of investments in digital supply chain intelligence are significant. Digital supply chain intelligence enables organizations to better align supply with demand by using predictive analytics to link consumer needs with real-time manufacturing. They also enable companies to anticipate and manage uncertainty by understanding the origin and nature of disruptions—including, for example, the global chip shortage in 2021, which reduced light-vehicle production by more than 9.5 million units and decreased earnings by as much as $2.5 billion for a single OEM.

The process of implementing digital supply chains typically includes three stages:

• ingesting supply, demand, and market data into a predictive model that is continuously refined through feedback from past decisions and outcomes
• conducting “what if” analyses to identify vulnerable suppliers and components and surface pertinent risks
• testing scenarios to support well-informed and timely decisions; resilience metrics (such as supply security, redundancy, or uptime) are tracked and fed back into the system to improve decision-making

Leading OEMs are already realizing the benefits. For instance, a European OEM deployed an early-warning system that ingested nine external and internal data sources to generate insights on financial risks (such as supplier bankruptcies leading to supply outages), reducing risk by 5 to 10 percent.⁹McKinsey analysis. In addition, by establishing a foundation for digital supplier collaboration, a global OEM improved profits by $500 million by increasing visibility into parts and rapidly replanning production scheduling.¹⁰McKinsey analysis. Last, a tier-one supplier leveraged machine learning to boost forecast accuracy by ten percentage points.¹¹McKinsey analysis.

By improving forecasting for demand and supply through digital supply chain intelligence, automotive OEMs can better align their production and operations with expected market dynamics, optimizing their capacity while reducing volatility.

Commonize and standardize nondifferentiating vehicle content

Many vehicle components create little consumer value but vary widely across OEMs, driving unnecessary costs and supplier complexity. To manage supplier volatility, OEMs can standardize nondifferentiating parts (Exhibit 3). For example, axles, harnesses, and certain power electronics don’t materially influence consumer purchasing decisions, presenting a clear opportunity for shared specifications. In contrast, components that drive differentiation in aesthetics or performance (such as the body, e-powertrains, and infotainment) should remain proprietary.

Image description: A matrix chart shows level of industry standardization and level of consumer value creation for vehicle components, where consumer value creation is how much a component differentiates the vehicle in ways consumers value (for example, performance, aesthetics, and experience). No components are both highly standardized and have high consumer value creation level. Highly standardized components with low value creation levels include seatbelts, wheel, and powertrain sensors. Components with high value creation levels but low standardization include body, e-powertrains, and infotainment components. Components with both low standardization and low value creation levels present an opportunity to be further standardized. These include axles, braking systems, HVAC, and electronic modules. End image description.

A useful analogy for standardization in another industry is the O-RAN ALLIANCE in telecommunications. Historically, mobile network equipment was highly customized to each operator, with each vendor’s hardware and software tightly coupled and proprietary. In 2018, major mobile operators formed the O-RAN ALLIANCE to define open interface specifications that enabled equipment from different suppliers (such as radios, baseband units, and control software) to operate together within the same network. By standardizing interfaces for nondifferentiating layers of the radio access network, the industry improved economies of scale, reduced dependence on proprietary systems, and minimized vendor lock-in, which lowered the total cost of ownership by about 25 percent.¹²McKinsey expert interviews. The O-RAN ALLIANCE fostered a more competitive and resilient telecom ecosystem, with lower deployment costs, greater sourcing flexibility, stronger supply chain resilience, and focused innovation in differentiating, higher-value domains, including network intelligence and orchestration.

Similarly, the automotive industry can apply these principles for standardization to stabilize supply chains and reduce costs. By establishing common specifications and interfaces within component families, OEMs can achieve greater interchangeability across vehicle platforms and suppliers, which would enable them to pivot sources during disruptions without bearing the full cost burden of dual-sourcing bespoke parts (Exhibit 4). This flexibility supports scale efficiencies, strengthens resilience, and helps OEMs manage volatility without compromising production.

Image description: A before and after flow chart shows how standardizing nondifferentiating vehicle components can strengthen supply chain resilience during operational disruptions. In the before scenario, during normal operations, OEMs contract a primary supplier for axles without sharing specifications with other OEMs, with some dual sourcing. For example, custom axel specifications from one supplier go to one OEM (or sometimes two OEMs). When a supplier is disrupted, OEMs pay a premium or face extended downtime from insufficient supply. For example, while suppliers one and two continue supplying OEMs one and two, supplier three is unable to provide axles and OEM three may need to get axles from supplier two. In the after scenario, during normal operations, certain axle subcomponents are standardized, with some shared specifications among suppliers. For example, each supplier provides one set of standardized axle specifications to each OEM. When one supplier is disrupted, other suppliers can absorb additional volume more easily. For example, supplier one can service all three OEMs, and supplier two can service OEMs one and two. End image description.

Create flexible manufacturing

North American OEMs operate in a uniquely uncertain environment, in which consumer preferences and regulations diverge from those in other regions. While regulation in Europe is accelerating the shift toward EVs, North American demand has slowed, and hybrids and ICE vehicles are seeing a rebound. To manage volatility in both what vehicles to build and how many to build, OEMs can develop multipowertrain lines and modularize production to rapidly reconfigure across models and technologies.

Develop flexible production lines. By investing in production lines that can build multiple powertrain styles, OEMs can maximize the utilization of plants, minimize costly retooling, and align supply with demand. In North America, where manufacturing costs are especially high, plant utilization is closely tied to profitability, yet many plants operate below the 70 percent break-even threshold.¹³“Capacity utilization: Manufacturing: Durable goods: Automobile and light duty motor vehicle,” Federal Reserve Bank of St. Louis, updated January 16, 2026. Low utilization not only erodes margins but also leaves little buffer for model changeovers, which can incur substantial costs (between $200 million and $400 million) and delays (typically between nine and 15 months¹⁴McKinsey expert interviews.). Advanced robotics powered by AI and automation can further increase manufacturing flexibility by facilitating quick reconfiguration of production lines for different models, allowing OEMs to respond quickly to shifting market dynamics and reducing the financial risks of supply–demand mismatches.

Modularize production systems. Rather than defaulting to fully bespoke BEV-native architectures or overly generic platforms, leading companies are deploying modular systems that support multiple powertrains while preserving core performance attributes. Modular design allows OEMs to address emerging and diverse consumer preferences at scale without sacrificing capability, turning what was historically a trade-off between flexibility, performance, and scale into a complementary advantage. It also enables OEMs to boost efficiency, flexibility, and automation potential. By structuring assembly around standardized vehicle modules (such as front, rear, floor, and side sections), OEMs can shorten and simplify their production lines while decoupling major subassemblies to process them in parallel.

Modular production is especially effective for new vehicle platforms and low-volume models,¹⁵Low-volume models are models that have fewer than 50,000 units manufactured annually. for which efficiency gains significantly impact margins. For example, Tesla’s “unboxed” manufacturing concept, which uses gigacasting and structural batteries for modular assembly, reduced operator walking distance by more than 30 percent and reduced the number of final assembly stations by about 40 percent, from about 60 to about 36 stations.¹⁶McKinsey analysis. Incorporating modularized production systems can reduce costs for one-off capital expenditures (such as R&D costs to develop platforms) by 20 percent, development times by 30 percent, and per-unit costs by as much as 20 percent.¹⁷An enterprise strategy for effective vehicle modularity, Dassault Systèmes, accessed February 2, 2026.

North American OEMs face no shortage of challenges, but within these headwinds lies a rare opportunity to rebuild the industry. Taking advantage of external stakeholders to build strategic partnerships and solidify OEMs’ position in a broader ecosystem can help strengthen the value chain, manage risk, and shore up supply chains.

This is a great starting point. But to safeguard their stake globally, automotive companies must become more productive, responsive, and differentiated. In a follow-on article, “Shaping the next ‘ARC’ of the North American automotive industry,” we detail a comprehensive action plan for North American automotive OEMs to revamp their operations internally to do just that.