Are Car Manufacturers Taking Their Eyes off the Road?

While global automotive sales have been at record highs in recent years, the future of the industry is somewhat uncertain when considering the endless disruptions staring it in the face.

Eighty million in car sales for the 2016/17 period may seem to tell a different story, but the influx of innovation, changes in global supply and demand and new competition could very well upend OEMs who consider their business models a safe bet.

Innovation within the industry is forcing OEMs to increase capital outlays for more feature-rich, environmentally friendly and generally safer vehicles. This goes against traditional models focused on reducing capital outlay by keeping production costs to a minimum. Yet, a large majority of manufacturers have failed to see returns on investments in next-gen cars, with only a small margin, consisting of mostly top brands, seeing dividends in such ventures.

“Ubiquitous electronics, a variety of digital services, and novel powertrains and connectivity systems are hastening the need for expensive new parts, components, and functions. For OEMs, the price tag is high — as much as 20 percent greater than the cost of the previous generation of automobiles.” ~ PwC Report on 2017 Automotive Trends

Further, for many manufacturers, keeping up with the competition means getting new departments, partnerships and technologies off the ground. This makes staying in the race expensive, time and resource consuming. Moreover, disruption within the industry is rearranging supply chains and redistributing profits in the process as the push for innovation challenges traditional production pipelines.

In this light, General Motors’ announcement to have 20 iterations of electric vehicles on U.S. roads by 2023 might prove an unwise measure to cope with the pressures of dealing with the likes of Tesla and other new players in the market. The reality is that electric cars are yet to prove profitable, making GM’s decision to replace almost its entire fleet of fuel-driven vehicles with electric ones risky to say the least.

According to Fiat Chrysler Automobiles (FCA) CEO, Sergio Marchionne, the manufacturer loses up to $20,000 per car on its electrified Fiat 500 and sales figures are less than stellar. This means radical moves to corner the yet to blossom EV market could prove disastrous if not approached more strategically.

Tapping Into Opportunities in After-Sales

The breadth of new technologies and the number of new market players are leaving many OEMs blindsided to more practical revenue streams. One such area is after sales, which has always been perceived as the least sexy part of owning a vehicle by both owners and manufacturers. And herein lies the problem; with after-sales accounting for as much as 50% of revenue for certain car makers, overlooking service and repairs for the allure of shiny showrooms could cost manufacturers dearly in the long run.

OEMs have always been less invested in aftersales as a revenue driver, and yet it may just prove to be the revenue generator they’re starving for. For example, the oversaturated European market that saw profits plummet from EUR 15 billion to EUR 1 billion between 2007 and 2012, could very well tap into after-sales opportunities to bolster revenue and build lasting and more profitable customer relationships.

With vehicle ownership for the average European ranging between 2 – 5 years, OEMs that are rethinking after sales may very well position themselves for long term returns, as opposed to those who overextend themselves with expensive gadgets built into every conceivable panel. Moreover, a stronger and more customer-focused after-sales experience helps to foster brand affinity and cements customer loyalty that remains ever fleeting.

“Considering the total revenue stream of a typical 13-year car lifetime, only 37% of the total revenue stems from the new car sale. The aftermarket business accounts for the remaining 63% in Western Europe.” ~ Capgemini Automotive After Sales Report

Using Technology to Build More Human Centric Journeys

The availability of customer data in the age of the connected car is offering manufacturers a wealth of insights into consumer behaviour, preferences and lifestyle choices. The breadth and time span associated with after-sales makes it fertile ground for building customer journeys that yield sustainable ROI. For example, customers have shown willingness to pay more for predictive maintenance services and more personalised after-sales experiences – something relatively easy to achieve if manufacturers are willing to invest in it.

Further research supports the argument for upping the after-sales ante. Global findings show that many customers turn to third parties for after-sales services and repairs due to high instances of parts unavailability and steep prices from OEMs, resulting in volumes of foot traffic heading in the wrong direction. Also, with nearly 80% of manufacturers stating that investments in after-sales are of very low priority to their boards, the opportunity for those who are willing to invest in the customer journey may yield surprising results.

As an industry that’s grappling with unabated disruption, it seems the automotive sector at large might be confusing the trees for the forest. Racing to build the latest vehicle on technological steroids won’t be the long term solution. Instead, using technology to accommodate the human experience after the dotted line is signed might just be the more practical, profitable and sustainable route for an industry undergoing rapid transformation.

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