Service Shift research reveals that auto industry observers, consultants and investment bankers agree with a pronounced shift away from the traditional business of selling vehicles to providing mobility centric services. Regardless of timing and speed, the shift is significant because services are a fundamentally different business model, often based around subscriptions requiring different cash flow modelling and KPIs. Most importantly, success requires a new business modus operandi, which has never been seen before in the auto industry.
Lessons Learned: Music, Movies and Mobility
The auto business is quite late to the party in terms of the service shift created through digitisation. Media and entertainment companies have had to respond to it for some time, adjusting to streaming, cord-cutting customers as well as to new search and social media competition. This tardiness makes the insights from other industries even more pronounced and has formed the basis for our identification of 7 gaps where the auto industry needs to play catch up. With every gap, we’ve included one or two pioneers who are temporarily, at this point in time, frontrunners, leading the competition in closing the gaps.
The 7 Gaps
1) Social Media Gap
Today, it has become common practice to search on YouTube for “How To” advice: How to extend the life of your printer cartridge and how to jumpstart a car being two of my recent searches. Very few customers have ever read automakers’ owner’s manuals or consulted with dealership staff on new features. Instead customers learn about their car on social media. Therefore, instead of being an afterthought in the Marketing department, have Engineering team up with Marketing to take a digital first approach to automobile ‘How to’ guides enabling consumers to better preview and troubleshoot vehicles anytime / anywhere.
Leader: The Mercedes me App allows Mercedes-Benz drivers to be more connected with their vehicle than ever before. The Mercedes Me App offers everything from vehicle management, remote access, to meaningful assistance and support all in one place.
2) Lifestyle Gap
To the extent that customers buy your vehicle to get from A to B, Uber or robo-Uber presents competition. Nobody needs a premium vehicle to get from A to B anymore. That’s why premium brands have been adding to the product experience, for example, adding horsepower and getting involved with racing. However, not all brands have the heritage to authentically morph into a sports car guise like Porsche or Mercedes-Benz AMG can . Furthermore, few of us ever drive on the Nürburgring race track and speeding is becoming more costly and is, of course, as irresponsible as ever. With this in mind, premium car ownership needs to be focussed around lifestyle experience and the attached exclusivity surrounding events and VIP activities curated for premium brand car owners.
Leader: Mercedes-Benz has an owner magazine with exclusive events, activities and curated content including a section dedicated to female car owners (She’s Mercedes). The brand is also experimenting with coffee shops as physical places to see and be seen.
3) Innovation Gap
There are 2 major questions that we’re dealing with here: How to make life better and more convenient and how to make vehicles more easy-to-use for drivers. New innovation in these areas mostly stems from outside the auto business with slow adoption by the auto industry. Smartphone apps like Google Maps are challenging onboard sat-nav systems and accessories margins. These new entrants may usurp the automaker’s ability to upsell their own services. The latest challenges are voice user interface apps such as Amazon’s Alexa. In February, Bloomberg reported how Alexa has passed the inflection point with the iPhone, becoming the “device” of the next decade. Adoption of these new technologies whilst maintaining a degree of control is key to closing the innovation gap.
Leader: Hyundai was the first to integrate Alexa with its Blue Link connected car app.
4) Dealership Customer Retention Gaps
In his article “Kiss the Good Times Goodbye” industry veteran, Bob Lutz, gives a vision of doom and gloom for dealerships. The truth is indeed inconvenient at best. Dealerships are already facing profitability and customer retention pressure today as bricks and mortar showrooms and repair centres decrease in market share . All current and future trends from electrification to subscriptions to autonomous driving will hurt dealerships unless dealerships make substantial changes to their business models. EVs don’t need an oil change, have fewer parts and allow for over-the-air updates. If subscriptions catch on and reduce ownership, customer ‘traffic’ would decline further. If robotaxis can reduce cost per mile by 40% (as Toyota’s Gill Pratt predicted in her Los Angeles Auto Show presentation), it will turbocharge subscriptions. With Waymo’s launch of robotaxi service this year in Chandler, Arizona, the clock has already started ticking.
Leader: Autonation, one of the USA’s largest dealerships, has quickly teamed up with Waymo to service robotaxis.
5) EV Cost and Convenience Gap
Electric Vehicles currently cost more than regular vehicles whilst creating an inconvenience with their often challenging charging situation. Consumers rightly in many countries are put off paying more for less and the added inconvenience. Premium households with their high electricity bills offer additional opportunities to subsidise EV ownership through home solar and battery solutions but it still doesn’t change the inconvenience.
Leader: Our mystery shopping confirms that Tesla is setting the bar with its easy-to-use Supercharger service and one-stop-shopping for home solar and batteries. Mercedes-Benz Energy also is following Tesla’s lead.
6) Subscription Gap
Free Floating vs. Stationary vs. P2P – there are many ways and different technology providers that do car sharing these days. Yet, subscriptions so prevalent in tech seem to be a successful model that still hasn’t got a proper foothold in the auto market yet. Even the traditional dinosaur of technology, the airline rewards programs, have evolved from frequent flyer programs into de-facto subscriptions with airlines now rewarding total money spent rather than miles travelled. This is especially true with the advent of COVID 19.
Leader: In 2017 Cadillac’s launched its $1,500/month service called ‘BOOK’ which is a Cadillac only car sharing service. This is now being rolled out in Germany and Switzerland. Porsche Cars North America has now launched a similar service called Passport.
7) Fleet Gap
One common observation with digitalisation is fragmentation and specialisation. It occurs because digital technology reduces delivery cost to enable better targeted and more tailored, 1-to-1 offerings. This shift can correlate with supply chain fragmenting. For example, the aviation business has fragmented into airlines, airplane manufacturers and aircraft leasing companies. In order to provide a successful airline service, fleet and yield management are fundamental capabilities, which is something that the automobile industry could and should do but is often lacking.
Leader: Daimler Financial Services invested € 1.1 billion to acquire Athlon, a leading fleet management company in Europe