Lack of transparency and complexity among players
The automotive market, and therefore the entire customer journey, is incredibly fragmented as things currently stand. There are a considerable number of intermediaries and almost no communication or data sharing between product and service providers. This complete lack of transparency and general complexity among players results in one of the biggest challenges for the industry.
Automotive buyers need to navigate multiple providers for financing, insurance, and maintenance, resulting in a fragmented customer experience. McKinsey reported that 75% of customers felt their automotive retail experience could be more seamless and integrated. This fragmentation results in a sub-optimal customer experience and makes it more difficult for automotive companies to build loyalty and after sales revenue streams.
Suppose you're an OEM and have no data or visibility on what happens to a vehicle a couple of steps further down the journey. In that case, you're missing out on a wealth of potential knowledge you could leverage to make smarter business decisions. With shared data comes actionable customer insights, such as individualized offers to boost revenue. Weak links in the supply chain can be identified ahead of time when there is data transparency, allowing for swift interventions. These are just a couple of examples of some massive benefits automotive companies are missing out on by not consolidating their data into one ecosystem.
Complexity is a significant challenge facing OEMs. As technology advances and the demand for sophisticated features in cars increases, the number of applications and systems within a core area has skyrocketed. It’s not uncommon for there to be up to 600 applications or systems in a single area of a vehicle. This complexity presents several issues.
When there are numerous components to consider, identifying and fixing issues that arise in the vehicle becomes increasingly difficult. Multiple systems and applications are not always compatible with one another, adding another layer of complexity. All of this can increase the time and cost of developing and manufacturing vehicles, as well as the maintenance costs for the end users. Therefore, OEMs must find ways to manage the complexity of their vehicles to reduce costs, improve efficiency, and enhance user experience, or they risk being overtaken by new market entrants, such as Lucid, Tesla, or Nio.
Structural changes to the sector
When Bob Dylan crooned, 'The times they are a-changin' in the 1960s, little could he know how relevant his lyrics would continue to be almost sixty years later. Practically every industry has experienced what McKinsey coined as 'the quickening' due to the Covid-19 pandemic, where e-commerce and digitization leaped forward decades in a matter of days. For the automotive industry, these tremendous structural changes pose a significant challenge. Technological advancements, shifting consumer demands, and regulatory considerations such as sustainability have all changed the landscape for automotive businesses substantially.
The shift toward EVs is the most prominent and consequential structural change. Consumer sentiment is leaning heavily towards reducing carbon footprint, while many nations have put emission reduction policies in place, contributing to the rising popularity of EVs.
McKinsey reported that global sales of electric vehicles are projected to reach 27 million by 2030, representing nearly 30% of new car sales. New players are entering the market and heating up the competition among old incumbents, meaning that traditional automotive companies must focus on research and development (R&D) more than ever before.
Another significant structural change is the rise of new vehicle ownership models, such as car sharing and subscription services. By 2030, revenues from mobility services are projected to soar to almost €1.2 trillion, according to Accenture. As consumers increasingly move away from traditional car ownership, sophisticated digital solutions and a focus on customer experience become even more critical for the industry.
Digital technologies such as artificial intelligence and machine learning are also making structural waves in the automotive industry. New solutions like predictive maintenance will improve customer experience and provide new revenue opportunities. Reinforcement Learning from Human Feedback (RLHF) is a giant topic right now and one that will continue to grow, with natural language processing platforms such as ChatGPT creating major waves in every market.
These structural changes bring unique challenges to the automotive industry, but overall they signify a need to increase flexibility and adaptability to stay competitive.
Misunderstanding how the digital sphere compares with physical sales
Too often, automotive businesses incorrectly believe that their previously successful physical sales will translate seamlessly into the digital sphere. There are several reasons why this is not the case, and market players need to understand this before embarking on any new digitization projects.
Firstly, the very way that consumers shop has changed dramatically in the past couple of years. Whereas previously, a vehicle buyer might visit a dealership, test-drive a few models, and ultimately take the salesperson's advice, today's buyer prefers to conduct their own research beforehand – online – as outlined in the earlier section about new customer needs and behavior. This means that traditional sales tactics employed with physical sales won't work and must be adapted to this new cohort of digital consumers.
Industry examples
Siemens has partnered with Ford on a customized EV charger for Ford's All-Electric F-150 Lightning pickup truck. It has been designed to provide fast and efficient charging for retail customers, focusing on convenience and ease of use. The collaboration aims to enhance the overall EV ownership experience, as it can be installed in the customer's home or work, and provides a seamless, safe, and convenient charging solution.
"Together with Ford, Siemens is not only helping accelerate electric vehicle adoption in the residential space but is also empowering drivers to take more ownership of their energy future," said John DeBoer, head of Siemens eMobility in North America.
"The technology behind this charger is helping make charging at home more sustainable, more reliable, and more accessible. We're incredibly proud to put our experience to work to help usher in a new era for electric vehicles and grid resiliency."
Another example is the EV startup based in Los Angeles, California: Canoo. The company was founded in 2017 by a team of experienced automotive and technology executives, and its mission is to create sustainable, affordable, and user-friendly EVs.
Canoo is primarily focused on developing EVs for the consumer market. Still, they have also explored other use cases for their technology, such as last-mile delivery and subscription-based mobility services. In addition, they have also developed a scalable electric skateboard platform, which can be used as the basis for a wide range of electric vehicles. Canoo also uses advanced software and hardware technology to support autonomous driving and other driver assistance systems.
The race for the electric market has just begun
With many factors at play, including the pandemic and the war in Ukraine among them, the global automotive industry has taken a knock in the past couple of years. In 2022, car sales varied significantly among the major markets. According to ING, The US market performed poorly, with sales numbers expected to decline by 7–8% compared to the previous year. Conversely, Germany achieved a small growth of around 1% YoY in FY22 and was among the top performers in Europe. China, too, experienced a positive year-end despite the pandemic's strict measures, thanks to government tax incentives.
In 2023 and beyond, passenger car sales in China are expected to increase by 4%, helped by removing the zero-covid policy. As the largest EV manufacturer, all eyes are on China, where according to Deloitte, sales of new energy vehicles had a penetration rate of 17% at the beginning of 2022, increasing to 27%. This year, annual sales are expected to double to 5.6 million units. In addition, revenues from China's EV market reached approximately 102.2 billion USD in 2021, according to Statista.
One Chinese company, BYD, has emerged as a strong competitor to Tesla in the EV market. With a primary focus on the domestic market, approximately 25% of BYD's sales are electric vehicles. BYD has made significant strides in expanding globally and making substantial profits. The company is highly automated and verticalized, producing its own semiconductors.
While BYD has traditionally focused on the lower end of the market, they are now moving upwards, in the opposite direction to Tesla. They are currently trying to enter Europe; however, they have yet to crack the US market, where Tesla maintains dominance. There are geopolitical issues to consider, such as the American crackdown on Huawei, which may complicate BYD's global assault. Despite these challenges, BYD has accumulated valuable knowledge in its home base and continues to threaten Tesla's dominance in the global EV market.
As China's market share in the industry grows, other automotive players should keep a keen eye on their progress. They could act as a giant disruptor, creating a catalyst for new market competition.
What is a software-defined vehicle?
A software-defined vehicle relies heavily on software and data to operate. In such a vehicle, the software is responsible for many functions that mechanical or electrical components traditionally handle. For example, a software-defined vehicle may use advanced sensors and machine learning algorithms to analyze data from the vehicle's surroundings and decide how to navigate traffic safely. The software may also manage the vehicle's power systems, adjust performance parameters, and provide real-time feedback to the driver or passengers.
One of the key benefits of a software-defined vehicle is that it can be highly flexible and adaptable. The software can be updated and improved over time, which means the vehicle can continue to evolve and improve even after being manufactured and sold.
A software-defined vehicle can also be highly customized to meet the needs of individual drivers or businesses, which can help to improve efficiency and productivity, also for the OEM. The release updates of the vehicle software can be performed instantly without the vehicle owner visiting the dealer. In some cases, it might even be executed without the driver noticing, meaning minimum disruption to the user experience.
A software-defined vehicle is an important step forward in the evolution of transportation technology, with advanced software and data analysis tools designed to improve safety, reduce congestion, and provide more freedom for the driver.
Industry examples
Waymo, a self-driving car company from Alphabet Inc, is a leading example of a software-defined vehicle. Their self-driving technology is based on an advanced software platform that uses data from various sensors, including lidar, radar, and cameras, to create a highly detailed 3D map of the vehicle's surroundings.
The software platform uses machine learning algorithms to analyze this data and decide how to drive more safely. Waymo's vehicle is designed to be modular, so various system components can be easily updated or replaced as technology evolves.
Waymo's software platform is also designed to be highly secure and resilient, with multiple layers of redundancy to ensure that the vehicle can safely navigate all sorts of conditions. The company has put its vehicles through extensive testing and simulation to ensure they can handle various scenarios and edge cases.
Waymo's software-defined vehicle represents the future of transportation, with advanced self-driving technology designed to improve safety, reduce congestion, and provide a more convenient and enjoyable driving experience.
Holoride is a start-up that has developed an innovative in-car entertainment system that provides passengers with an immersive virtual reality experience. It uses data from the car's sensors to create a virtual environment that matches the car's movements. Founded in 2018 by a team of engineers and developers from Audi, Holoride has received support from prominent automotive and technology companies.
The system uses a combination of VR headsets and in-car sensors for entertainment apps such as gaming, movies, and educational content. They also aim to reduce motion sickness by creating a comfortable and natural experience – even during long drives. As the vehicle industry shifts towards connected and autonomous cars, Holoride represents an example of how "add-on" features can enhance the overall passenger experience.
Shared mobility
As consumer demands regarding sustainability and convenience have shifted, the automotive industry faces the 'ownership vs. mobility' battle. Shared mobility as a concept essentially means any system where a mode of transportation is not owned by one individual, but 'shared' or rented by many. This includes car sharing, bike sharing, e-bikes, and electric scooters.
The trend for shared mobility has grown in popularity as congested cities have sought ways to reduce congestion from road traffic, and consumers found the new alternatives to car ownership more convenient, more affordable, and in some cases, more fun. Shared mobility can be split into several major categories: ride-sharing, also known as 'hailed-mobility,' has the largest market share, while car sharing and other segments like shared micromobility are gaining popularity.
Mckinsey's Shared Mobility report stated that there were more than 15 billion hailed-mobility trips in 2019, with revenues reaching $130 billion. They predict that by 2030, total revenues from hailed mobility could increase to between $450 billion and $860 billion, accounting for 80–90% of consumer spending in shared mobility.
In comparison, the car sharing market may total between $10 billion to $15 billion in 2030. As robo-taxis and robo-shuttles gain traction, they will act as stiff competition for car sharing, since drivers have less freedom than in an autonomous vehicle (and they must find parking!).
The rise of apps and smartphone penetration has made it easier for more people to access shared mobility services, while the technology is streamlining the process of finding and using these services. As global trends such as urbanization and moving away from fossil fuels grow, shared mobility will also gain more market share in the automotive space. In fact, the global shared mobility market size was valued at USD 166.3 billion in 2021 and is expected to expand at a compound annual growth rate (CAGR) of 16.9% from 2022 to 2030.
Industry examples
MOIA, a mobility company and subsidiary of the Volkswagen Group, focuses on developing and implementing innovative and sustainable transportation solutions in urban areas. Its primary focus is on providing on-demand ride-sharing services, similar to Uber and Lyft, but with a fleet of EVs.
MOIA uses sophisticated algorithms and data analysis to optimize its ride-sharing services, to provide efficient and affordable transportation options to customers. The company has launched pilot programs in several cities worldwide, including Hamburg, Hanover, and London, and continues to expand its operations. In addition to its ride-sharing services, MOIA is also exploring other areas of mobility, such as autonomous vehicles and mobility-as-a-service platforms.
"At MOIA, we believe that ridepooling can make our cities better, safer and more beautiful places to live in. As a partner of the cities, we therefore work closely with public and private mobility partners to make urban mobility so demand-oriented, flexible and convenient that, together, the mobility revolution can succeed."
Silvercar is a premium car rental company specializing in renting luxury Audi vehicles via their smartphone app. Digital and hassle-free, drivers can use the app to choose, reserve and unlock their car, eliminating long paperwork lines at the rental counter. While more expensive than traditional car rental companies, customers are willing to pay for the convenience and luxury features Silvercar offers, including free Wi-Fi and in-built GPS.
Porsche Passport is a subscription service that enables customers to access various Porsche models for a fixed monthly fee. The service is designed to give customers the flexibility to drive different Porsche models depending on their needs and preferences. The monthly subscription fee covers all maintenance and insurance costs, and customers can swap vehicles as often as they want.
To use the service, customers download the Porsche Passport app, which allows them to select their desired vehicle and arrange delivery or pickup. The app also enables customers to track their subscription status and manage their account details.
Porsche Passport is seen as an innovative approach to car ownership that offers the benefits of having access to a luxury vehicle without the long-term commitment and upfront costs associated with purchasing or leasing such a vehicle.
Industry examples
In response to the circular economy, Volkswagen has taken steps to vertically integrate its supply chain, which involves bringing more stages of the production process in-house. This approach aims to create a more closed-loop system in which waste is minimized, materials are used more efficiently, and the overall environmental impact is reduced.
One way Volkswagen has verticalized its supply chain is by investing in its own battery production facilities. The company has established a joint venture with Swedish Northvolt to build several factories for batteries used in Volkswagen's EVs. This approach ensures that Volkswagen has a reliable and sustainable supply of batteries, and allows the company to have greater control over the production process, from sourcing raw materials to recycling used batteries.
Volkswagen has also vertically integrated its plastics production, producing its own recycled plastic components for its vehicles. This reduces the company's reliance on external suppliers and ensures a steady supply of high-quality recycled plastics.
While the electrification trend has pushed Volkswagen to focus on redesigning its logistics, manufacturing, and supply chain processes, it has also embarked on new ventures into industries previously untouched, such as chemistry. Partnering with Canadian company Xanadu, Volkswagen has launched a multiyear research program designed to develop battery materials that are safer, lighter, and more cost-effective.
"With its NEW AUTO strategy, Volkswagen enters new territory, especially when it comes to exploring opportunities along the battery value chain. Next-generation high-performance materials and electrochemical processes are key ingredients of this expedition," says Dr. Nikolai Ardey, Head of Volkswagen Group Innovation. "Working together with cutting-edge companies like Xanadu is like hopping on a speed boat heading at the next big thing: Quantum Computing might trigger a revolution in material science and optimization, key competencies to grow our in-house battery expertise."
The future of sales & dealerships
The future of sales will be defined by personalization, bold customer interactions and experiences, and the convenience of a seamless customer journey throughout all channels and touchpoints, including dealerships.
The automotive industry needs to define new standards and collaboration models to achieve this, as the current retail network approach will soon cease to exist. Dealerships will generally continue to exist, but in a different quantity and capability. How this will shift depends on the growth of the key automotive trends already discussed, such as shared mobility, electrification, after sales services, and improved customer and brand experiences.
For OEMs to achieve the ultimate goal – customer loyalty – experiences must be integrated from every angle, from internal (employee, vehicle, and brand experience) to external (dealer and final customer experience). However, to achieve this experience-led shift successfully, OEMs must re-structure and streamline their back-end systems and differentiate their front ends, which is easier said than done.
Dealers must also redesign themselves to find value in the automotive industry's supply chain. It's not enough to just sell vehicles any longer. Dealers must understand their position in the market and service the customer, the manufacturer, and a possible new ecosystem differently. They must also think out-of-the-box to collaborate with vertical or horizontal partners to gain profit pools and diversify their business models.
Dealer tasks and responsibilities are strictly regulated, and many OEMs are scared to touch any new business models due to these legal constraints, such as direct sales. This will change in the future with new entrants in the market that have nothing to do with the traditional dealer network. The relationship between OEMs and suppliers may improve to foster innovation jointly along the vertical supply chain.
Visionary dealership groups who understand the future trends of the automotive industry and prepare themselves gradually for business around second-hand cars, shared mobility services, and enhanced customer experiences will ultimately be the ones who survive.
Let's take a deeper look into some of those trends and changes that are likely to shape the dealership of the future:
Industry examples
Lynk&Co is a Chinese-Swedish automotive brand that offers a unique ownership model and innovative connectivity features to appeal to a younger, tech-savvy demographic. The company's vehicles are designed to be shared among a community of users and come equipped with advanced technology that allows for seamless integration with the internet and other digital devices.
Lynk&Co's dealerships are a world away from traditional ones. Calling them 'clubs', they feature modern, Scandi furniture and are designed to be social hubs where customers can interact with the brand and other members. Everything is digital, with customers able to personalize and buy a vehicle online. Lynk&Co also offers services beyond that, with car sharing and charging stations. With a focus on creating a community-oriented brand experience, Lynk&Co's dealerships are at the forefront of convenience and connectivity.
Casa Seat is a dealership concept from Spanish car manufacturer SEAT that aims to reimagine the traditional car-buying experience. At Casa Seat, customers are offered a unique, personalized experience that puts them in control of their purchase journey. They can browse and configure their vehicle online, book test drives at their convenience, and receive personalized advice from a dedicated "Casa Seat expert" who can guide them through the process.
In addition to the traditional dealership experience, Casa Seat also offers a range of lifestyle services designed to enhance the customer experience. These include a coffee bar, a co-working space, and a retail store selling SEAT-branded merchandise. By focusing on creating a comprehensive and personalized customer experience, Casa Seat is redefining the dealership's role, moving away from a transactional model to one focused on building long-term relationships with customers. Ultimately, Casa Seat's approach aims to create a sense of community around the SEAT brand and provide customers with a one-stop-shop for all their automotive needs.
Platform consolidation
For automotive companies with multiple brands or business models, consolidating everything into a single platform improves the customer experience, cuts costs, and streamlines operations. This solution helps solve the issue of a fragmented user journey and enables new models to go to market more quickly – a vital capability among the top players right now, where agility is at a premium.
How?
A digital commerce provider can enable automotive companies to create one interface or platform with which the end customer interacts. Within the single platform, processes are standardized for increased efficiency, while still allowing multiple brands to be customized. Different brands can share resources, such as products, warehouses, and processes, etc.
Key benefits?
- One tech stack allows new features to be developed more quickly and effectively, resulting in a faster time to market.
- Each brand has the option to utilize certain building blocks in the platform, or not, enabling a high level of individualization.
- Consolidating all brands onto one platform saves money by reducing development and production costs, as well as opening up the opportunity to make larger, and therefore more economical, part purchases.
- The ability to add or remove components for different brands results in greater flexibility
Mobility Platform
One of the key trends discussed earlier in this playbook, shared mobility means big business for the future of automotive. Launching a mobility model is one way for automotive companies to tackle several of the challenges previously outlined: changing consumer behavior, diversification, and structural changes relating to sustainability and the environment. As the very concept of traditional car ownership is morphing before our eyes, it’s imperative that players look to the next generation of mobility to stay in the game.
How?
Digital commerce technology enables automotive companies to become full-service mobility providers through a platform that combines all data inputs into applications for different connected use cases. These could include:
- Ride booking
- Automatic service appointments
- Predictive maintenance
- Ordering spare parts
- Managing payments
- Generating invoices
- Usage statistics
All of this data is used to establish a pay-per-use or subscription business model, such as car sharing and ride-hailing.
Key benefits?
- A mobility platform with one backend lets you quickly and easily access all relevant information as the service provider.
- Offering a mobility solution improves your customer and brand experience, widening the potential customer base and offering more opportunities for personalization and engagement.
- The mobility sector is set to soar in the coming years, resulting in a high revenue potential.
- Launching a pay-per-use or subscription business model increases the diversification of revenue streams, contributing to increased resilience in a fluctuating market.
- As sustainability becomes increasingly important in the market, having a mobility model is a way to future-proof your business, especially if you incorporate EV technology.
Service integration through customer portal
Automotive companies are solving the issue of a fragmented customer journey by launching a digital customer portal that acts as the single touch-point for both end consumers and brands. Within this portal, it's possible to create service marketplaces that allow customers to connect seamlessly to certified resellers. By enabling customers to connect to additional services whenever engaging with your ecosystem, you provide enhanced convenience for your end users and full integration of your network of partners.
How?
A customer portal creates a full value chain experience by integrating partners or resellers and their services into a single platform. Examples of the kind of services or experiences this could enable include:
- Service planning based on contractual agreements or telemetrics
- Scheduled services carried out by certified partners
- In-vehicle commerce enabled via an app
- Geo-tracked offers allow the integration of local vendors
Key benefits?
- By offering services and information along every step of the value chain from one portal, you increase customer experience and satisfaction.
- You can offer personalized and quick offers to end customers along any journey, increasing revenue potential.
- You can strengthen the relationship with your network of partners and resellers by integrating them into your portal.
In-vehicle commerce
This solution falls under the intelligent vehicles trend, with tremendous opportunities for automotive companies. Part of the next generation of commerce revolving around customer experiences, in-vehicle commerce allows drivers and passengers to buy goods and services from the comfort of their seats. Integrating both in-house and external offers, it increases customer satisfaction and experience while generating new revenue streams. From ordering a cup of coffee and paying for parking to booking hotels and requesting recommendations, in-vehicle commerce allows the mobility provider to stay with the customer along their entire vehicle journey, giving them access to all the valuable data and insights that comes with it.
How?
In-vehicle commerce integrates a vehicle's infotainment system with external apps, payment gateways, and delivery services. This allows drivers to benefit from the seamless experience of receiving quick and relevant offers while on the road. These offers can be directly from the company or a partner provider, which can all be pre-customized and pre-approved. They are geo-tracked to suggest the most relevant recommendation to the driver. All steps of the process are executed via the in-vehicle system, allowing the driver to set up payment methods, track the progress of a transaction, and see when their order is ready.
Key benefits?
Enhanced customer experience sits at the heart of in-vehicle commerce, as well as the increased revenue potential from staying connected to the customer after the initial vehicle purchase.
- Partnering with businesses to offer new products and services to drivers results in new revenue streams.
- The data and insights from in-vehicle commerce can contribute to a more personalized and engaging customer experience, ultimately helping build brand loyalty and increase customer satisfaction.
- This customer data can also be leveraged to inform future R&D and marketing strategies, due to consumer behavior and preferences insights.
Second-hand solution
Tieing into the trend for a circular economy, launching a platform for used vehicles or parts allows automotive companies to participate in the full lifecycle of their products, as well as offer a solution for customers with lower budgets. With manufacturing issues leading to fewer new cars on the market, second-hand vehicles, and spare parts are becoming hotter commodities. By offering a safe and controlled environment, the customer's brand loyalty and trust increase, while the company acquires a new segment of second-hand buyers.
How?
After used vehicles are acquired, they will be inspected, repaired, or refurbished if necessary. The cars can then be sold on as entire units or as individual spare parts, with authenticity confirmed with serial numbers by the manufacturer. These will then be sold either through a 1st-party platform or a marketplace.
Key benefits?
Ultimately, launching a second-hand sales channel creates new revenue opportunities and capitalizes on the ability to follow the car purchase journey further down the funnel.
- With the new vehicle market as it stands, the second-hand segment stands to create a strong new potential revenue stream.
- You can increase customer loyalty and retention by providing a solution along the entire vehicle life cycle.
- It attracts a new segment of customers seeking more affordable vehicles.
- Offering certified refurbished vehicles enhances a brand's reputation and builds customer trust.
- A second-hand car solution opens up the opportunity for cross and up-selling through related products and services.
Customer example
ESA, a B2B wholesale cooperative, that supplies consumer and capital goods to the automotive industry, wanted to increase customer centricity and revenue. With around 70% of their sales transacted via their E-shop, it remains their most important sales channel. Almost every customer has an individual price for every item. ESA migrated to Spryker to optimize their customer journey and increase their customer focus. The goal is to increase sales from an improved range, thereby increasing customer satisfaction. You can read more about our customer ESA here.
Customer example
Alles.Auto (AVAG) is one of the leading automotive retail groups in Europe. The platform's primary goal is to simplify the car buying process by offering a one-stop-shop for all automotive needs, from finding the right vehicle to securing financing and insurance. They chose Spryker to build a used car marketplace with a simple and convenient shopping experience and end-to-end services across the entire customer journey. Alles.Auto chose Spryker because of our vision, out-of-the-box functionalities, and flexibility for both their current and future business models.
Industry example
Zipcar is a car sharing company with a network of self-service vehicles located in cities around the world. Zipcar allows members to reserve and access cars on demand, paying only for the time they use. They offer a range of vehicles to suit different needs, from compact cars for city driving to larger vehicles for transporting goods or people. Members can book and manage their reservations through the app, and fuel, insurance, and maintenance costs are included in the rental fee. By enabling flexible and sustainable transportation options, Zipcar aims to reduce congestion, lower emissions, and make urban living more accessible for everyone.
