For more than 100 years, the automotive industry has adapted to new technologies, evolving customer expectations and demographic shifts. Now more than ever, manufacturers must continue to adjust their business models to succeed in today’s world as consumer preferences have changed and online companies like Amazon and Uber have cultivated an on-demand mindset. Car manufacturers are responding by offering new business models that focus on access opposed to ownership.
Sharing and Subscription
Several automotive manufacturers have announced plans to launch monthly subscription models, while others are entering the car sharing market. As an alternative to traditional leasing options that limit the consumer to one vehicle, a finite period of time and put the responsibility of maintenance and insurance on the drive, Jaguar Land Rover, BMW and other popular automotive manufacturers are investing in the new subscription model. This enables consumers to access a car for a monthly rate that also includes maintenance and insurance and presents the opportunity to fulfil the aspiration to drive a sports car for the commute and a people carrier for the weekend, for example.
Meanwhile, Volkwagen, PSA and Renault have all shared their intent to roll out a zero emissions “vehicle-on-demand” service in Europe. This would offer a fleet of electric vehicles that can be picked up in one part of a city and dropped off in another area. For the manufacturer it is a way to enter the e-mobility market and keep their brand on the radar of a new breed of consumer.
These innovations are further proof that the share economy certainly has a hold on the millennial generation and car manufacturers are hoping to appeal to a younger audience. Things that used to be considered status symbols, like home ownership and multi-car garages, have gone by the wayside in today’s society.
The shift is largely due to technology, with smartphones enabling fast and easy peer-to-peer business. It is also about the desire to live a more sustainable lifestyle in a resource-conscious environment. And the rent-over-own mentality resonates heavily with the generation interested in only spending what’s needed, rather than investing in a depreciating product.
Beyond the consumer
It’s not just consumer products that are experiencing this shift – manufacturers and equipment rental companies are also preparing themselves to meet these new demands. Take “power by the hour,” for example: an agreement that allows a company to lease or rent equipment for a certain number of in-use hours, buying the functionality rather than the actual piece of equipment.
Rolls-Royce originally made the concept famous in the aviation industry, but for manufacturers of long-lasting durable goods, like heavy equipment or aircrafts, this is a model they must start watching. According to Grand View Research, the global construction equipment rental market is expected to reach $84.6 billion by 2022, due to increasing construction activities across the globe and rising government investment in emerging economies.
Making it work
With the subscription model looking set to stay - what does it mean for auto manufacturers? Keeping these vehicles up and running becomes of paramount importance. Ensuring vehicles are in full working condition is critical to customer satisfaction and ultimately, profits. Below are a few key tactics manufacturers can use to ensure the transition to car sharing services is as smooth and profitable as possible:
Maximise product uptime
Many manufacturers still adhere to the traditional break-fix model of service, where they reactively repair or replace parts after they have already failed. As vehicle subscription services continue to grow in popularity, automakers will need to transform their service organisations to a model focused on maximising product uptime. They must invest heavily in predictive analytics and IoT solutions to redefine the way they manage service.
Because consumers are paying for access, automakers must stay ahead of demand. It’s time for manufacturers to adopt sophisticated, cloud-based solutions and new business processes to optimise service parts inventory levels while maximising product uptime, which will not only lead to improvements in revenue, gross profits and operational efficiency, but also the overall customer experience.
Optimise inventory management
Currently, the break-fix model many manufacturers use today leads to long customer wait times due to poor part availability, excess stock and part obsolescence. This ‘just-in-case’ way of doing business most often creates overhead that negatively impacts both the customer experience and the manufacturer’s bottom line.
With subscription-based models becoming the norm, service parts inventory management is key to ensuring that replacement parts are available when and where they are needed. To succeed, manufacturers must invest in both human capital and technology to fully optimise the service parts supply chain. While Microsoft Excel spreadsheets and legacy ERP systems may have been helpful for managing service parts in the traditional after-sales service model, using these outdated tools is no longer sufficient to meet customers’ needs for maximised product uptime.
Cloud-based service parts management solutions easily integrate into existing ERP systems, allowing manufacturers to track service parts, eliminate excess and obsolete stock and forecast when new parts are needed. These practices are critical for meeting customer expectations in the vehicle subscription era.
Make data actionable
As cars become ‘smarter’ with more sensor-equipped parts, manufacturers must use the massive amounts of data they are collecting to improve the customer experience. To maximise product uptime and ensure vehicles are always up and running, automakers must invest in the right technologies to truly make data actionable.
The backbone of all efforts to optimise the service supply chain is big data. Gathering, analysing and using data provides manufacturers with previously unimaginable advantages – giving them the tools they need to reduce excess spend, maintain equipment, meet increased demand and so much more. With the help of IoT, manufacturers can predict the future, target individual consumers and scale rapidly.
It’s clear that we are in the midst of a dramatic change within the automotive industry, one that is forcing manufacturers to redefine the way they do business. Car sharing and subscription will certainly change the way consumers interact with their favourite automotive brands. Being quick to react to service and repair requirements is good but to be excellent, the emphasis needs to be on pre-emptive maintenance, which requires more sophisticated management of service parts and after-sales service. This advice will equally work for construction rental companies and manufacturers in other verticals. Businesses must ensure customers are always satisfied, redefining their service organisations to meet these new demands.
Gill Devine, VP EMEA, Syncron
Image Credit: Montri Nipitvittaya / Shutterstock