By Rohit Talwar and Alexandra Whittington

How might a deep focus on customer-centricity revolutionize the automotive sector?

The automotive industry is undergoing a period of rapid and radical transformation fueled by a range of technological innovations, digital advancements, and wave after wave of new entrants and alternative business models; as a result, the entire sector is seeing major disruption. Here we highlight the key drivers of change for the sector and explore possible outcomes in such a rapidly evolving market.

Rise of the Sharing Economy

The sharing economy is transforming transportation in several unexpected ways. Uber, probably the best-known example, has its own unique ecosystem of passengers, drivers, and car owners. It has shown itself to be revolutionary enough to disrupt the taxicab system worldwide. Uber brought about this disruption without owning a single vehicle or—until recently—employing a single driver; instead, it has achieved a valuation of around US$68 billion through the magic of smart phones.

The Uber story goes to show that a car is no longer just a thing to drive, but a service that meets the needs of consumers who’ve been priced out of ownership or prefer on-demand use of transportation. Today, a car is a potential source of passive income for its owner, and a flexible asset for the start-up companies that would like to be middlemen in the continuum from car ownership through to car ride services based on “usership.” Where we once talked of selling or leasing to an individual, cars in a shared ownership scheme typically have anywhere from 6 to 40 joint owners or lessees.

Sharing models reduce the cost of ownership for the individual but can dramatically increase the level of usage, the rate of wear and tear, and the servicing costs for the warranty provider. Over time we might see smart data services emerge that draw on the mass of sensor data coming from the car to profile each individual’s usage of the vehicle and charge them accordingly. Where the vehicle is provided on a shared lease basis to the user pool, then the costs to the fleet owner can rise because of this potentially dramatic increase in usage rates of each car.

Smart Device Revolution

There are a number of ways innovative new companies are hoping to help the automotive sector adapt to the needs of the emerging transport consumer. Business models are embracing at least three consumer priorities when it comes to using a car: driving, owning, and sharing. And it just so happens that these three priorities are best coordinated via smartphone, a mega-trend transforming business and industry across the globe.

In India, for example, where an on-demand car economy is thriving, Zoomcar, Myles, and Revv are three notable start-ups hoping to change the car driving ecosystem. These rental fleets seek privately-owned cars to place in service for customers to rent while the owners are not using them. So rather than pay fares to ride in someone else’s vehicle (as with Uber), Zoomcar lets drivers rent and operate someone else’s personal car, allowing Zoomcar to keep its inventory low and maximize profits.

Start-ups like these may be involved in the loan contracts for independent owners to purchase new cars specifically for the purpose of leasing them out for extra income. As a new business model, sharing means multi-stakeholder automobile purchases enter the mainstream. The decision base for consumers’ transportation options is growing wider. For example, consumers may opt for larger cargo space or bigger passenger seating areas depending on what they can earn from leasing different types of vehicles. Their purchase considerations may involve not only their own needs, but also the potential to profit from the product they are purchasing.

The model, if proven, could start to create interesting alternative options for more traditional fleet owners and car rental firms. A sufficiently large pool size should ensure availability on demand, reduce capital investment, and lower ownership costs as a result of transferring these to the car owners. More creative schemes might include shared or fractional ownership of private vehicles in return for a guaranteed level of access. Equally it could generate additional potential revenues for fleet owners and individual drivers if their vehicles could be rented out when not in use.

Differentiated Automotive – Mobilize the Fleet

The question arises: Why be limited to just one type of automobile? There is a growing on-demand car audience being served through the “car club subscription” service model of ownership offered by the likes of YoYo and Clutch. Rather than purchase, or lease, a single car, this type of program entitles the member to the use of a car, or fleet of cars, as needed. In this scenario, the driver could choose an SUV for shopping and a sports car for weekend road trips. There is little need to commit to a single car if you do not want to. With limited access for anyone not living in large urban areas, partial or shared car ownership may become a symbol of cosmopolitan living, like a subway pass or bus card.

For those who wish to continue the traditional car-owning experience, the choices for shopping and finance will be as varied as the design and engine options available to them. Automotive e-commerce, like car design itself, is experiencing a renaissance, with players like Roadster and Carvana re-defining the car-buying experience online. These are deal-oriented websites selling cars, supported by brick-and-mortar outlets, but with a mission to put to rest the imagery of wheeling and dealing with salesmen on car lots.

The Connected Car

As we see an increasing level of electronic functionality in the “always on” vehicle, so the nature of the business model changes—with the potential for new revenue streams to emerge. The bigger the installed base of connected car owners we serve, the broader the range of services we can offer. Opportunities range from securing discounts through aggregated buying of fuel, to directing the driver to a specific repair garage when the sensors detect the tires or brakes need replacing. Aggregating the data collected from sensor-rich vehicles will also enable the creation of a range of new information products that might become a valuable revenue stream over time.

The advent of thin film display screens will allow us to charge advertisers to display dynamically updated promotions on the external surfaces of the car. The advertisements might change regularly as we drive through neighborhoods with varying citizen demographics and wealth profiles. A number of players could act as the electronic service provider here, taking a range of income streams from the various activities.

Consumer Trends

A growing number of automotive sector start-ups recognize that the modern car consumer is educated, comparison-oriented, savvy, and knows what they want. While it may sound like a luxury service, the future of car buying online is expected to be highly practical, and designed for the time-poor car buyer. The new automotive e-commerce looks a lot more like Amazon than personal shopping in a department store; Carvana, for instance, has used glass storage towers of cars to cultivate its image of selling cars by “vending machine.” The new online car vending approach seeks to replicate a shopping app: Select, purchase, and receive your new car from a warehouse in a simple, fast, and seamless experience.

With all these emerging options, vehicle financiers need to think about how the flows of money through the system are changing and how to make the most of opportunities available to potential customers. They will need to decide whether to take on the risks that come with acknowledging they have little influence over what consumers decide to buy, and no control over what the consumers actually do with the final product.

The sharing economy is all about decentralization, something that is made more and more feasible as smart phones, for example, assist consumers in obtaining their precise wants and needs. It’s time to recognize that customers are taking back power that used to belong to the banks, the manufacturers, and the dealers, and they’re using the technologies in the palm of their hand to do it.

• What strategies might traditional companies adopt in order to win in the face of the wave of disruptive changes on the horizon?
• As more accessible exponential technologies democratize driving, owning, and sharing, what broader impacts could these changes have on society?
• What new business models might emerge around the use and ownership of vehicles?

This article is excerpted from The Future Reinvented – Reimagining Life, Society, and Business. You can order the book here.

Image:https://pixabay.com/images/id-3003633/ by Spirit111