The current business model of OEMs is under threat and they are increasingly turning to connected services as a way of increasing their margin.
Large long-term projects such as the development of fully autonomous cars are no longer the focus. As we have seen in their decision to close down ARGO AI, Ford and VW see semi-autonomy as a bigger opportunity for more immediate revenue.
Cars are increasingly being packed with technology making them expensive to buy, to service and repair, thus resulting in customers choosing the vehicle with the best in-car technology or add-on services and products, rather than a specific car brand.
OEMs are seeking to find ways of using this technology and its associated revenue-enhancing data to increase their income. And while some OEMs are doing this successfully, such as Tesla, traditional car manufacturers are finding the transition from a product provider to a service provider more difficult.
Connected car users
The battle to control connectivity of car users has already been won by technology providers delivering services through smart phones. Consumers increasingly rely on the services delivered via smart phone connections that they consume both inside and away from their cars.
Auto Trader’s Ian Plummer believes that the direction of travel is changing and we need convergence between car tech and phone tech in the car, with partnerships between OEMs and software tech companies. The use of smartphones and applications within the car is a necessity for most drivers who want to be in the car whilst accessing out-of-car experiences via their phone.
Creating two different environments – one inside the car and one outside the car – makes little sense for consumers, and therefore OEMs need to focus on this and provide an “overarching experience” linking the smartphone experience with the car.
OEMs should therefore focus on partnering with non-car connection providers rather than seeking to develop their own separate ecosystem. Plummer believes that there is a need for OEMs to partner with software companies such as Google or Apple pointing out that, “there is a lot of benefit in manufacturers being realistic about who they should be partnering with.”
At best, if OEMs successfully create separate systems this will create a fractured experience for consumers using one system in their cars and another elsewhere. Plummer feels that there is an increasing danger for OEMs who are trying to do everything themselves as a manufacturer and forcing the consumer in to a situation that isn’t particularly consumer friendly. The more likely outcome is that customers will continue to use their phones to access connected services and connected car alternatives will be ignored.
Car companies should instead focus on the more achievable driver-specific services like parking and insurance, where it makes sense to connect the service to the car and not to the car user.
Plummer believes that people are becoming less concerned about the car brand and spec and are choosing the vehicle with the best in-car technology and add-on services and products. The USP of cars is gradually moving towards the tech within it and the added value this can bring to the consumer.
With this transition in the auto industry, John Ellis sees an opportunity for the OEMs to play a new role as “a trusted broker or a trusted transactable agent, where we think about the car having an account”.
Culture change from product provider to service provider
Traditional car companies are still focused on using additional technology features as a trigger to replace the vehicle and have not yet thought through the implications of a connected service model which allows them to turn new functionality on or off without replacing the car.
OEMS need to understand the difference between this old model of triggering car replacements and the new service-focused model and to think about what this new ecosystem looks like.
The new consumer-value driven model will put the customer needs at the centre, rather than the need to increase revenue. This model becomes less about triggering a transaction, and more about building a relationship through supplying services over time.
This reorientation from simply selling a vehicle as a product provider to entering into a long-term brand relationship with the consumer as a service provider is something that will not come naturally to the OEM according to Ellis.
John Ellis believes that trust and reorientation are a different proposition for the OEM: “It comes down to the trust and reorientation of just trying to push the new car versus trying to help the consumer move from point A to point B consistently and safely, and with consideration to the environment; that’s a different prospect and a different brand proposition.”
Tesla have achieved this most successfully with propositions that make sense to customers and build trust and loyalty.
Many OEMs have tried to replicate Tesla’s model with subscription offerings, but in a number of cases (heated seats subscription by BMW and key fob debacle by Toyota) this has led to consumer frustration and potential legal action (in the US). Some OEMs need to change direction, with car brands responding if the customer base is loud enough and cohesive enough in what they are saying, according to Ellis.
The auto industry is transitioning to a consumer-driven industry according to Ellis, who believes that profit for OEMs will follow from exceptional value given to consumers from data. Ellis sees the OEMs’ role changing to a service provider, but only if they gain the trust of the consumer.
As Auto Trader’s Plummer highlights, “OEMs need to enable the sort of functionalities that will create value for consumers which will make them want to have a long-term relationship with the OEM.”
OEMs and dealers need to maintain a relationship with the consumer throughout the lifecycle of the car, making the relationship longer and more durable according to Plummer. This relationship will make the consumer want to stay with the brand as it is creating value without charging the customer for it.
Use cases for connected car data
While connected car data has always been used to enhance the safety and the development of the car, recent examples of OEMs trying to monetise data through heated seats subscriptions and to enhance the performance of the car, for example, has not been implemented as a value-add product in a cost-effective way for the consumer.
Car brands have a huge opportunity to sell more cars through value-add products and look at the data from a more positive angle rather than focusing on subscriptions. For example, connected car data can be used to reward safe driving through cheaper insurance.
Connected car data provides an invaluable digital audit trail of a car. This is valuable data for used car valuations and can result in careful car drivers being rewarded and sharing the benefit of higher used car values. As Plummer remarks, “the more data you put into that mix, the stronger the model becomes, the more robust the analysis will be, and the more useful it will be.”
An OEM will struggle to transition to become a data company but there is an opportunity potentially to partner with a data specialist who can provide that data and work out how to share it with the right people, to generate use cases that add value to each of the stakeholders involved. And this will, in turn, add value to the relationship between the OEM and the customer.
As Plummer confirms, “the real opportunity is enabling a broader partnership-based ecosystem, which allows the manufacturers to tap into these use cases in a way that does add value to the consumer. And by doing that, that they will add value back into their own business.”
Traditional car manufacturers are prioritising the rapid increase of their margin, and they see connected services as one route to achieving this. However, rather than trying to build new car technology themselves, OEMs should focus on partnership rather than competition with tech companies who are already delivering connected services through mobile devices, which are an invaluable necessity for consumers both inside and outside the car.
The connected car service proposition requires a shift in mindset, however, moving the role of the OEM from a less transactional offering to a role that is more focused on building strong long-lasting customer relationships, with the OEM transitioning from a product provider to a service provider.
The positive use of connected car data – from driving the car safely and in an environmentally friendly manner to reduce the carbon footprint to offering consumers convenience and value-add products such as insurance and higher used car valuations for careful driving – will result in an enduring relationship between the consumer and the car manufacturer.