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The Auto Business in a Post Covid World

There’s a funny post circulating on LinkedIn purporting to be a survey that asks, "Who led the digital transformation of your company?

A) CEO B) CTO C) COVID-19."

Like most good jokes it has some depth to it. Prior to Covid-19 the thought of allowing a prospective customer to take a car for a test drive without a representative from the dealership was unthinkable for most. Now it is becoming the norm. If the risk can be managed, is this a bad thing if it continues? There are many other examples such as more online purchasing, completing finance documentation completely online and booking services online etc.

All these seem to be big pluses for the dealership, but the more business that moves online, the more your business will compete with other dealerships and those companies that are already disrupting the automotive dealers’ business. Non-franchised dealers and new age service outlets were already eating the franchised dealers’ lunch and mainly with digital tools.

There is profound change afoot on the demand side and the supply side for the franchised dealer. Some predict 25% of all UK dealers will either disappear or be consolidated in the next few years.

The Auto industry was already facing more challenges than ever before with the technologies known as CASE (Connected, Autonomous, Shared, Electrified). These are greater challenges for the manufacturers, but they were always going to change the way vehicles are bought and serviced. During the Covid pandemic many manufacturers closed or reduced production. They will now be re-opening them in the midst of a recession. Many leading manufacturers were already not happy with their profitability in Europe prior to the Covid-19 pandemic. There are murmurs of partnerships or consolidation around JLR, Aston Martin, and Bentley. Some previous partnerships such as Renault and Nissan were already under pressure. It is speculated that Ford will accelerate the changes to their dealers and perhaps leave the European market altogether. Chinese manufacturers may take advantage of the post Covid recession and enter Europe with low cost vehicles just as Kia and Hyundai took advantage of the 2008 recession. VW has introduced an agency model in Germany for electric vehicles and are likely to do the same in the UK. More will follow this route and perhaps it will extend beyond EVs.

Change is coming to the franchised dealer from both sides, the supply and the demand. This spells profound changes to their business. The auto industry is at a once off pivotal stage of change and this is not like previous changes caused by recessions or WW2.

This may sound like a very pessimistic view of the world for dealers but with great change comes great opportunity - for those that recognise it and adjust accordingly.

One thing, and one thing only will determine who are the winners and losers - Great Management. There are many good managers running auto dealerships up and down the country but not as many great managers. Covid-19 may have advanced everyone’s digital transformation, but it was already underway in the dealerships of great managers. They recognise that there is a need for strategic change. They recognise that once these initiatives are put in place, they need to lead this change. The greatest tool to lead change is information. More than 25 years ago Jim Barksdale of Netscape said “If we have data, let’s look at the data. If all we have are opinions, let’s go with mine.” Great managers demand data to support decision making and drive performance.

Previous blogs from this company already articulated the challenge of Big Data versus Wide Data in automotive and the increasing need in all businesses for Data Analytics (Why you need to be data driven now more than ever). No one seems to have solved the problem of bringing data from all the different systems used in automotive dealers into one place. The great manager has had to compromise with lots of spreadsheets and all the problems associated with them. Their high cost of collation, their inaccuracies, their one size fits all and difficulty in securely distributing them to where they are needed in the business was once previously tolerated. With all these changes afoot, the great manager recognises that the old ways will not cut it anymore. Too many decisions made on opinion means more wrong decisions and this equals failure.

Business Intelligence (BI) or Data Analytics tools are the obvious answer. The reason they are not already widely deployed is that they are very expensive, there are long lead times to deploy them, they tie up valuable management time whilst they are being scoped and rolled out, and like many large complex projects, they often fail.

A disruptive business model which shows the most promise is Cloud based BI provided by a third party that has the technical and automotive business expertise. Cloud solutions are becoming the norm for almost all IT solutions, and now is the time for outsourced BI that delivers the internal reporting needs to the franchised dealer.

The dealer engages with the outsourced BI company on their business needs and leaves the technical stuff to the supplier. The BI company has already built a reporting suite for the CEO, CFO, Brand Directors, Area Managers, Dealer Principals, Aftersales Directors and caters for the unique needs of the Sales Manager, Service Manager and the Parts Manager. Benchmarking at salesperson, service advisor, technician levels works out of the box. Benchmarking at company level with external composites such as ASE comes as standard.

You don’t need to worry about security and GDPR as the supplier will be more expert than your internal IT department. This company recently went through a due diligence process that was carried out by the prospective customer’s dedicated IT resource for carrying out due diligence on suppliers. This took over 3 months and the norm for this auto company was 6-8 months. This means you can trust this company.

The cost to the outsourced BI company to build a solution is not much different than it would be for an automotive group. A basic system would cost £100ks, a good solution will cost more than £1M, a great solution is many £Ms. However, once it is built by the outsourced supplier it is then accessible to the small dealer for less than £600 per outlet per month, for the larger group it is less than £200 per outlet per month. This is a small cost relative to the benefits that flow from increased margins, higher productivity and higher sales across the business. This company has customers with 3 outlets and one with over 30.

During WW2 Winston Churchill said, "Never waste a good crisis". Covid-19 may have kick started your digital transformation but now is the time to make it the catalyst for transformation.

For more information, please email auto@realworldanalytics.com.

Real World Analytics delivers the right information, at the right time, to the right person to make strategic decisions to improve overall efficiency and profitability in the business. Enabling automotive dealer groups to increase their profitability with cloud solutions by unlocking actionable insights using their data.