Unlock the keys to the future of car ownership

Tuesday 20 August 2019

Article

Buying and running a car is not the set of discrete transactions it once was: drivers no longer buy a car from one place, have their vehicle serviced by another and then sell it on elsewhere.

Now, they have a range of options that break down the traditional models of car ownership and package it up in new and accessible ways. Financing mechanisms such as personal contract purchases or monthly subscription models, for instance, enhance affordability, which when combined with service bundles, modern warranties or even insurance are offer convenience, predictability and peace of mind.

Although currently confusing for consumers, the many variants will bring benefits through challenging the established providers as well as targeting specific consumer needs that are poorly fulfilled with the traditional model. For the established players in the automotive industry — and new entrants alike — there is an enormous new profit pool to play for.

As a business, are you thinking ahead to where and how you want to play? We’ve listed out the areas where we believe the most interesting opportunities lie.

Comparison solutions

Consumers face a bewildering array of options when deciding how best to finance their car purchase, and which services to buy in their bundle. They need help to navigate their way through these, which is where new comparison solutions will step in.

These will consider more than just price. Financing intricacies, vehicle specs, insurance extras and service plans are detailed and wide-ranging. Any business able to explain the complexity and offer consumers independent advice will become a valuable part of the ecosystem as well as a potentially lucrative media platform for advertising too. The latest features of digital platforms such as Autotrader and carwow as good examples.

It’s a prime space for a trusted brand to occupy — either a traditional auto brand or a newcomer.

Precision targeting

There’s no excuse today not to know your customer and what they’re prepared to pay for. For some, that will be service and convenience, for others it will always be the lowest cost. Either way, more precise customer segmentation will give automotive participants the opportunity to drive conversion and margin.

Whichever businesses can flex their retail muscles to create propositions that align with customer needs will have the best chance. Those lacking digital capabilities will lose out.  Many brokers in the market have been growing strongly, serving both businesses and retail consumers, and have taken an early lead.

It’s an opportunity that could be served well by a partnership approach. Could a manufacturer and insurance firm work it out? That’s already happening in the German market. Or will retail giants like Amazon step in instead?

From employee to direct-to-consumer sales

For consumers who previously obtained their cars via their employer, the incentives stack up less often.  But company car providers to have expertise in selling and operating monthly subscription models. The question iscan the customers be retained within the corporate channel, or do they need to open up to the wider market to stay in growth?

It’s a threat to the leasing companies which have traditionally served the corporate channel, but a potential opportunity for manufacturers. The key to success will mean navigating this channel shift and working with new partners to reach the employee-consumer directly.

Used car market expectations

Customers in the market for used cars will increasingly demand financing, service levels and bundled offers on a par with the new car market. We’re already seeing the model of flexible service purchasing and service options emerge through businesses such as Leaseplan Go, while British Car Auctions (BCA) has been directly retailing former company cars for more than a year.

Second hand customer expectations will only continue to rise, especially as the technology curve currently running through new cars filers through to the second-hand market. Smartphone-linked entertainment systems and driver assistance technologies will become the norm and will require ongoing service options.

Electric vehicles drive subscription

Many talk about the eco-benefits and range anxiety of electric vehicles.  But the industry is yet to fully understand, let alone communicate, the lifetime running costs associated with electric vehicles. One thing’s for sure – consumers won’t tolerate high, one-off costs for battery replacements.

To avoid this, the leasing model is proving a good testing ground for electric vehicles. In future, will electric vehicles become the driving force for widespread adoption of subscription? Imagine a bundle that includes the cost of electricity and battery replacement, for example. This is already emerging in the fleet market.

Take that one step further, and imagine a market where electric vehicles, which are less affected by mechanical wear and tear than traditional petrol and diesel vehicles, could be upgraded with the latest technology before being passed on to the next user. It’s already standard practice in the airline market and could become a compelling proposition for environmentally aware consumers and forward-thinking leasing or rental companies.

Direction of travel

It’s going to a challenging and fun decade ahead for the automotive industry but these five opportunities highlight the unstoppable direction of travel. Expect cars in the future to be packaged, sold, priced and marketed in a different way to today.

As with any change, there is a lot to gain and a lot to lose. Companies need a clear and realistic vision of where to play, and to invest accordingly now, to unlock the value in the road ahead.

This article first appeared on Automotive Management Online, 3 May 2019

OC&C contacts

• Mark Jannaway, Partner
• Nicholas Farhi, Partner
• John Evison, Associate Partner