The automotive sector is at the intersection of a number of tech fuelled trends that should have already created transformational change. The fact that the model still hasn’t significantly changed is testament to how ingrained car ownership is in society and how unable or unwilling manufacturers have been to drive fundamental change. Whatever the reason they will need to shake off their current mindset as we are heading towards a point where the current model could be unrecognisable in as little as five years’ time.
Car clubs lit the paper, Uber fanned the flames, but automation will pour fuel on the fire.
So what’s behind the change?
The importance of ownership is declining with the growth of the sharing economy – evident in everything from the fractional ownership model at one end of the spectrum to the rise of streaming services at the other – who needs to own when you can access anywhere? Spotify and Netflix are the darlings of experience over ownership and Zipcar and NetJets have proven that this model is viable with assets that aren’t unlimited.
There’s also less money around, so people want to make it work harder. Yes, interest rates are low and money is cheap, but when you have a house deposit to save for and student debts to pay off, which millennials wants a big chunk of your capital sat on the driveway doing nothing? The average vehicle is only used 4% of the time, spending the other 96% parked up, depreciating. AirBnB has awoken people to the power of dormant assets and at the end of the month mortgages and car loans aren’t that different when it comes to emptying your bank account.
Social trends are leading a decline in desirability – in the UK we’ve seen an 18% drop in 17-19 year olds taking their tests since 2007, and a 10% drop in 20 year olds. Fewer people are seeing the value in learning to drive as mobility options increase, and the associated costs of ownership such as congestion and parking charges grow ever more numerous.
Start-ups are constantly driving change in user expectations. Customers demand smarter solutions fuelled by data every day and the car should be no different. It is already prevalent in the sector with car clubs and telemetric car insurance meaning you only have to pay for what you use; why pay for something that you don’t use for 96% of the time?
The impending automation of automotives is the most significant harbinger of change. What happens to performance bragging rights, driver-centric technology and the joy of driving when everybody’s a passenger? Yes, in a world of restricted speed limits the marketing messages may move on to superior AI, luxurious comfort and IT security, but they feel like toothless gears compared to 0-60 times, top speeds and the commanding driver positions that currently sell most cars.
The impact of automation will change cities, jobs and lives. Automotive manufacturers are already reacting to this with new technology, R&D and improved products, but learning how to become true service brands will be just as important as any new product launch.
In the short term automotive companies will cut their teeth as service brands with the marketers’ go-to personas – young, socially mobile urbanites with access to services where they are affordable and easy to implement for the supplier, but how will they be relevant to an out-of-town family dependent on their car three times a day at no notice, away from Uber and without Zipcar stations on their doorsteps?
Even in this case it will no longer be good enough to sell a car once and not engage with the end user until the time comes for an upgrade or a service. If we’re to look to traditional car manufacturers for mobility solutions (rather than Tesla or tech companies), then they need to change their approach to be more user-centric and experience focused. By developing a service brand offering with flexible, customer-centric solutions they will earn the insights, loyalty and connection with their consumers, helping making the brand fit for the future of mobility alongside their products.
After all, change brings opportunity. Manufacturers have long struggled with the loss of customer relationships to franchise garages and dealers – an ongoing service relationship would give them a much deeper, direct understanding of their customers and some welcome disintermediation. It will be these learnings and relationships combined with technology that ensure smart companies thrive when the change in automotive really gets moving.
Phillip Kassapian is business development director at Hugo & Cat.