These are challenging times for American automakers. Recently the Big Three (Ford, GM and FCA) all lowered their profit forecasts, citing a litany of headwinds: higher commodity costs as a result of steel and aluminium tariffs, unfavourable foreign exchanges, and tough Asian markets.
Meanwhile, Tesla’s internal production issues have been well documented. It has built too many robots. It has constructed a very large tent to house an emergency assembly line. It’s asking its suppliers for refunds. The chief executive is sleeping in a cot on the factory floor.
However, there’s no cause for concern. No doubt there will be some more bumps down the road for the American automotive industry, but as long as it places as much effort on connecting drivers as it does on connecting cars, then its future is secure.
What does that mean?
The automotive industry has always been relentlessly focused on customer loyalty, but there’s a different issue at stake here: direct customer relationships. Today, those relationships sit with the dealers (Tesla is a notable exception here). It’s a messy, indirect sales model screaming for more direct connectivity between drivers and the people who make the cars.
Think about it—in most cases, cars are not sold by the automakers, but by licensed dealers. Once driven off the forecourt, the dealer may never see that car again. And who handles the maintenance, or any complaints? A licensed garage. The manufacturer may never have any further encounters with that buyer.
Consider another storied American manufacturer: Apple. Although it hasn’t admitted it outright, Apple’s management team appears to care less and less every year about how many iPhones it ships, and more and more about how much revenue it’s growing per customer (or individual Apple ID).
The company’s February 2018 earnings call was almost exclusively dedicated to highlighting its service revenue, which at US$31.15bn in 2017 was enough to constitute a Fortune 100 company in its own right. That revenue is growing at 27% a year, and represents over half of Apple’s growth.
In short, it’s no longer about the units, but about the users. Apple owns the customer relationship, so it owns the growth. As Goldman Sachs analyst Simona Jankowski noted last year, “The smartphone battleground is shifting from unit land grab to user monetization.”
The same principle applies to cars. Just look at the explosion in new automotive subscription offerings on the market: Volvo, GM, Cadillac, Ford, Porsche, Lincoln, BMW, Jaguar, Mercedes-Benz, Hyundai, etc. This is a very telling trend.
But automaker subscriptions are far from just being a fancy word for a lease. With subscriptions, everything is covered except the fuel: insurance, maintenance, wear-and-tear replacements, 24/7 customer care. And what’s more, many such programmes permit vehicle switching, depending upon a customer’s needs (or mood!).
As Christina Bonnington of Slate notes, “You could theoretically not have a car for ten months of the year when you’re working and using public transit and then get a car subscription for two months when you’ll be traveling more often.” Users pay only for what they use, and when their subscription ends, there’s no messy financial reconciliation.
In other words, people sign up with the company, not the car. And that’s hugely important. Remember, the new mandate is no longer about unit sales, it’s about developing direct customer relationships.
Automakers are in the midst of reimagining themselves as not just car manufacturers, but transportation solutions. They want to own that single user ID that gets people from point A to point B.
They recognize that true Mobility as a Service entails taking advantage of all sorts of modes of transport, not just driving. And they see that as a huge opportunity. That’s why Ford is buying bike share companies, for example.
But first, they have to own that ID. They have to focus on establishing direct commercial relationships with drivers, not just outfitting cars with sensors and connectivity.