Category: Strategy

Stop Worrying About Self-Driving Cars

I am planning an article on car dealer “megatrends,” and this is the first item not making the list.  It’s a sexy topic, though, and journalists can’t leave it alone.  For example, here is top Cox guy Mark O’Neil trying to change the subject.  Mark would rather talk about online sales which, with predictive analytics, is a key trend dealers should be watching.

Autonomous vehicles are part of a cluster of technologies which have the potential to reduce car sales, dramatically in some scenarios.  This McKinsey study does a nice job of explaining the cluster.  In short: car rental fleets go away because everyone uses Uber, and Uber drivers are obsolete because the cars drive themselves.  Car ownership will be fractional, like a time-share.  If you do own a car, it can work as a taxi all day while you’re at the office.

This is indeed a formula for sharply reduced car sales … in Europe.  Most of the U.S. is sparsely populated, and poorly served by public transportation.  The Boston Consulting Group has produced the best study on autonomous vehicles, here, and this is from their study on car sharing:

Car sharing … will not do to the automotive business what iTunes did to music: it will not redirect a stream of revenues to a disruptive upstart, and it will not spark a widespread change in consumption.

The BCG predicts that, by 2021, car-sharing will have a trifling impact on U.S. sales: fifty-two vehicles, total (chart on page 11).  They predict that fully autonomous vehicles will not be available until 2025, and will not be 10% of the market until 2035.  It is only these vehicles that trigger the nightmare scenario for car dealers.  “Driver assistance” systems are luxury features, which boost dealer profits.

sae-levels

NHTSA policy guidance is based on the five-level SAE model.  This roundup, from Automotive News, envisages Level 4 autonomous vehicles by 2021.  No manufacturer is even guessing at a date for Level 5.

Bringing these vehicles to market is an important challenge for the manufacturers, and they will have an important impact on society.  They will not change the business of selling cars, however, for a good long time.  For car dealers, other trends are more urgent.

Links for the two BCG studies, in case you can’t download the PDFs: Car Sharing, Autonomous Vehicles.

Cox Strategy Redux

It has been a few months since I posted my lighthearted Cox Automotive home strategy game.  In that time, four new projects have been announced linking members of the conglomerate.

I am still watching for some extension of auction functionality into the used-car department, maybe leveraging vAuto.  No word yet on the development of COXML.

The Expanding Dealer Automation Space

In my earlier article on Cox Automotive, I wrote that the subsidiaries tile our “function space.”  By this, I usually mean the F&I function space, although Cox is broader than that.  In today’s post, I will explain about function spaces and why this idea is important for software strategy.

Let’s say that you have been asked to identify all the functions performed in the F&I office, and then find software to automate them.  I did exactly this for AutoNation, back when PVR was $600.  The first thing you discover is that a simple list won’t do.  You at least have to put the functions into workflow sequence.

Tasks in sequence are a one-dimensional function space: a timeline.  This will help you to define where the credit process ends, for example, and menu selling begins.  Ah, there’s the rub.  Maybe the workflow branches out, and now it occupies two dimensions.

As I wrote in F&I Magazine, the workflow that produces a finance contract is a lot like the workflow that produces a VSA.  If you can picture the “F” workflow as parallel to the “I” workflow, this is much more useful than a simple timeline.

Function Space

Typically, when you see a diagram like this, it is already partitioned into the familiar systems: CRM, Desking, etc.  That’s the definition of “thinking inside the box.”  If you were designing an integrated system, you would want to start with the unpartitioned space.  That’s the only way to properly scope and organize your web services.

In fact, it may give you some new insights about how to pass data and control among the functions.  Should a desking system pull VSA rates?  Should the menu run OFAC?  Can you instantiate a “deal object” somewhere, and pass it by reference?

Last summer, I wrote about mapping dealer-system functions onto the consumer space.  So, that’s a third dimension based on who the user is, plus a strategic imperative that the online experience must dovetail with the dealership experience.

Pillars

What we see with Cox Automotive is an expansion of the domain covered by a single vendor.  The space dominated by the old CDK-Reynolds duopoly is a subset of this one (I will illustrate this in a later post, using a function point inventory).  The overarching function space was always there, of course, but it was filled with disconnected niche vendors.

In practical terms, this means that an increasing share of the dealer’s software budget will flow to integrated vendors outside the duopoly domain.  Since this is a strategy post, I will close with a Go metaphor.  Reynolds and CDK have been playing the game on a quarter board, and now Cox has highlighted their absence from the other 280 points.