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.


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.

Three Requirements for Online Car Buying

In this post, I am going to elaborate on Dealer Systems in the Consumer Space.  Every system in F&I must have a counterpart in the consumer space.  The diagram below shows the traditional dealer process in orange, and consumer systems in blue.


Each of the six tasks is now, or will be, available to customers online.  Obviously, these are web based systems and, for best results, they are also mobile.  Each consumer system must:

  • Share data with its dealer-system counterpart
  • Share data with other consumer systems
  • Save deal data for later use

Each consumer system must share data with its dealer-system counterpart.  If it quotes a VSC rate, the customer will expect to see that rate on the menu in the dealership.  If it obtains a credit decision, the customer will expect the dealer to know about it.  There are various ways to accomplish this.  In the VSC example, both systems should be reading rates from the same API.

Consumer systems must also share data among themselves.  Vehicle data is input to VSC rating, price is input to deal structuring, and the “line five” subtotal is input to credit processing.  It’s a good idea to keep a data-flow diagram handy.

Finally, the consumer systems must cooperate to store in-process deal data.  Customers should be able to choose which tasks they wish to do online, and then save the deal to be completed at the dealership.

I am mainly addressing new entrants from outside the industry, who may have a good system for one of the tasks, but fail to connect with the others.  This may also include dealer groups moving into online car buying, and system vendors like Cox.  My chart of platform capabilities is here.

Luddites in Las Vegas

At this year’s Industry Summit, I attended a session called Presenting F&I Products Online.  I have strong opinions on this, and I wanted to learn what other people are doing.  I wrote here about using an expert system.  Would I find my colleagues using apps, widgets, expert systems, and analytics?  Do they have a menu for consumer use, with responsive design that runs on an iPhone?

Sadly, this session was not so much about how, but whether to present products online.  This may explain why I got blank stares when I did this survey last year.  I am biased, so I will try to be fair with the other side.  Their argument is:

F&I is the last place we can make decent gross, so why would we screw that up by putting it online?

They assume that disclosing, say, VSC rates on a consumer site will inevitably lead to lower margins.  Well, maybe.  Consumers can apply for credit online, including direct lenders, and that hasn’t harmed dealer reserve.  A robot will never sell as well as Justin Gasman, but a consumer on a web site has all day to self-close.

Even if we assume that putting products online is bad for margins, the question remains whether we can hold back the tide of internet commerce.  This brings me to the Luddites.

In the early nineteenth century, Joseph Jacquard invented an automated loom that put a generation of weavers out of work.  The Jacquard loom can be programmed to weave complicated patterns, using punched cards.  This was the first time skilled workers had lost jobs to something resembling a computer.

The weavers didn’t take it lying down.  Organized under the apocryphal Ned Ludd, they set about smashing and burning power looms all over England.  I am wearing a silk jacquard shirt as I write this, but Luddism lives on wherever people fear losing out to technology.

This is not to demean thoughtful people like panelist Mark Thorpe, who quite reasonably want to see profits kept up for their dealers.  From my perspective, however, protection products will inevitably be offered online.  Consumers want to buy cars online, and providers want their products included.

When customers want something, the market has a way of giving it to them.  If it’s not the usual vendors, like Cox and CDK, then it will be technology startups like ShowroomXpress or new entrants like Amazon.  I see a parallel here with TrueCar and transaction prices.  The Luddites say these dealers are cutting their own throats.  I say they’re planning for the future.