During the 1928 Presidential election, the Republican Party famously declared that President Hoover would, “Put a chicken in every pot, and a car in every garage.” Henry Ford had perfected the technique of turning producers of cars into consumers, and the automobile was viewed as not only a status symbol, but a type of conveyance that would open opportunities to anyone.
Since the time of Ford and Hoover, there have been energy crises, innovation, dramatic expansion of car ownership, and linkage of car emissions to climate change. In the United States, the amount of money collected from federal, state, and local gas taxes have gone down as automobiles have become more fuel efficient. States such as Colorado, California, and Delaware are now studying the effects of a usage tax,also known as a pay-by-the-mile tax, to make up for the drop in traditional gas taxes.
Electric car manufacturers such as Tesla continually turn out automobiles that are accessible to the every day consumer. Ride sharing companies such as Uber now provide a cost-effective alternative to car ownership for many people. Smaller car companies such as Wheego and Fisker are offering innovative alternatives that compete with the massive, established automobile manufacturers. Even traditional automobile manufacturers are using IoT devices and smart cars to create an environment in which the driver and passenger is connected to the outside world.
Combine this with evolution in consumer behavior where consumers would rather have relationships with companies rather than outright ownership, and automobile manufacturers could quite potentially have a problem on their hands. Business models need to transform if traditional automobile manufacturers are going to survive.
Companies such as Audi and General Motors are already beginning this transformation. Audi offers “Audi Connect” which provides navigation services, parking information, roadside assistance, and smart phone integrations such as Car Locator and Remote Locking for a monthly price. Audi also bought the rental car company Silvercar in 2012.
Silvercar rents Silver Audi A4s at various airports around the United States. Both services create customer delight and ensure that Audi owners stay connected to Audi even when far away from their own Audi.
General Motors offers a Cadillac Subscription Service aimed at high-end buyers. For $1500 per month, subscribers can own a Cadillac and trade it in at their leisure. These companies are starting to transform themselves from companies that sell automobiles to companies that provide services around automobiles.
One way that large automobile companies can survive, and smaller ones can compete against larger manufactures and ride sharing companies, is to combine what Audi and GM are doing and leverage subscription tools such as Zuora, Aria, goTransverse, Billing Platform, and Salesforce Billing to increase automobile usage and create relationships with their drivers.
By leveraging IoT, usage metering, rating, and customer tokenization, automobile companies can transform their customers into subscribers. They can create pay-by-the-mile pricing models that will allow subscribers to choose cars based on tiered pricing; the better the car, the more the subscriber pays per mile. Going to a different city? The automobile company will have a car waiting for you using a similar pay-by-the-mile arrangement.
Plans can be tiered based upon options that allow for cars to be traded in during certain times, wear and tear handling, major repairs, etc. Cars that have been traded in can be discounted and put back on the road until the analytics determine that the car has outlived its useful operational period. Automobile companies can leverage analytics to create a more personalized subscription experience as well as really understanding the habits of their driver.
This arrangement has many benefits for both the automobile company and the subscriber. Quite simply, for the automobile company, it puts their cars on the road, creates visibility for their brand, and shows how creating a relationship vs. selling model can be a win-win. For the subscriber, they can get a new car whenever they want, keep up-to-date with the latest technology, and gain a trusted relationship with their chosen car company.
The intimacy of these relationships would only increase as self-driving or headless cars hit the market. Instead of locking a car through a smart phone app, the subscriber would have the ability to call their model car from anywhere in the country.
The technology has already been proven out by bike sharing companies who charge a usage rate for their users, insurance companies who use IoT devices linked to automobiles to determine driving habits and pricing their insurance premiums accordingly, and smart apps that link the driver, car, and automobile company.
Car leasing has existed for quite some time. With some modification, costs and profit can be calculated in a per mile price. So all of the ingredients are there.
Who will be the first automobile manufacturer to put it all together and truly disrupt the marketplace?
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Michael Giacometti is a Principal Consultant for ATG. Michael has provided industry expertise to external research agencies like Forrester and MGI Research, and created new B2B, B2C, and B2SMB channels for clients leveraging innovations in the gifting, sharing, and subscription economies.