Why does the automotive industry suffer from a systemic lack of technology investment?
Despite the fact that Automotive ranks as the second-largest advertising industry segment in the US for digital ad spending after retail, many dealers continue to make operating decisions through gut-feel and repeat the same suboptimal processes they’ve always used.
OEMs often lack disciplined coordinated effort around the vehicles they produce in the factory, the geographies into which they ship these vehicles, and how they subsequently incent both dealers and consumers to buy.
Outside of automotive, other industries are generally farther ahead in the use of technology to optimize operations. Look no further than the strides made in the areas of retail consumer package goods (CPG) industry in supply chain logistics, inventory management, pricing management and just-in-time delivery.
CPG’s retail supply chain has benefited from the use of advanced robotics, software and sensors. With RFID, retailers can easily track and anticipate stocking needs, helping them optimize inventory replenishment. As a result, stocking efficiency has become a key differentiator and competitive advantage for retailers that adopt these supply-chain technologies.
The airline industry leverages technology to derive real-time supply/demand and pricing data to ensure they maximize revenue yield on every one of the 76K+ commercial flights in the USA per day.
Data: Garbage In, Garbage Out
Besides a general lack of heavy technology innovation in the automotive space, OEMs and dealers have suffered from incomplete and often inaccurate and messy information: in many cases there simply hasn’t been any way to gather and normalize the data needed to make better decisions. Good examples include the industry norm of a VIN decoder that rarely decodes past Trim level (rather than a full VIN lookup based on how that individual vehicle was initially configured on the production line), and industry players having to rely on lagged DMV sales registration data to derive their local market share and understand where they stand versus the competition.
All of the fancy data visualization tools in the world won’t do any good with insufficient and incomplete data to make decisions.
Even if the industry had access to all data needed, we have also been challenged with how best to simplify this information and distill it down to insights that allow dealers to take action to move their business forward.
Dealers need to start challenging their software and technology vendors to explore why we aren’t translating some of the dramatic technology advances experienced in other industries into the automotive industry. We need to allow access to better data sources and leverage technology to derive actionable suggestions to drive increased revenue and profitability for dealerships.
The industry needs to collectively start asking the question: how do I use technology to create a roadmap of specific steps to drive improved operating results?
Hope on the Horizon
Change will come to the industry from the most unlikely of sources: increased interest and investment from outside the automotive space.
For example, accelerating venture capital (VC) and private equity (PE) interest in automotive technology solutions and dealership group ownership signals that the VC and PE world has woken up to the fact that there’s a lot of money in the automotive space. Expect that as this “smart” money enters, it will naturally look to insert more robust and disciplined processes and technology (to ultimately force a return on their invested capital).
Automotive’s sleepy history of underinvesting in technology, process and discipline is about to get a heavy injection of influence from the progress that’s been made across other industries. Dealers should prepare to embrace new software tools that will help them drive more profit from their operations.
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