Opportunities are being missed and carmakers need to work smarter to keep their cars on their own and their franchised networks’ books even as they pass into the second, third or fourth ownership period, advises Charlie Simpson, automotive and industrials partner at EY.
The automotive industry’s traditional ‘sell and forget’ model is currently limiting revenue opportunities for automakers. As battery electric vehicles (BEVs) reshape the market, car manufacturers should review and consider their strategies to maximise vehicle lifetime value and profitability.
Indeed, with the UK’s transition towards BEVs continuing, profitability will continue to be squeezed, meaning original equipment manufacturers (OEMs) will need to think carefully about how they can hold onto, or at least maintain, a level of control over their assets and monetise them longer term.
EY industry benchmarking shows more than 20% of current OEM profitability could be at risk, highlighting the growing need for manufacturers to rethink their approach to unlock significantly higher retention and more substantial profit-per-unit.
Historically, carmakers have predominantly focused on new car sales, without fully activating the significant revenue potential in the used car market and post-sale services. With many vehicles typically entering the independent aftermarket at four to five years old, there is a pressing need for OEMs to accelerate engagement with customers throughout the vehicle’s lifecycle.
By enhancing their focus on service, maintenance, and repair, along with insurance and offering finance options for used cars as well as new, manufacturers can unlock new revenue streams and build lasting customer loyalty. Exploring and activating opportunities to encourage existing customers to return to a dealership to purchase further goods and services such as V2G charging solutions and infotainment packages is also growing in importance.
Finance and longer-term strategy for used cars
Many of the vehicles currently sold via personal contract purchase (PCP) are predominantly new and nearly new. There has been a tendency for OEMs and their franchised networks to let anything over four or five years old slip into the independent network, so there needs to be a shift in the way of thinking for carmakers. For example, can they offer competitive finance options on older used cars?
Interestingly, OEMs typically tend to become less interested in a vehicle when it becomes more profitable from a service, maintenance and repair point of view, because most of the profit in those areas usually comes when the vehicle is between five and seven years old.
Data and mutually beneficial relationships are critical
For these wider revenue streams to be unlocked, dealerships must collaborate with OEMs to create long-term comprehensive vehicle management and monitoring strategies – with data collection at the centre.
For example, by offering competitive trade-in values and leveraging finance options including retention incentives, OEMs can encourage customers to return to their franchised dealerships, ensuring they benefit from warranties, expert service, appealing resale prices and peace of mind.
In turn, this could help OEMs access further revenue generation opportunities and additional vehicle data, maximising their longer-term level of control.
This also helps to create a mutually beneficial relationship between OEMs, dealerships and customers, which is crucially important to the process of managing and maximising vehicle lifetime value.
Incentives are central to these relationships. For example, extended or lifetime warranties, service-activated warranties and discounted servicing embedded into finance options can all help OEMs to build positive sentiment among customers, which then encourages them to return and unlocks a longer relationship with both the buyer and the asset.
Despite the significant potential of warranties, servicing and insurance to help OEMs maintain a level of control over their assets, many OEMs are allowing dealerships to access and utilise these opportunities. Therefore, a key question for carmakers is what they should keep in house and what they should be sharing with or outsourcing to dealerships. It is also worth considering how to incentivise dealerships to only use OEM parts to ensure insurance is still valid, which again builds further revenue opportunities.
The glue which holds together all these revenue streams and possibilities is data.
In essence, the more effectively and comprehensively vehicle data is stored, tracked and managed, the greater the potential for OEMs and their franchised dealerships to maintain involvement with their vehicles throughout their lifetimes.
Author: Charlie Simpson, automotive and industrials partner, EY