Automotive industry consultant AT Kearney has developed a business model for a ‘next generation car company’ claimed to produce a return on sales of 22%, compared with the less than 6% to 16% currently achieved by the industry.
Company vice-president Steve Young said: “In most other industries there have been new entrants, such as Ryanair in airlines, which have fundamentally changed the prevailing business model, forcing the traditional players to respond.
“Our research asked whether a new business model could apply in automotive, offering better shareholder returns and higher customer value. We concluded that this is possible, and the auto industry needs to respond to this.”
The concept – called Indego to reflecting “independent thinking and mobility” is said to delivers superior returns for five key reasons.
It captures services revenue (financing, insurance, maintenance, repairs and others) over the whole vehicle life cycle by selling mobility, rather than by selling the car itself. Indego will not sell cars but will rent them on a long term basis to a succession of users.
It eliminates the traditional distribution structure and processes along with the cost inefficiencies and barriers to maintaining and retaining customer relationships over time. Indego will take orders over the internet, directly from customers, and supply them directly at their home or place of work 10 days later.
It eliminates much of the complexity of traditional car manufacturing, through a simpler product and restructured process. Indego will source body structures and some components from low cost economies, but will assemble in small, simple plants, close to its markets.
It is a virtual product development organisation, using the skills of suppliers and external design houses to replace each model every two years. This will allow it to be responsive to new trends and appeal to increasingly fashion-sensitive buyers.
New approaches to product design and manufacturing will enable Indego to be more responsive, breaking even at lower volumes than the traditional business model, and less sensitive to volume fluctuations.
The Indego business model is based on offering customers a “mobility package” based on the use of a car for an agreed term of one to three years, including all servicing, repairs and insurance, at a cost starting from less than £5 (about $US8.50) per day. Customers will pick from one of four models, either new or used. The business focus of the business will be on customer care, providing peace of mind, predictable costs and added value services throughout the customer contract period.
Indego will provide levels of customer service that until now have been available only to buyers of the most expensive luxury cars.
The project team included Martin Leach, former president of Ford of Europe (and tipped to soon be running luxury sportscar maker Maserati for Fiat), who said: “The automotive business model has not changed over the last 100 years since Henry Ford launched the Model T.
“This research shows that there is the potential to make a step change in performance, leveraging recent developments in technology, industry capability and consumer attitudes.”
AT Kearney believes that existing manufacturers, dealers, suppliers and finance houses could today apply many of the principles incorporated in the Indego concept. However, in the research the firm also says that the concept is viable as a start-up, and that a new entrant could emerge, with the same mould-breaking results as seen in airlines.