Don Flow Flow Companies. Automotive News, Retail Forum: Chicago October 12, 2017

Transcription

1 Don Flow Flow Companies Automotive News, Retail Forum: Chicago October 12,

2 Defining the Future: Creating & Capturing Value 1. New vehicle margins will never return and used vehicle margins are going to decline: We need a new business model 2. The driving value creating activity will be personalization and optimization 3. Every aspect of the retail automotive business will become completely digital 4. Usage and ownership will be decoupled; we will be in the asset/risk management and customer management/retention business Integrated Transportation Services Provider 2

3 1) New Business Model 1. New Vehicle Margin 2. Value Creation in the Past 3. What Changed 4. Structural Changes 5. Financial Consequences of Change 6. Maxims of New Model 7. New Model: Guest Experience & Productivity 8. New Model: Lean 9. New Model: Customer Service Retention 10. Value Creation to the Customer 3

4 1. New Model: New Vehicle Margin Value Creation: What is it? Gross Margin = Value Creation Direct Cost Defining Value Creation is the Key Past Vs. Future 4

5 1. New Model: Value Creation in the Past Why Customers Paid us Sales Gross Profit in the Past Value Creation at the Retail Level in the Past: 1. Product Information 2. Product Access 3. Trade-In Market: Lowered the Cost of Buying a New Vehicle 4. Access to Financing/Lending Sources 5. Place to Take Care of Product Problems 6. Trusted for a Fair Price 7. Convenient Location 8. Friendly People 5

6 1. New Model: Value Creation, What Changed? Information Search/Shopping: Physical World to Digital World Transparency: Low Transparency to High Transparency Price Trade Financing Customer : Asymmetrical Information to Symmetrical Information Customer Dealer Customer Dealer Product: Numerous High Quality Products in Every Segment Backed by Comprehensive Warranties 6

7 1. New Model: Value Creation, What Changed? Underlying Systemic Structural Imbalance 1. The Potential Supply of New Vehicles > Potential Demand 2. No Manufacturer is a Price Maker in the Market 3. Manufacturer s Gross Margin > Dealer Gross Margin Supply and Demand Equilibrium is Different Between Dealers and Manufacturers Therefore: Manufacturers Keep Making Gross Profit at Lower Prices than the Dealer Does As Long as There is a Contribution Margin Greater than the Cost of not Producing Vehicles, the Manufacturer Will Keep Producing Vehicles 7

8 1. New Model: Financial Consequences of Change 1. $0 Sales Margin = 1.5 Percentage Point (PP) Reduction in Net to Sales (e.g. 4.0% 2.5%) 2. 33% Sales Margin Reduction in Used Vehicles = 0.5 PP Reduction in Net to Sales (e.g. 2.5% 2.0%) What do we do? 1.Change the Value Equation Model: 1. Create Value Differently 2. Lower Costs 8

9 1. New Model: Maxims of New Model We must become: As Efficient as Amazon is Digitally High Productivity of People & Assets As Enjoyable as Apple when our Customers Engage Great Guest Experience What s Driving this? What s is the New Value Creation Formula? New Value Creation Formula: Trust, Respect, Convenience, Experience, Flexibility 9

10 1. New Model: Guest Experience & High Productivity Great Guest Experience Transparency: Pathway to Trust Speed: Right Now, Every Moment a Customer Waits, Value Goes Down Ease: We Live in a One Click World Fun: Make this an Experience Choice: Don t Force me into a Compromise More Value High Productivity 1. Salespeople: 1975: 10 Units / Salesperson / Month 2017: 10 Units / Salesperson / Month U.S. Non-Farm Productivity +104% 1 Goal: Average Salesperson 20 Units / Month 2. Technicians: 1975: 40 Hours / Technician / Week 2017: 40 Hours / Technician / Week U.S. Non-Farm Productivity +104% 1 Goal: Average Technician 80 Hours / Week Lower Costs per Unit of Output 1) 10

11 1. New Model: Value Creation via Service Retention Applying Lean Process Management Waste is the Enemy of Value for Customers & Dealers Anytime Spent by the Customer on Doing Anything Other than why the Customer Chose the Vehicle is Waste Episodic Excellence is Not a Differentiator Customers do not Have to Think about their Vehicle, We do Everything for Them Financial Model Maximization: All dollars spent on that VIN in Your Market Need to be Spent with Your Company 11

12 1. New Model: Customer Retention in Service +10 Percentage Points (pp) in Customer Service Retention = +1% Net to Sales: 50% 60% = +1% in Net to Sales 50% 70% = +2% in Net to Sales 50% 80% = +3% in Net to Sales Plus 6x More Likely to Re-Purchase 12

13 Technology Driving Processes which Enables Consistent Great Guest Experiences and Enables High Productivity 13

14 2) Personalization and Optimization Drive Value 14

15 2. Personalization & Optimization: Driving Value Creator This is the Picture of our Future Connectivity Artificial Intelligence Predictive Analytics Total Personalization + Great Guest Experience (Optimized & Personalized) 15

16 2. Personalization & Optimization: Driving Value Creator Connectivity Artificial Intelligence Predictive Analytics Total Personalization How Do We Achieve This? + Great Guest Experience (Optimized & Personalized) 16

17 3) Complete Digitization of Retail Automotive 1. Accounting 2. Vehicle Inventory Management 3. Vehicle Pricing 4. Customer Financing 5. Customer Trade Appraisal 6. Time Required for Buying Process A to Z 7. Used Vehicle Inventory Management 17

18 3) Complete Digitization of Retail Automotive WHY? Digitization is the Means: To Create More Value for our Customers To Lower our Costs To Increase Productivity 18

19 3. Digitization: Examples 1. Accounting Past: Writing Floorplan Checks Future: All Payments to All Vendors Automated and Online 2. Vehicle Inventory Management Past: Meeting 1-1 with Manufacturer Representative and Placing Orders Future: 100% Automated by Business Rules Regarding Sales Effectiveness and On-Line Metrics 3. Vehicle Pricing Past: Price Specials & Individually Negotiated Experience Future: Dynamic and Fully Automated, Driven by Algorithms 4. Customer Financing Past: F&I Manager Personally Calls the Lending Institution via Telephone for Each Transaction Future: Fully Automated Portal with Response in 60 Seconds 19

20 3. Digitization: Examples Continued 5. Appraisal Past: Expert Opinion + Book Expected Reconditioning Future: Fully Automated with all Auction and Present Market Data Considered CarFax Reconditioning, Completed in 60 Seconds Reconditioning Predicted with 95% Certainty Using Predictive Analytics 6. Time Required for Buying Process from A to Z Select a Vehicle, Get the Lowest Price, Receive an Appraisal, Secure Financing Past: 2 4 Hours Future: Less than Five (5) Minutes 7. Used Vehicle Purchasing Past: Trade-In Vehicles and Humans Physically at Auctions Future: Automated Around Stocking Specific Days Supply in Individual Vehicle Categories 20

21 4. Integrated Transportation Services Provider (ITSP) 1. Goal 2. Asset Management: Personalization and Optimization 3. Customer Retention: 4. Integrated Transportation Services 21

22 4. ITSP: Goal Goal: Provide the Right Vehicle at the Right Time for the Right Occasion at the Right Price 22

23 4. ITSP: Asset Management, Personalization Cash Single Vehicle Pool of Different Vehicles from Same Brand Pool of Same Type of Vehicles from Different Brands Pool of Different Type of Vehicles from Different Brands Finance Leasing Monthly Daily Hourly 23

24 4. ITSP: Asset Management, Personalization Cash Single Vehicle Pool of Different Vehicles from Same Brand Pool of Same Type of Vehicles from Different Brands Pool of Different Type of Vehicles from Different Brands Dealers Opportunity Opportunity Opportunity Finance Leasing Dealers Opportunity Opportunity Opportunity Dealers Opportunity Opportunity Opportunity Monthly No One Opportunity Opportunity Opportunity Daily Rental Companies Opportunity Opportunity Opportunity Hourly Zip Car Opportunity Opportunity Opportunity 24

25 4. ITSP: Asset Management, Personalization Cash Finance Leasing Monthly Daily Hourly Single Vehicle Pool of Different Vehicles from Same Brand Pool of Same Type of Vehicles from Different Brands Pool of Different Type of Vehicles from Different Brands Dealers Have Traditionally Only Served a Small Fraction of the Total Opportunity Our Traditional Offering was Un-Personalized and Forced Customers to Purchase a Sub-Optimal Product 25

26 4. ITSP: Asset Management, Optimization Cash Finance Leasing Monthly Daily Single Vehicle Pool of Different Vehicles from Same Brand Pool of Same Type of Vehicles from Different Brands Pool of Different Type of Vehicles from Different Brands Customers Have Been Forced to Purchase Vehicles that are Sub-Optimal for Individual Diverse Driving Occasions Purchase Decisions Based Upon One-Off Occasions that Require the Most Utility i.e. Purchase a Suburban for Once a Year Summer Trip to the Beach Hourly 26

27 4. ITSP: Asset Management, Optimization Cash Finance Leasing Monthly Daily Hourly Single Vehicle Pool of Different Vehicles from Same Brand Pool of Same Type of Vehicles from Different Brands Pool of Different Type of Vehicles from Different Brands There Have Never Been More Extraordinary Products Available Why Aren t People More Passionate About Them? Customers Don t Have More Choice: Ownership, Payment, and Vehicle are Still Combined in Traditional Ways What Customers Really Want is the Ability to Drive Different Vehicles Across Categories to Match Their Occasion Similarly to How Dealers Utilize Vehicles! 27

28 Summary: Flourishing in the Future 1. Embrace the World of Personalization and Optimization 2. Digitize Everything that will Create More Value for Customers, will Lower your Costs, and will Enhance your Productivity 3. Radically Commit to Customer Retention --- Move Beyond the Model of Episodic Excellence 4. Prepare for the Decoupling of the Usage and Ownership of vehicles Begin to Experiment with Transportation Services Optimize the Right Vehicles for the Right Occasion for your Customer 28

29 ITSP: The New World, Achieved Connectivity Artificial Intelligence Predictive Analytics Total Personalization + Great Guest Experience (Optimized & Personalized) 29