Preparing for the imminent disruption of the industry and how to survive

Nov. 6, 2019
For 100 years, the automotive industry hasn’t changed much. The cars are better than the days of Model Ts, but drivers still press the gas petal and turn the steering wheel. But the industry is on the precipice of major disruption.

LAS VEGAS — For 100 years, the automotive industry hasn’t changed much. The cars are better than the days of Model Ts, but drivers still press the gas petal and turn the steering wheel. But the industry is on the precipice of major disruption. 

“Auto Industry Disruption: Win Despite Change” was presented by Frank Terlep, author and consultant, during the Society of Collision Repair Specialists (SCRS) 2019 Repairer Driven Education at SEMA 2019.

A disruption happens when new products and services create a new market, and in the process, significantly weaken, transform or destroy existing product categories, markets or industries. Terlep’s session aimed to help attendees understand who and what is to be disrupted and provide insight with how to prepare and adjust for the future.

The classic disruption cycle has four steps: 1.) overconfidence; 2.) sudden collapse; 3.) too little too late; and 4.) ongoing decline. Those in the industry need to prepare now in order to avoid ongoing decline, Terlep said.

“We cannot look historically anymore to predict the future. What you are seeing is not just an automobile disruption, but a computer disruption because cars are now computers on wheels,” Terlep said. “The value of the car of the future will not be in the metal, but in the software.”

Driving disruption in the industry
Currently, there are three main challenges in the automotive aftermarket: a shortage of vehicle technicians, OEMs having a much larger influence on the repair process and insurers.

But who are the truly being disrupted and acting as the disrupter? “No one is immune. Everyone is going to feel disruption in one way or another,” Terlep said.

Several factors are driving disruption, including the increased need for improved safety. Approximately 1.3 million road traffic deaths occur every year, with more than 90 percent caused by human error. In the U.S. last year, 40,000 people died in automotive accidents, while 4.5 million people were injured.

There are also 33 megacities on earth with another six expected by 2030. Traffic is a major consideration.

The ever-growing presence of software, including iOT, hardware, broadband, high-def mapping, Blockchain, artificial intelligence, virtual reality and more — continues to change vehicles and disrupt the industry.

Main forces of disruption
Terlep detailed the main forces of disruption, starting with the consumer, who buys vehicles and determines how they are getting from point A to point B. The consumer has more transportation options than ever before, which may have an impact on the fact that the importance of ownership is also dropping and many consumers feel they can’t afford a new car. Consumer sentiment is also mainly positive about autonomous vehicles and continued growth of hybrid and electric vehicles. And an alarming statistic for dealerships is that 82 percent of consumers are comfortable buying a vehicle online; however, they expect the vehicles they buy to be like a smartphone.

The digitization of the automobile is forcing shops to have to transition from generalist to specialist. It is too complicated to continue down the path of general vehicle repairs, Terlep said.

Mobile apps are also changing the repair process. Scan tools will change as we will not need to scan a vehicle; it will be able to send codes via mobile apps.

The continued growth of “industry electrocution” — or the number of electric and hybrid vehicles on the road — will change the vehicle landscape. Terlep anticipates that once battery prices go down and the range goes up, EVs and hybrids will dominate the roads. “And that will happen,” Terlep said. Autonomous vehicles are also changing the vehicle landscape and how consumers will be interacting with their vehicles and others in the future.

Big data and software is changing the way dealers have access to vehicle owners, and is negatively impacting both service and collision repair industries as they can drive owners directly to their vehicle service and repair shops before a consumer can even reach out to an independent. 

Mobility as a service is changing vehicle ownership attitudes. With 60 percent of trips in the United States coming in at five miles or less, there are more options on how consumers can get around. Flexible vehicle sharing models are also reducing the need to outright own a vehicle.

Cybersecurity concerns
As the vehicles on the road today become more complex and inundated with software, there are added risks for vehicle hacking.

So many vehicle manufacturers are trying to separate the safety systems from the infotainment systems to reduce the risk of being able to hack into a vehicle. But it is a growing concern that will only get worse, Terlep said.

How to cope
OEMs need to transform from a vehicle manufacturer to data services and customer technology companies. They need to understand that connected cars are not a product, but a set of technologies that will change their business model. They need to be prepared to transition from ICE to EVs and realize that many new vehicle prices are too high for some consumers. Mobility as a service also needs to be a focus, Terlep said.

New car dealers will be fighting a quick decline of operating profits, direct-to-consumer retailing and online vehicle purchasing. Mobility as a service and vehicle subscriptions will challenge the traditional vehicle ownership model. The growing transition from ICE to EVs will force changes in vehicle inventory, and an increase in ADAS and AV technologies will also have an impact.

To fight back, dealers must continue to focus on repair and collision services. They will need to consolidate to maintain profitability and continue to implement web, mobile and VR technology. The creation of centralized parts, service and collision locations instead of having them attached to dealerships will help to improve profitability. Virtual test drives and test tracks will also be important to differentiate, Terlep said.

Insurers face five major disruptions: new insurers; new insurance products and pricing; new insurance processes; new technologies; and new distribution models. There have been many new entrants into the insurance market offering newer, more flexible insurance coverage plans. New insurance offerings include cybersecurity insurance, product liability insurance and infrastructure insurance, among others, and not all companies are on board. New pricing models are also entering the market, including do-it-yourself pricing, a la carte/package pricing, set your own price and peer pricing models. New processes include the use of mobile photo estimates in the claim process, despite some industry objection.

Insurers will need to establish more real-time, interactive relationships with their customers and reinvent their marketing and distribution plans with more intuitive, interactive communication tools and channels. They will need to build expertise in big data and new business models, among others.

Collision repair shops will face at least five disruptions: the digitization of the automobile; the digitization of business; digital intermediaries; M&A and consolidation and remote technician services. Shops are not being compared to other shops down the road; they are being compared to other companies using digital services, and they must be able to compete. Insurers, OEs, third-party websites and others all serve as intermediates between the consumer and shops and can be very disruptive.

Suppliers need to decide on their growth strategies and explore alternate sales, branding and pricing strategies. They need to develop additional sales channels, increase online presence and add second or third price lines and brands. “In my opinion, buy or sell,” Terlep said. “Grow or go.”

Suppliers need to determine either a growth or exit strategy, get digital, specialize, become part of something bigger, continue to invest in recruiting, training, tools and equipment, or get out, Terlep said.

10 disrupter action items

  1. Understand your customer
  2. Think BIG!
  3. Create a culture of change
  4. Acquire knowledge to become a disrupter
  5. Recruit and hire disrupters
  6. Develop and communicate a clear, compelling and passionate vision
  7. Leverage new technologies
  8. Prepare for pushback and failure
  9. Look for opportunity in the chaos
  10. Look for the “blue water"

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