Sunday, September 28, 2014

Car-Share and Ride-Share Companies are Blending the Lines of Public and Private Transportation
by Joy Sun

Here’s something to think about: in early June, Uber—the venture-capital-funded, on-demand car ride service—set a record valuation of $17 billion, which makes this “start-up” worth more than half of the companies listed in the S&P 500. The month before, Uber was integrated into Google Maps. And now, in addition to mapping your travel based on whether you are walking, biking, driving, or taking the bus, Google Maps also offers the option of getting there via an Uber car.


Uber is a four-year-old start-up and success story that is scaling quickly (currently, Uber is up and running in 130 cities worldwide) and here to stay. So what does it mean for automotive OEMs when its founder and CEO envisions the company making “car ownership a thing of the past”, replaced by ubiquitous “car access,” but limited private ownership?


Uber is simply one manifestation of the rise of the shared economy, in which assets that used to be 100% owned and 99% idle (think of your empty guestroom or your commuter car between 9 a.m. and 5 p.m.) are becoming more productive as they are utilized by more people. The shared economy has been unleashed by the internet and smartphones, which have enabled peer-to-peer connections in real time. Whereas your guestroom used to sit idle, now it can be easily rented to vacationers on Airbnb and used to generate value.


Transportation is a sector disproportionally affected by the rise of the shared economy, because sharing transportation has historically been commonplace. Public transportation has always allowed people traveling in the same direction to use the same vehicle for a small fee. However, unless a city has invested in a comprehensive infrastructure, public transportation can rarely match the flexibility and convenience of private transportation.


In contrast to yesterday’s dichotomy between private and public transportation, today’s technology enables a slew of travel options varying on a spectrum of convenience and cost. On one side of the spectrum is your fixed-route traditional public transportation that is low cost and inflexible to your personal needs. On the other side of the spectrum, we are seeing higher cost transportation options that rival the convenience of private ownership. I’ll call these options “shared personal transportation,” and they include Uber, which offers to any urban dweller the convenience of being chauffeured, and Zipcar, which gives users access to a neighborhood car for extended hours.


Shared personal transportation makes the experience of private car ownership available on a pay-per-use basis, which allows for a greater level of price sensitivity and flexibility for consumers. According to Kelly Blue Book, a recognized consumer guide for new and used vehicle price estimation, the annual cost of ownership (including fuel, insurance, financing, maintenance, repairs, and depreciation) for a new 2014 subcompact vehicle amounts to ~$530/month; the equivalent of traveling 441 miles in a chauffeured Uber every month (after the base rate, the travel fare is $1.20/mile in Boston)! In the meantime, ride-share companies are continuing to push down the prices of their services. This is, in part, because they are engaged in pricing wars with each other. It’s also, in part, because they are launching even lower price alternatives, such as real-time carpooling that allows strangers traveling in the same route to share rides and split the fare.


Automotive brands don’t just compete against one another for vehicle sales, they also compete within a greater context of private vs. public transportation, and now those options are being supplemented by a slew of flexible shared transportation options. Shared personal transportation complements public transportation, and, if combining the two can mean lower costs than private car ownership, with the option of flexibility when you need it, then who will be the car owners of the future (at least in urban areas)?


What does the shared economy mean for automotive manufacturers? What does “no car ownership, but full car access” mean for automotive aftersales? How do companies like Uber, Lyft, and SideCar, which contract with large numbers of part-time drivers, influence their service and repair habits? These are questions that will be explored in part II of this blog, but in the meantime, I speculate that it might bear a resemblance to fleet operations (to be investigated in a future blog post).


Bottom Line:In the context of the shared economy, on-demand ride-sharing and car-sharing companies like Uber and ZipCar are enabling more people to have the convenience of automotive access on a pay-per-use basis, without the responsibilities and costs of automotive ownership. The ramifications of these new transportation entrants on car ownership and aftersales behavior are not yet clear and are worth investigating.

Monday, September 22, 2014

Thanks, But No Thanks…
by Brian Steinmetz

The upsell: when a customer is persuaded to purchase a more expensive item than the one they originally indicated, or more than they want or need. It’s likely that we’ve all encountered it, and probably with a bit of frustration. Why can’t I just buy the parts I want? Obviously, salespeople will try to sell us things we didn’t ask for, but that’s their job. The problems arise when sales pitches get in the way of normal negotiations.


I am about to move half-way across the country; I have had enough on my mind before being subjected to some aggressive upselling. I called the local cable provider, where I’ll be moving, to set up my account. I told the sales associate that I simply wanted a basic internet modem and a DVR-ready cable box. Simple enough, right? After a brief hold, I was offered a $219/month package that included advanced high-speed internet with a combined modem/router, a soon-to-be installed land-line (for free!) that included nationwide long-distance calling, a home security system complete with two motion detectors, a window monitor, a camera whose feed I could watch from my phone or laptop, and a siren to thwart would be intruders, all alongside a 350+ channel TV package with HBO, Starz, Epix, Showtime, and the option to tack on an NFL package for an additional monthly subscription to make sure I can still watch my New York Jets every week. “And all of this at nearly 55% savings compared to what most other customers were paying, based on my credit score!”


I politely laughed at the associate’s small talk, jokes, and attempts to convince me to agree to purchase each of these services. Then I reassured the sales associate that I didn’t want the upgraded router, security system, land-line, and a good portion of the described cable package. “OK, now that we are past that, I can hear about the actual service package I want,” I thought, only to have my frustration really begin to build.


What followed was 45 minutes of me continuing to ask for what I wanted to purchase followed by the sales associate’s incremental concessions before the bloated service package approached what I wanted. “You can always just cancel after a 30-day trial, so I’ll just leave that in there for you.” Yeah, right.


When the conversation finally ended I had a service agreement for the exact package I originally asked for, plus, due to a bit of successful upselling, HBO for a small monthly fee. But where did the last hour of my life go? If getting me to purchase a premium movie channel was the sales associate’s end goal the whole time, why did we need to go through the song and dance?


The cable company I spoke with has a monopoly on service in my new neighborhood; otherwise, I wouldn’t have stayed on the phone past the associate’s first or second upsell attempt, and I would have instead taken my TV and internet needs elsewhere. While I did not have the option of taking my business elsewhere, drivers certainly do. When frustrated drivers encounter repeated and aggressive upselling of parts or service, the cheaper aftermarket options down the road start to become more appealing. As part of Carlisle’s 2013 Service Advisor survey, we learned that service advisors from all participating OEMs reported more than half of their compensation is directly tied to commission. As a result, it is obvious that many of these service advisors will try to upsell drivers as they come through dealerships for service. While that is itself not a bad thing, there is considerable incentive for them to do as much upselling as they can, and occasionally this upselling may get excessive and could push drivers, or less assertive consumers, away.


Bottom Line: Drivers are generally expecting some upselling when they bring their vehicles in for service, but we need to be careful not to push it too far. While drivers might be convinced to splurge on the genuine part over the aftermarket version, you and I both know that spark plugs don’t need to be replaced during every oil change any more than I need a siren above the door to my apartment.


Friday, September 12, 2014

The Connected Car – How It Will Fix the Cost Perception Disconnect

What is the next big thing in the automotive aftersales market? The answer probably lies with the connected car. The connected car is defined as a car equipped with a wireless data connection to the cloud. With this connectivity comes a multitude of features – new cars have everything from GPS systems to internet radio to restaurant booking apps. But is the connected car really just about infotainment? The connected car could also impact the aftersales side of the automotive industry. For OEMs, the payoff could be huge.


It all starts with the dealers, and one of the biggest areas they need to improve: consumers’ cost perceptions. Carlisle’s 2014 Consumer Sentiment Survey asked consumers what criteria were most important in the service process (see following chart). “Relative Importance Ranking” illustrates how highly consumers ranked a criterion. “Total cost is reasonable” tops the list both in relative importance and overall rank.


Most Important Criteria for Service Customers
Unfortunately, consumers simply do not feel that costs are reasonable at dealership service departments. The following graph quantifies that feeling by illustrating what customers value vs. what they believe are dealer strengths. The higher a category is on the Y-axis, the more customers value that category. The blue portion of the graph shows how many customers view that category as a dealer strength. As before, “Total Cost is Reasonable” is the top item customers value. However, just 11% of customers see this as a dealer strength.


This hurts dealers. If reasonable costs are important to consumers, and consumers don’t think dealers have reasonable charges, they’ll go elsewhere. This is Business 101, but data proves that dealers still haven’t solved the problem. Our survey asked consumers why they switched to chain or independent shops for their most recent repair (see following two charts). Consumers placed “Total Charge is More Reasonable” at the top of both lists – it was the most popular reason consumers switched to independent mechanics and the second most popular reason consumers switched to chains. Service customers are leaving dealers due to cost perception.


Why should OEMs care? One of the most interesting takeaways from the graph below is the huge jump in repurchase likelihood between “satisfied” and “very satisfied” consumers. That means OEMs clearly do need really satisfied customers, because turning “satisfied” consumers into “very satisfied” could reap huge rewards in vehicle sales.


OEMs want to sell more cars and service customers are more likely to repurchase an OEM’s brand if they’re satisfied with what the dealer charges for maintenance and repairs. The trouble is that those customers aren’t satisfied.


Why? The biggest problem is likely the opaque nature of the service process. Take the typical service experience. A customer brings their car into a dealer’s service department for routine maintenance. The dealer runs a multi-point inspection and comes back to the customer with recommendations for additional services. The service advisor asks the customer to sign off on the additional maintenance.


At this point the consumer begins to feel uneasy. Everyone “knows” the dealership has an incentive to sell more than the customer really needs and to charge a lot for it. If a customer doesn’t know much about cars or what services should cost, they’ll view these recommendations with suspicion. Maybe the dealer offered a fair price and the car genuinely needed those services, but the customer doesn’t know if either of those are true. This leads to a cost perception problem – consumers feel that they either overpay for services or purchase services they do not really need.


So what can OEMs do to rectify this cost perception problem? They need to connect the car.


First, customers need to know what services are necessary. Sensors in different parts of the car could provide this data. The car detects what is needed and sends information to the customer – either through onboard systems or to a computer or smartphone. This way, when the customer rolls into their dealership they have some background knowledge about what service is required; they are not solely taking the word of the service advisor.


Second, consumers need to know that they are paying a fair price for the service. Eventually, the connected car should be able to pull in pricing data from area dealers to give the consumer a dependable estimate. Dealers may not like this idea, as they feel consumers will flock to lower cost service providers. Maybe so, but consumers are free to price shop now – and they do! Even if dealers don’t display their prices, anyone can call a dealer to get an estimate. Having the connected car generate an estimate saves everyone time. Additionally, the connected car can tout the benefits of local dealers. The car could pull in information about various dealerships’ service departments – such as what amenities are offered, what certifications technicians have, and positive reviews from other customers. All this information would give the customer a sense that they really are getting their money’s worth.


Bottom Line: Dealers have a cost perception problem. Consumers feel that they spend too much money at dealers – either by overpaying for services or paying for unnecessary services. OEMs should proactively address this, since service satisfaction impacts repurchase likelihood. The connected car can help OEMs solve the cost perception problem – both by giving trusted recommendations and clearly showing the benefits of servicing at the dealer.


Friday, September 5, 2014

New Vehicles Need Parts Too, Sometimes
by Eliza Johnson

We want customers to find buying a new car an exciting experience. We want them to love their new cars—shiny and sleek, with cutting edge technology. The tradeoff is asking them to fork over what is for most people a big chunk of change. So, imagine the customer’s frustration when two weeks after buying a carefully selected new car, the air conditioning quits in mid-July, or the navigation system starts having glitches. What is wrong with this thing? I spent $25k and it’s already breaking? Imagine the deeper frustration when that annoying issue takes two weeks to fix because the dealer had to place a special order to get the parts. What is wrong with this dealer? Not coming back. And did I make the wrong decision with this car…?


Aside from all of the design and engineering that goes into new model vehicles, the planning necessary to stock and manage service-parts inventory for these cars is a major component of a successful launch. This is pretty critical to the new vehicle customer experience. And if we want them to buy another new car down the road, we have to get this right. Think about the situation described earlier: this customer may turn to an independent service provider and be lost to the dealer from the get-go. Plus, we know that such a poor initial experience will likely push the customer to another brand entirely the next time they go car shopping.


New model parts are important for dealers and OEMs who want to keep their customers, but planning for them creates new and different challenges for OEMs. How can you forecast demand? How can you define critical vs. non-critical parts? How do you balance the needs of service and production?


We recently conducted a benchmark study with a group of automotive and heavy equipment subject matter experts to investigate how new model parts are managed and stocked, and the impact or performance of those strategies on fill rates. “New model part” typically means any new part on a new or redesigned vehicle (a few heavy equipment OEMs also include carryover parts on new vehicles in this bucket).


While there was little consensus on how to best manage new model parts and how to accurately forecast these parts, a few potential best practices emerged.


  • Some OEMs stock just a couple of months of supply for all new parts, while others stock up to 12 months of supply on a fairly limited selection of parts. In general, the standard is to keep months of supply low. Defining critical parts within new model is key so that stocking breadth can be more targeted.
  • New model part fill rates and targets vary fairly widely, both in measure and in practice. Some OEMs measure fill rates at the time of vehicle sales, others one month out, and others up to six months out. Measuring new model fill at the time of vehicle sales will better measure and mirror the actual customer experience.


  • Very few OEMs, if any, are currently tracking or tying customer satisfaction to new model part fill rates and strategies, despite the risk that problems with a new part could ruin a customer’s experience with a vehicle. Happiness with that new car will help drive your customer back to the dealer for service and to the OEM when it’s time to buy another car.
Bottom Line: A new model release requires attention to more than vehicle design and rollout. The service-parts stocking strategies are key to a customer’s satisfaction; they are worth greater thought and focus than they’ve been getting. New model parts management presents a unique, important challenge that can set the tone for a new owner’s experience. At worst, it’s damage control; at best, it can cement a lifelong customer relationship.

Friday, August 29, 2014

The Connected Vehicle—How Will It Make Appointments ‘More Convenient’? by Annie Cui

The connected vehicle may not yet be a trending hashtag on Twitter, but more and more vehicle owners are catching on to the technology revolution.


In fact, according to our 2014 Consumer Sentiment Survey, 70% of the consumers who currently have in-vehicle telematics stated they would like a telematics system in their next vehicle.


In-vehicle telematics systems can warn owners of needed repairs, low tire pressure, and upcoming factory recommended maintenance, as well as send notifications to the owner’s smart phone device. Some telematics systems, such as GM’s OnStar and Hyundai’s BlueLink, even notify the owner’s preferred dealer of their customer’s upcoming recommended maintenance. The dealer will then call up the owner to help them schedule their needed appointment.


But what if we simplified that even more?


Telematics developers are working on further automating the scheduling process to achieve the easiest customer ownership experience. Soon, the telematics system will not only notify the owner that their vehicle needs a service, it will allow the customer to see and select available appointments at their preferred dealer, and then automatically send that dealership all crucial vehicle telematics data.


The telematics will integrate directly with the dealer’s appointment ledger and allow the consumer to simply click on a time that works for him or her on the in-vehicle screen or on their mobile device. Then, the dealer will automatically receive the appointment notification with the service and owner info, the vehicle health report, and the vehicle history. This technology will eliminate the time wasted when the owner has to search for their dealer’s contact info, call the dealer, explain the service needed, and then try to find an appointment time that works for both parties, which can take several minutes.


The idea is that the telematics system will establish an instant connection between the vehicle and the dealer, thereby making things more convenient for the customer. The vehicle and the dealership can work simultaneously to run technical diagnostics and identify vehicle issues before the customer arrives, making it possible to know what parts are needed ahead of time and improve inventory fill rates. When the customer arrives at the service lane, the dealer will have all the necessary parts ready. Dealers can also boost shop loading and capacity management as service advisors and technicians can better plan their time, thereby improving efficiency. Not only will this speed up the repair process and reduce customer wait time, this can also improve the accuracy of dealer service timing.


Our 2014 Consumer Sentiment survey shows that the 2nd and 3rd most important factors for a customer selecting a service outlet are 1) one that has “[their] vehicle available promptly at the time they estimated”, and 2) “sets appointment quickly at a convenient time.” Telematics technology will enable dealers to improve performance on both criteria, making it possible for them to give more accurate time estimates and allowing owners to schedule a service appointment at their desired time directly from the seat of their vehicle or the screen on their phone. How much easier does it get?


Telematics technology will not only increase the accuracy and convenience of appointment scheduling, but this will likely get more customers to come into the dealership in the first place. When the customer’s telematics screen or mobile device shows appointment availability, it will only display dealers. The screen might show a few local dealers and the owner’s preferred dealer, leaving the customer to choose. Customers that would normally service their vehicles at a chain or IRF could end up scheduling the appointment with recommended dealers that come up on the screen, just because of the added convenience the telematics technology provides.


The accessibility of appointment scheduling in the vehicle, through the telematics system, will make the owner’s life easier. The better the customer experience, the more likely it is that the customer will come back to the dealership for more. However, the added convenience from telematics scheduling is dependent on the customer maintaining his or her subscription to the telematics system.


Bottom Line: The fully connected car is going to revolutionize the interactions between vehicles, their owners, and the dealers. The added convenience of scheduling appointments through in-vehicle telematics will change customer perceptions and set higher expectations for the ease of vehicle services. Dealers have to get on board and keep up with these technology improvements, or they will get cooked.**


**The link is to “Been There Done That” on MyGuy. The blog is about the importance of understanding the benefits of technology and the risk of dealer complacency associated with having the minimal upgrade from their manual processes (mostly about service lane inspection).


Sunday, August 24, 2014

The Dissatisfied Dealer: Curmudgeon or Harbinger?by Charlene Hovatter

These are the ‘happy ones’ – the barometer of your company’s service ethic and responsiveness, and your key to growing revenue and profitability. For most of our participating OEMs, satisfied dealers are the majority, and increasing.


But what about the others . . . the few, the not proud, the disgruntled? What about the dealers who mark “Very Dissatisfied” or “Somewhat Dissatisfied” on their surveys? What do they tell us about our business, if
anything? Do these guys and gals just roll out of the bed on the wrong side the morning the survey appears in their inbox, or can they provide us with just as valuable insights into our business as the “many” that are satisfied? And how do we keep those many satisfied dealers from joining their brethren on the ‘dark side’?


Admittedly, there aren’t many of these dealers. . . so, why should we care about them?


Why Care About Dissatisfied Dealers?


If there are so few dissatisfied dealers, why should we care?


Well, first of all, there is quite a bit of variation among participating companies, so some should care more than others . . .


. . . And we know from experience that moving dealers “up the satisfaction ladder” impacts their purchase loyalty.


But, beyond overall satisfaction, companies can sometimes rapidly identify areas in need of immediate attention by examining dissatisfied dealers in the sub-categories. This isn’t always obvious based on only your ‘top-box’ score.


Can A Dissatisfied Dealer Become Satisfied?


So, how intractable are dissatisfied dealers? Is it worth the time to try to move them into the “Satisfied” bucket? Based on data from our 2012 and 2013 Automotive Parts Manager Surveys, these dealers are easier than average to move . . . and they have nowhere to go but up.


We found 4,616 dealers who participated in both the 2012 and 2013 Automotive Parts Manager Survey. To ensure that the same individual filled out the survey over the two years, we matched OEM + dealer code + respondent name.


Our analysis with this sample of 4,616 dealers reveals that while most “somewhat” or “very” satisfied dealers did not change their rating between 2012 and 2013, nearly all of the “somewhat” or “very” dissatisfied dealers did so.


Our surveys are designed around a 5-point scale, with 1 being “Very Dissatisfied” and 5 being “Very Satisfied”. On average, dealers with a “Very Dissatisfied” rating in 2012 moved up 1.7 points on the scale in 2013, while dealers with a “Somewhat Dissatisfied” rating in 2012 moved up 1.3 points in 2013. So, when these individuals change a rating, the magnitude trends toward moving up into the “Neutral” – “Very Satisfied” range. This suggests that dissatisfied dealers are not chronically dissatisfied, but rather reacting to specific, actionable situations, and that they are relatively easily ‘recaptured’ once their issues are resolved.


Bottom Line


For all of our surveys, in addition to the primary deliverable which focuses on “Very Satisfied” customers, we issue a “Total Distribution Report” which shows a complete breakdown of scores across the five satisfaction ratings for each survey question. This is one of our oft-forgotten deliverables. Some participating OEMs may not even know about it or distribute it internally. However, it provides unique and sometimes powerful insights into your survey results by allowing you to tailor your analysis to your specific needs. Spend some time with this report, looking at the percentage of your dealers who are dissatisfied in either “Overall Satisfaction” or specific topics. Then, leverage your raw data report to seek out these dealers and identify their particular issues. Sometimes it will be a systemic issue impacting a large number of dealers, or it could be a number of issues unique to individual dealers. Calling dissatisfied dealers to further discuss their issues is a highly effective method of increasing OEM satisfaction ratings. Taking steps to identify your most dissatisfied dealers and address their unique needs will move your organization toward greater customer engagement and profitability.


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If you need assistance with this or other analysis related to your survey results, contact Harry Hollenberg at hhollenberg@carlisle-co.com or 978-318-0500 X106.

Friday, August 15, 2014

Transportation Rates – Are You Getting A Good Deal?by Paul Gurizzian

Whether you are buying a new set of golf clubs for your weekend leisure or transportation services for your day job, you want a good deal. The question of whether or not you are getting a good deal on your transportation purchases can be difficult to answer on your own.


To help our motor vehicle service parts clients answer this question, we at Carlisle have built a transportation rates benchmark database for the U.S. market. This database includes, on a blind unattributed basis, the rates that auto and heavy equipment OEMs pay for truckload, parcel, and, more recently, dedicated delivery service (DDS). (For DDS, we calculate all-in costs per stop, costs per mile and costs per dealer, rather than rates, per se). For parcel, the rates are zone-specific, and for truckload the rates are for specific high-volume lanes. In short, the benchmark rates are highly relevant and comparable to help you determine if you are getting a good deal.


Well, what have we found? Enormous variability in rates! And, before you ask, the rates are not simply correlated with volume. That is, if you are a big OEM, do not take comfort that you have low rates. Conversely, if you are a small OEM, do not accept that your rates should be higher.


The graph below shows real world benchmark results for five motor vehicle OEMs buying truckload services from Tennessee to the Carolinas/Georgia. This data is normally expressed on a cost per mile basis, but to protect confidentiality in this blog, the Y-axis values are not shown. The key takeaway from this chart is that OEM 1 is paying nearly 90% more per mile than OEM 5. This disparity is similar to results we found in other benchmarked lanes.


Another example below, but this time for DDS, shows a similar disparity. Here, we see that OEM 1 is paying about 70% more than OEM 5 on both a per mile basis and a per stop basis for standalone DDS service. Once again, the Y-axis values are hidden here to protect confidentiality. Carlisle calculated these “rates” by dividing annual OEM standalone DDS spend by the relevant miles traveled and serviced dealer points. By the way, we see a similar disparity across OEMs for shared DDS and DDS-like, too.


So what could be contributing to this disparity in rates? Why are some OEMs laughing all the way to the bank, while others are crying in the poorhouse? There are a number of reasons; some structural, some operational, and some performance-driven. A starter list of drivers includes:
  • Negotiating savvy and strength
  • Purchasing process
  • Carrier contract terms
  • Supplemental services performed by carriers
  • Carrier performance requirements
  • DDS route design
  • In the case of DDS, delivery volume per dealer
Bottom Line: If you are responsible for buying transportation services or for the profit and loss of your aftersales business, the observations above are potentially very important. Let’s do some simple math to demonstrate this importance.


According to our North America Parts Benchmark data, the typical service parts OEM spends between 4 and 11 cents of each parts sales dollar on inbound and outbound transportation. The average here is 7 cents. Let’s say, conservatively, you are like OEM 3 or 4 in the first graph and are 15% higher than the low cost purchaser. In this situation, you may be leaving one point of pre-tax margin on the table, just in transportation rates. On a billion dollars of parts sales, this translates into $10 million in annual profit. Are you getting a good deal?