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Predicting needs to improve profits
How Advanced Analytics can Help Automakers and Car Dealers Better Prepare for Success
Automakers spend billions of dollars on incentives every year in an attempt to sell off their inventory due to an offer greater than the demand. But optimized demand planning, by way of advanced analytics to optimize car’s distribution, could curb such excessive spending and increase customer satisfaction and margins for dealers, distributors and automakers.
The automotive market has evolved over the past decade, similarly customer needs and desires have evolved. However, the economic model of automakers and car dealers remains the same and still relies on a key principle to enable success: fulfilling most of OEM plants capacities. The consequences of this over-production are high level of inventories and the need to implement incentives in order to purge inventories. A question here is also whether OEMs and dealers are not mainly following two principles: Profitable volume. Selling a well-equipped car is sometimes as profitable as 10 others?
As described in the press release wrote in May 2020 by Jochen Funk – “IMPACT OF CORONAVIRUS TO AUTOMOTIVE RETAIL IN EUROPE”, the Covid-19 outbreak has plunged OEMs into a thoroughly new situation, with unprecedented challenges to be tackled by the automotive sector. Whilst China has recovered from the outbreak, one third of the world is in quarantine, with strong consequences on sales. In France, the car market dropped by 72.2% in March, while car manufacturers predict a 20% decrease in the French market in 2020 (source: CCFA).
Although it is unsure to predict the end of the Covid-19 outbreak, some of the impacts on sales and after-sales that OEMs will face in the wake of the pandemic can be anticipated as of now. Three factors will shape the business of tomorrow for both sales and after-sales part. The purchasing power per household will be impacted by the pandemic: jobs are at risk and companies must deal with major losses, possibly leading to an economic downturn. Furthermore, consumers’ behaviors will evolve, after weeks of upheaval. Social distancing and general precautions may as well lead to a shift from public transportation to individual transportation in urban areas and a potential revival of car ownership. Finally, OEMs are bracing themselves for a decrease in production volumes, due to supply chain perturbations, thus, forcing automakers even more to find additional pools of revenues.
Advanced analytics can help automakers and car dealers better predict the needs of customers and improve forecast in order to reduce risks of over or under production. Consequently, this will increase the availability of cars, optimize inventory management, and reduce the number of incentives required to sell premium and generic cars. The effectiveness of advanced analytics has been proven in other industries such as consumer goods and services (CG&S).
Leveraging advanced analytics to foresee customer expectations
So how exactly can automakers and dealer tap into the wealth of data advanced analytics provide? Put simply, they need to equip their cars with edge devices capable of sensing, collecting and transmitting data to their network via the cloud. This enables automakers and dealers to learn about user behavior and vehicle performance and maintenance.
To fully leverage the power of advanced analytics, it’s essential that automakers and dealers embed edge devices not just within their cars, but in every piece of machinery suitable for data collection. This permits automakers and dealers to gain a 360-degree view of their operations.
When brought together, the various threads of advanced analytics coalesce into a comprehensive data visualization map, i.e. the “bigger picture”. This helps automakers and dealers to better understand customer needs and how they can be satisfied. Ultimately, advanced analytics enables better demand planning, which is essential for driving profits.
Put demand planning at the center to drive revenue
Demand planning for new cars is necessary to drive other revenue streams. In France, the market is slowing down, with a decrease of 0.7% of new vehicles registration in 2019.
OEM’s expect revenues generated by the sales of new cars increasing after the lockdown due to Covid-19. However, if incentive policies remain unchanged and outdated planning tools are kept in use, we can expect a similar increase in the amount of rebate money spent by OEMs and dealers. Therefore, it’s critical OEMs and dealers act as soon as possible to limit the erratic rise of this expense.
The automotive market is very different to how it was ten years ago. Changing customer mindsets, regulations, new technologies and a constrictive industrial model that limits innovation are forcing automakers and car dealers to spend billions on incentives every year. But deep incentives cut into margins, reducing profits and the ability to keep profits growing at a steady rate.
However, by leveraging the power of advanced analytics, and Artificial Intelligence notably, right along the entire supply chain, automakers and dealers will be equipped with the data necessary for predicting customer needs. Advanced analytics enables optimized demand planning and the ability to accurately forecast customer trends in order to improve offer and demand matching. In an era of disruptive technologies, it’s time for the automotive industry to re-establish its relationship with consumers by giving customers what they need, when they need it.