The automotive industry may continue to wrestle with the big issues such as flat markets, low productivity and the need to reduce costs, but many companies are gaining a boost from new online business models that are helping them tackle these and other problems.
Online presence is an increasingly important part of doing business for motor manufacturers. Not surprising when the web is now the most frequently used source for information about new cars.
Auto makers are also exploiting web technology to break down communication barriers between their trading partners and improve the performance of the supply chain. For many the internet is a key element in a strategy to introduce a build to order process. Build to order has become a touchstone in an industry prone to amassing large inventories of stock.
In the US, 57 per cent of all buyers of new cars stop at a web site before making their purchase according to market research firm JD Power and Associates, which specialises in measuring the usefulness of websites.
The company ranks sites according to their appearance, speed, navigation, and content. ‘While it’s true that some sites are significantly more useful than others, the industry has improved to a point where there are no bad manufacturer sites,’ claims Dennis Galbraith, senior director of digital marketing solutions at JD Power.
‘The automotive industry is providing better online shopping experiences to more shoppers than ever before, making manufacturer sites an increasingly important stop when researching a new vehicle to purchase.’
Earlier this year BMW demonstrated how vital it is to attract online customers, when the firm’s Germany website was temporarily removed from the Google search engine after accusations the company had exploited Google to increase the number of times BMW appeared in search results.
However, vehicle buyers are becoming very sophisticated. Two-thirds visit between three and six manufacturer websites, as well as informational sites, dealer sites, third-party sites and independent valuation services, according to consultancy Cap Gemini’s Cars Online survey of web habits in car markets around the world.
The combination of better educated and informed consumers with vehicle manufacturers who have more vehicles to sell than consumers currently demand is driving the industry to put renewed focus on customer relationship management.
‘With the right customer information available in a timely manner across the selling network, manufacturers can steer customer demand instead of just reacting to dealer orders,’ says Cap Gemini.
However, manufacturers place too much emphasis on fancy graphics and their latest advertising campaign, the Cars Online study points out. These are two features that matter little to consumers.
Only about one-third of sites offer cost calculators that work out monthly financing costs, total yearly running costs and so on – consumers’ fourth most important option. Manufacturers that fail to provide consumers with the web features they want may miss the opportunity to capture new customers.
Cap Gemini maintains that in an industry where lead times are long and opportunities to touch base with customers are rare, lead management is an important function of websites.
Customers can spend up to a year deciding what car to buy going through various stages of research. Knowing what to offer customers and when can make all the difference as to whether a manufacturer gets a sale or not.
Speed of response is very important in some European markets, particularly among more impatient younger buyers, many of whom expect an email or a telephone call within an hour of making an online enquiry. Overall, 61 per cent of people say they will switch to another manufacturer or dealer if their calls are not answered quickly enough.
However, consumer behaviour varies widely around Europe. In France, for example, where second hand car ownership is high, motorists are more likely to be behind the wheel of a vehicle that is over 10 years old than any where else in Europe. French consumers usually buy a new car because their old one has broken down or is giving trouble.
German buyers concentrate on price and are likely to be swayed by special finance deals and free accessories. Price calculators are vital on websites serving German consumers. However, Germans are also more loyal to brands they know than other Europeans and set more store by environmental considerations.
Changes to Europe’s Block Exemption, which allowed manufacturers to favour their own dealers and played an important part in shaping European markets, are reflected in increased use of web sites to provide better after sales service to dealers and to give marketing campaigns a leg up. Dealers report a greater competition between brands since the Block Exemption ended and a greater emphasis on discounts to customers.
The European automotive industry is keen to increase the revenues they get from so-called downstream areas – the spare parts, services and other products that go with running a car or truck. Profits for dealers are greater in this area than in selling new or used vehicles and web-based systems are critical to tapping this market cost effectively.
For example, Ford of Europe has introduced a browser-based electronic parts catalogue called FordEcat. The system allows parts technicians and service advisors at 4,600 Ford dealers in more than 42 European and Middle Eastern countries to get up-todate information on parts and service.
FordEcat caters for 45 different car models in 17 different languages via the Web and CD/DVD. The system enables faster and more efficient parts and service identification while boosting Ford’s overall aftermarket footprint across the region.
The electronic catalogue enabled Ford to establish a direct link to its dealerships and reduce the time to distribute new materials. As a result, in less than one year, more than 65 per cent of its dealer network has chosen the FordEcat system, improving the aftermarket revenue stream and establishing centralised management and control of content.
Competition may be a driving force in the automotive industry but in one particular area – ebusiness – the major vehicle makers have pulled over long enough to collaborate. In recent years they have built a network of online exchanges designed to streamline inter-company trade.
There are now five auto exchanges, with more planned, covering the major industrial regions of the world and all part of the Global Network Exchange. Europe is represented by the European Network Exchange (ENX), which was set up six years ago and is run by a group of 17 manufacturers, component makers and trade associations.
ENX has adopted a series of standards covering the major elements of inter-company communications and contracted with internet service providers to deliver the network. There are currently four ENX suppliers – BT Infonet, France Télécom, T-Systems and Telefónica. Verizon Business will come on stream in September once it has passed ENX’s certification process. The ENX network, with offices in Frankfurt and Paris, replaced a hotch potch of informal arrangements based on proprietary telecom systems with a single service used by more than 500 companies. There are now some 3000 individual connections between trading partners on ENX.
Marc Sodoyer, IT director, at the French component maker Trèves, made a decision to join ENX three years ago. He says use of the network has ‘showed a return on our investment since the end of 2003 by the increasing use of digital mock-up and by having shifted our EDI data exchange with Renault to ENX.’
Members use the service’s secure connections for a wide variety of applications including ordering, quotations, file transfer and finance, as well as transferring the data and drawings involved in computer aided design, engineering and manufacturing.
Once a connection is in place, deals can be set up quickly – and at little cost to either party. The network is fast, easy to access and, at the same time, secure with a guaranteed quality service, claims ENX.
Not only can member companies trade globally with one another over a secure network, but they can work more closely together in collaborative projects that take advantage of business process integration.
‘Our decision to become an ENX user was based on the cost-savings to our suppliers, the reduction of engineering project lead times, our security and availability needs and easier realisation of network links to other OEMs due to agreed industry wide standardisation,’ says Hans Lawitzke, manager telecommunications, Ford Europe.
‘We have invested in one of the biggest accesses so far existing, since we are convinced by ENX’s constancy and ability to fulfill our long-term needs.’ Ford expects to extend the system to all its suppliers.
ENX is also a scalable solution which means it can be adapted to suit different-sized companies. For example, firms can use smaller, cheaper lines with less security devices if they do not require all the functions that the larger companies need to operate.
Members of ENX argue that it has increased their competitiveness with harmonised communication helping them to rationalise workflow processes and maximise the use of resources. ENX makes the exchange of engineering, production-control and logistics data possible throughout Europe.
‘ENX is no longer just a standard, the usage of which is stipulated by the manufacturers but more and more becomes utilised as a tool by the automotive suppliers to actively reduce complexity and costs,’ says Dr Armin Vornberger, president of the ENX Association.
However, there is still a way to go before the automotive industry realises the full benefit of services such as ENX. According to a recent study by research firm Quocirca for GXS, an EDI service provider, automotive companies are not using their exchanges to the full.
‘Almost 60 per cent of automotives are seeking to automate – or further automate – procurement processes through better use of technology,’ says Quocirca founder Clive Longbottom. ‘However, the automotive sector sector finds the costs of managing existing systems the most burdensome compared to companies in other industries such as retail and high tech.’
One reason for those extra costs is the overhead of maintaining a variety of legacy systems. The tendency in the industry is to add new technologies to the existing mix rather than to replace systems.
For example, Quocrica says that while all of the companies it questioned use email and other electronic means to communicate with business partners and customers, over 90 per cent also send faxes and stick stamps on envelopes to get their messages across.
Electronic data interchange formats continue to cast a long shadow across the landscape too. Over 80 per cent of firms use point-to-point EDI solutions to exchange information.
At the same time 60 per cent rely on electronic communication via an internet trading exchange for their procurement needs, while over 70 per cent use electronic communication via trading exchange for selling goods and services.
The plethora of different media and big variations in the size of companies create their own problems. GXS reports that almost 60 per cent of European automotive respondents find that one of their largest challenges is that supplier and customer IT capabilities and systems are at different levels.
Ahead of the game
But in some areas, the automotive industry is ahead of the game – in attitudes to outsourcing web services, for example. Companies are most likely to consider outsourcing for discrete IT functions such as web hosting, says Ryan Kraudel, global product marketing manager at GXS, and have the highest level for outsourcing internal help desk functionality.
Many believe that the auto industry has transformed itself in recent years from technology laggard to technology leader. ‘The auto industry is breaking down traditional boundaries between organisations on a global scale,’ says Vishakha Radia, director of the global automotive practice for the Cisco Internet Business Solutions Group.
‘They have many cross-functional team members interfacing with other companies and with other crossfunctional team members, and they do it in real time over high bandwidth,’ she says. ‘They have prioritised [online collaboration]as a way to eliminate waste and take lead time out of product design, and they’re doing it very successfully.’
There is little doubt that the winning automotive companies will be those that can improve their business models through revenue generation and waste reduction. This includes developing new business capabilities, and increasing responsiveness to customers and industry shifts.
It also requires that a company generate improvements with agile and efficient operations. Sales, service and marketing cry out for the greatest change and at the same time offer the best opportunities for improvement.
Benefits of ENX
- Shortens lead times for new product development
- Offers a scaleable infrastructure supporting growth in business and the
number of trading partners
- Consolidates multiple communication links
- Enables better utilisation of network resources
- Provides optional security management to support data exchange
(either as a product or a fully managed service)
- Gives users open access to applications
- Allows information sharing within a secure environment
- Reduces trading partner network management
- Delivers secure access to ENX and the internet
- Has proved cost effective