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A Dramatic Shift in the Relationship between Car Owners and Auto Makers

Date:05-31 10:59 Source: autochina.comnews.cn Authour:He Lun

E-commerce in auto sales and services gives the customer the say, reduces operating costs and promotes healthy competition between dealers. It lowers management costs and avoids legal risks for auto makers. Moreover, since the information feedback function is completely transferred online, customers can get involved in the design, quality, and technology of models on brand e-commerce platforms. Relevant data goes directly to R&D and production departments, providing credible customer feedback as a support to improvements. This process is dubbed “let your customers design and improve your products".

Embarking on the road to recovery in China, the German brand Borgward attracted industry attention with its innovative new business model, which combines B2B2C and B2C2B. Simply expressed, the model allows the auto maker to create its own e-commerce platform for sales and service. What does this imply for stakeholders such as customers, auto makers, and dealers?

A Dramatic Shift in the Relationship between Car Owners and Auto Makers

 

Q: Borgward has developed an app for its owners so that they can enjoy door-to-door service by choosing an authorized dealer they like, and can rate the service as if they are using Taobao. What do you think of the move?

A: This will start a revolution in the field of auto sales and services. Today’s auto sales model is dominated by auto makers. They have more say than authorized dealers. We users no longer feel helpless as we used to because what was once a short-supplied seller’s market has developed into an over-supplied buyer’s market. A buyer’s market is naturally customer-oriented. In the wave of e-commerce, the car owner has become the master, the auto makers the housekeepers, and the authorized dealers the servants. A revolution is underway - the rules of the game have changed, the pattern of interests has changed, and the relationships between the three parties have also changed.

In the past, auto makers and dealers paid lip service to ideas like “user satisfaction comes first.” Now, it’s time for them to honor their words, however unwillingly. The move into e-commerce provides the best way to fulfill such commitments.

Q: Why is Borgward pioneering this model?

A: Because the model reduces costs. Even if you are a big and mature brand, it takes a lot of effort to convince a dealer to open a new 4S store. A fierce price war has scared the three high-end German brands away from opening new 4S stores. Once a new store is opened, it’s going to lose money and wither away. No old customer will come for maintenance. Some dealers have gone out of business, some have exited the market, and some have switched to other businesses. Opening a new store no longer creates a sensation. Against this backdrop, there is no prospect of dealers allying with Borgward, a newcomer to the auto market, without a new profit model.

A major feature of this model is that a brand does not need to set up so many expensive 4S stores. One or two flagship stores are more than enough. The point is to build several low-cost maintenance points outside of the urban centers where the land price is cheap. Also known as 2S stores, the maintenance points will focus on maintenance and accessories. It’s much more cost-effective to have employees pick up cars from their owners' homes and drive them there for maintenance than to run a 4S store in a downtown area. A bolder vision needs no employees. Instead, you can build a partnership with a designated driving service provider as long as service standards and the liability relationship are sorted out. The cost is obviously lower. Besides, you can cooperate with chain brand repair stores offering wide coverage and a good reputation, such as Michelin Tyreplus. For example, after you deliver your customer's car to one of the stores, the store will maintain the car according to the standard of your brand, while all you need to do is provide a guarantee of quality to the customer.

This model can significantly reduce the cost of expanding the sales and service network. It best fits newcomers to the market like DS and Qoros, offering them a cost-effective way to realize much-needed expansion.

Q: Can the mature big brands draw lessons from this model?

A: Of course - especially the luxury brands. It’s great if the dealer can take my car away when I leave for work, and return it before the end of my working day. And the cost is not excessive. I can pay the bill online and easily leave my assessment of the service on an app. My assessment, together with those provided by other users, decides the fate of the dealer. It’s much better than dialing a service hotline that will leave your complaint unheard. This model is a common desire of numerous luxury car buyers.Putting myself in the position of a dealer, if I’ve got more than one 4S store for a brand, I don’t have to open a new 4S store when my customer base exceeds the capacity of my existing stores. Instead, I can set up 2S stores in the suburbs to lower my costs. Or supposing I run a dealership group that engages in several brands. I’m free to build a comprehensive multi-brand repair group on a piece of cheap land in the suburbs. Either way, with car pickup and delivery, the customers can experience the unique features of a brand without having to drive here. This option further improves efficiency and reduces costs. When I visited Nagoya, Japan, I saw a dealer running two neighboring stores, one for Toyota and one for VW. The facades were for two independent stores. At the back, the two brands shared the same repair workshop. VW Golf and Toyota Corolla were maintained in the same place. In the vicinity of New York, I saw two neighboring 4S stores, for Lexus and for Jaguar Land Rover, sharing the same repair and maintenance workshop.

Q: The problem is some cities boast a dozen 4S stores for every luxury brand and dozens for a mid-range brand. Their capacity far exceeds demand. What should we do?

A: Distribution has to be streamlined. In fact, with e-commerce, we can transfer part of the sales function and the whole feedback function online (which enhances its efficiency and effectiveness), and relocate maintenance and spare parts functions to a piece of cheap land in the suburbs or cooperate with chain brand repair stores. In other words, the functions of 4S shops are being split apart. The supporting real estate resources should be separated and adjusted accordingly. And of course, we should not overlook the increasingly popular used car business.

Q: The app actually moves the bait for dealers and tests them every day with a quasi-Taobao evaluation system. Are dealers willing to accept it?

A: The e-commerce model of sales and service is easily replicable. If you are not willing to accept it, others will and leave you to perish. When e-commerce broke into the field of auto sales and services a year ago, it was said that it would kill off the authorized brand 4S stores. It now appears that 4S stores can learn from the model of e-commerce to lower costs and improve customer satisfaction. In fact, e-commerce providers become the underdog when competition tightens the noose, as they lack the hardware, the talent, the training, and the technical resources that offline brands have at their disposal. Credit is also a problem for them. After all, it’s easy for auto makers to learn from e-commerce providers, but the converse does not apply. E-commerce has sown the seeds, and auto makers are picking the fruits. (See “4S Stores Upgrading in the Midst of Raging Storm”)

Mercedes-Benz understood the situation last year and began to build an exclusive e-commerce sales and service platform, for its own brands. (See Are Mercedes-Benz Manufacturers “Shivering” in the Face of E-commerce?) The word is that it will be launched later this year. In addition, I understand that SAIC is about to unveil a similar e-commerce platform for its brands. The new Roewe RX5 will be put on the platform first. FAW-VW Audi is also preparing the way for an e-commerce platform.

A Dramatic Shift in the Relationship between Car Owners and Auto Makers

Q: Considering the close ties between auto makers and dealers, won’t the auto maker running the e-commerce platform accede to dealers requests to delete negative comments? You know, a negative comment might cost the life of an entire store.

A: This is an important issue. But it would be asking for trouble. If the automaker is caught doing so, its platform will collapse. Openness, fairness, transparency and credibility are the cornerstones of the platform. Therefore, an automaker must be ready to play according to the rules of the game before setting up a brand e-commerce platform. Once the platform goes live, it will be under the watchful eyes of the public, leaving no room for misconduct.

Dealers should also obey the rules. Over the years, dealers have been trying to transcend the affiliation to auto makers and acquire an equal say. However, the upcoming Anti-monopoly Guide for the Auto Industry will give dealers a more independent status. You cannot be asking auto makers for parity and holding them responsible for your own actions at the same time. When you fail to satisfy users with your service, they will leave negative comments on brand e-commerce platforms. If this costs you your place on the playing field, it makes no sense to hold the manufacturer liable for your ejection. I have described the new rules as “let users manage dealers”. The old model of “letting auto makers manage dealers” has been overturned. (See Auto E-commerce Providers: Paving the Way for New Auto Makers?)An executive from a luxury car brand once said to me: If the provisions of the Anti-monopoly Guide for the Auto Industry (exposure draft) are implemented, half of our sales team will lose their jobs. Hundreds of team members are currently working on the management of dealers. E-commerce in auto sales and service will significantly reduce our management costs. You don’t need to employ a group of people to pretend to be users and carry out “unannounced inspections” of dealers. Real users’ evaluations of sales and service are out there and updated in real time. You do not have to waste millions hiring research companies to conduct those low-credibility “customer satisfaction surveys”. It’s also important to note that “let users manage dealers” allows you to avoid the risk of antitrust.

In conclusion, e-commerce in auto sales and services gives the customer the say, reduces operating costs and promotes healthy competition between dealers. It lowers management costs and avoids legal risks for auto makers. Moreover, since the information feedback function is completely transferred online, customers can get involved in the design, quality, and technology of models on brand e-commerce platforms. Relevant data goes directly to R&D and production departments, providing credible customer feedback as a support to improvements. This process is dubbed “let your customers design and improve your products". Also, the millions of users of your app constitute a treasure in itself. You can make money out of it.


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