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Millennial mindset 'spells doom' for car industry

A US car industry chief executive has warned of mass lay-offs ahead, and says the motor industry business model is finished.

Writing on condition of anonymity, the chief executive says that profit margins have eroded significantly in the industry, but the business model has been the same for 100 years.

The industry chief was responding to a post by cultural commentator Bob Lefsetz who commended General Motors for preparing for the looming crisis as fewer customers seek to own cars, due to the inexorable rise in ‘ride-hailing’ apps and self-driving vehicles.

The chief executive commends the Leftsetz analogy that car manufacturers are selling CDs in a streaming age.

Priciest locations

“But, worse still, we are doing it from big box stores in the priciest locations, so the business model is particularly vulnerable,” he writes.

“There was enough margin to support the business model last century, but that margin has been eroded significantly.

“Prices are transparent and the consumer also has access to tools that create competition between dealers for their business, making erosion inevitable,” he says.

Mass market cars

He observes that selling mass market cars as assets no longer works economically and nor will it work psychologically for people in their 30s.

“They can't afford to buy homes and they have never bought music, so why would they rebel against that mindset and buy cars?” he asks, as younger people move from an ownership to an access model of consumption.

He warns that without a universal charging protocol, buying an electric vehicle involves making an infrastructure bet.

He points out that, with tech, there is always something better coming round the corner – quickly – such as inductive road charging that's going to change things all over again.

Residuals
“For all these reasons, residuals on EVs [electric vehicles] are terrible,” he discloses.

“No one in the trade wants to buy any electric vehicles or plug-in hybrid electric vehicles we get in stock.

“Overlay those realities on the millennial mindset, and you can see that there's gathering momentum pushing people away from car ownership.

The chief executive says that smart manufacturers such as Ford and Volvo are reinventing themselves as suppliers of mobility services, and points out that even Porsche has been trialling a subscription model.

Shared asset

All dealers are weakened by the fact that customer data is, at best, a shared asset, he says.

Manufacturers have captured significant customer data through their own websites, through warranty registrations and through owning dealerships themselves, so they now understand and can predict customers better than any individual dealer.

“Add in all the data that's going to be captured by manufacturers with connected cars and you have a data set that Amazon would envy.

“So the dealers need to pivot to survive, too, but that's hard to do when your biggest asset is real estate, which slows you down.

 Vulnerable species

“However it plays out, dealers are clearly a vulnerable species,” he concludes, warning that hundreds of well-financed electric vehicles start-ups in China are without any legacy costs from funding development of the internal combustion engine.

He urges large car manufacturers to look to the tech sector for their next generation of chief executives.