Davenport, Leibold, Voelpel: The Changing Automobile Enterprise Business Model

An example of the dramatic transformation in business models is in the global auto industry. For the past several years, the industry has concentrated on improving its supply chains, reducing time-to-market for new models, and increasingly integrating global operations. The auto industry has also experienced tremendous consolidation as the major companies have begun to merge and the number of original equipment manufacturing (OEM) brands has been reduced to a shorter list of nameplates.

At the same time, the industry has become more detached from its dealer networks, and this has given rise to the growing phenomenon of megadealers who offer products and brands from many different automotive manufacturers.

Further dramatic shifts are occurring. The OEM model is rapidly transforming into a vehicle brand owner (VBO) model. Major manufacturers (such as Ford, General Motors, and Daimler- Chrysler) are moving to outsource much of the manufacture of the parts and subassemblies of their vehicles. Some firms, such as Porsche, even subcontract final assembly of vehicles. At the same time, there has been a growing interest in investing downstream in distribution and dealer networks.

These shifts reflect the reality of the auto industry, in which very little profit has been made in recent decades on the cars themselves (the most profitable product has been light trucks). Servicing and repair, the aftermarket, and related businesses such as auto finance have been the principal moneymakers. Thus, it has increasingly made sense to transition major companies to the role of VBOs. As such, the companies may outsource manufacturing, create new alliances and supply chain networks, manage outsourced relationships, and focus on customer responsiveness, vehicle design, distribution, service and repair, and the aftermarket. At the same time, auto manufacturers are learning to use the Internet as a major consumer communications and sales tool. The financial markets are increasingly recognizing these transformations – and beginning to reward them accordingly.

The evidence for this fundamental change is the creation of automotive value chains and their wider business ecosystems. There are at least two broad approaches:

a) Some automotive companies are using technology to create a captive network of suppliers for parts and sub-assemblies, as well as other products and services. The network is, by definition, closely tied to the company (particularly for Japanese auto manufacturers). It can use Internet-based tools to cooperate on product design and specifications. It can also bid on additional work – for example, to produce products and services for downstream elements of the supply chain, to supply the brand-owning nameplate manufacturer, or to deliver original equipment or aftermarket services directly to the consumer. The network is knit together by various supply and purchasing technology tools that exchange information, conduct bidding processes, and integrate the supply chain for manufacturing and delivery.

b) Automotive companies that use similar technology but do not require a fully captive supply base represent an alternative approach. In this model, design and subassembly specifications are provided through a more open communications and network approach to a broader set of potential players. This open architecture model allows a vast array of manufacturing and service providers to participate in bidding and to compete furiously with each other on the basis of traditional measures such as reliability, quality, and price, as well as new performance measures such as the ability to interface with metamarket technology, fit quickly and easily into the virtual supply chain, and create and dissolve business alliances efficiently. As these concepts are currently evolving, some automakers have joined together to form multi-company supply networks with common standards.

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