John Hagel has a great post on different forms of innovation, but specifically institutional innovation. One of the areas highlighted in his post is knowledge innovation, where different ideas coming together produce innovation. I think the auto industry struggles because it fails to attract innovators from other industries. Few people want to come to the auto industry with their new ideas and perspectives, which is a shame, since outside perspectives would create great new opportunities.
A few months ago I opened up an account with Tumblr but had zero idea what to do with it. I’ve started using it. If you want to see my blog, Evenlevel’s blog, and my tweets all in one place, plus more, check out http://autoventures.tumblr.com.
**Updated with right link
A new auto blog to check out CarsDiva.
If you have a startup in the Auto Industry and would like some additional coverage, send me an email. I know from this blog that there are quite a few interesting companies starting up that are not covered by the larger auto industry press.
ejlawless [at] gmail (.com)
Used cars and the dealers that sell them are commodities to the customer. Buyers search through thousands of cars trying to narrow their choices down to just a few cars, essentially ignoring the car seller. This isn’t to say that some customers don’t automatically go to a franchised dealership for better service, but most shoppers narrow down on the cars and ignore the dealership.
Adding in a service component to a customer’s decision is difficult. I know that Edmund’s has a review site for dealers, but I have trouble seeing it catch on. Several review sites, like Yelp.com, have become successful, but they have an engaged audience that can constantly come back and write reviews. Most people buy cars once every 5-7 years, not frequently enough to drive serious engagement.
How would customer and dealer interactions change if customers could search for dealerships by service/feedback ratings instead of just cars? What if, and I know this is slightly crazy talk, any dealer could sell any car, and customers made purchase decisions based off service?
Cars would become even more commodity-like, and greater emphasis would be placed upon the dealership’s service and the dealership’s ability to put a deal together.
I downloaded In Rainbows yesterday, and paid 5 pounds. I forgot how much the dollar had declined, so I thought I was paying around $7 or $8, instead of $10. Radiohead is one of my favorite bands, and I would have bought the album regardless, but it made me wonder how people value buying decisions.
I’ve read several behavioral economic studies that shows sellers of an item value it more than the potential buyer, no big surprise. Just for fun though, if a dealer asked a customer to suggest a “profit” amount on a car buying decision, I wonder what the customer might say. Each person may pay the exact amount they are comfortable paying.
While I think consumers tend to undervalue provided by dealers, as well as underestimate the costs, it may be worthwhile to try once.
The credit crunch was triggered by issues in Collateralized Loan Obligations (CLOs). Mortgage companies would package together a bunch of mortgages, slice them into different risk profiles (tranches) and resell the new securities to different companies looking for a certain return.
It should be possible to do something similar for remarketing, but hopefully without the negatives! Large consignors have hundreds of thousands of cars to sell a year. I’m sure they have statistics on the expected condition of their cars at the end of their fleet life (when the consignor decides to resell). The could segment cars based on condition, mileage, options, expected wholesale price, and underlying volatility for the dealer depending on make and model.
Dealers could purchase a given quantity of cars from a ‘tranche’ at a present date for delivery in the future. This is really a future/forward, but I thought CCO was a better acronym. The CCOs benefits both dealers and consignors.
Consignors can avoid the uncertainty of selling a car at auction, having a portfolio to manage, holding costs and, potentially, reconditioning costs. Instead of making decisions about where to sell the car, it is already sold.
Dealers can guarantee a constant flow of cars at a good price, depending upon the CCO discount. The discount should come from the time value of money, recondition risk of the car, and cost savings enjoyed by the consignor.
These CCOs could potentially be used to hedge car risk, as suggested in Fleet-ing Thoughts.