Who will emerge victorious from the revolution that has forever changed the auto industry?
Will manufacturers and their dealer networks be able to shake off decades of complacency and execute new concepts to strengthen the value of their brands? Or will nimbler, more imaginative retailers be the winners?
Automakers have competed fiercely among themselves to cut costs and meet consumer demand for cheaper, better vehicles. But now the survivors face threats from outside the industry.
Imagine this scenario: General Electric decides to shake up the automotive industry. Far-fetched as this notion might seem, the fact is that GE Chairman Jack Welch's approach to business has proved so effective that it could well be transferred to many other industries.
The possibility becomes more real if one recognizes the paramount issue: how to bundle the right services to the right people at the right time.
How would Jack Welch perceive his mission? Taking a leaf from the GE book, he most likely would look at the auto industry and see an attractive opportunity to increase shareholder value. His strategy would have two basic elements:
1. Profitable growth through services and improved customer satisfaction.
2. Major cost reductions.
Embracing the same tactics that he has used with medical devices, aircraft engines and other businesses under the GE umbrella, Welch would tackle the auto industry as a mature, engineered-product market with vast potential to grow through services:
He would identify the best way to improve downstream services while cutting costs.
He would leverage the strong credit, superior financial-services capabilities and innovation that have made GE Capital the primary growth engine for GE.
He would capitalize on the auto industry's poor customer service.
And he would reap the rewards of changing the industry without making any physical product.
Fantasy? Perhaps. But think of Welch's track record as one of the world's savviest managers. And think of the weapons at his disposal.
GE's Auto Financial Services unit already provides leasing insurance and financial products to end customers. It also sells financial services to dealers, including inventory, commercial and rental car financing.
In addition, GE Capital Fleet Ser-vices is the largest fleet management company in the world. It provides a variety of services beyond leases: maintenance programs, accident-prevention programs, programs for tracking fuel consumption, best practice sharing and resale management.
Welch could expand these positions to become the world's No. 1 provider of sales and after-sales support.
This could be done in three thrusts:
1. Welch extends the business of selling financial services to dealers to supplying most services a dealer needs to operate. He uses this capability to provide outsourcing of dealer operations at lower cost than the dealers can realize themselves. He aggressively acquires his own set of dealers.
2. He continues to grow his fleet management business to offer full-service leasing for any type of business account. He can manage all aspects of ownership for new and used vehicles. He offers a variety of financing and leasing plans that allow him to sell mobility service to business customers or to operate the fleet for the customers at a lower cost than they can achieve for themselves and at lower cost than competitors.
3. He changes the ownership paradigm. Instead of focusing on selling vehicle ownership, he offers 'mobility contracts.' These would let consumers make regular payments for use of a vehicle but would not necessarily be tied to one vehicle.
Building on our imagined scenario, GE takes positions not just in dealers but also in other service providers to secure a leading position and to control all service elements at the lowest possible cost.
As GE's ambitions are fulfilled downstream, Welch wields his power to change the game upstream, bending the vehicle manufacturers and their suppliers to his will.
His leading share of sales and service in the U.S. market afford Welch strong influence with vehicle makers. He also has vastly superior information about consumer needs and wants. He begins to dictate vehicle design requirements to the carmakers.
Disdaining bureaucracy, Welch insists on massive cuts in OE sales, marketing and service functions since he does not need this support from the vehicle makers. He also exerts his power in the parts business, suppressing vehicle makers' parts margins and dealing directly with the manufacturers' vendors or alternative suppliers to secure better prices and support.
For many vehicles, consumers' downstream experience has a greater effect on satisfaction levels and loyalty than manufacturer-controlled variables such as vehicle design. This reality, along with his size, allows Welch to insist that carmakers bid for the privilege of supplying his sales and service business. He picks the best models for his portfolio from various makers. The manufacturers' brand equity is reduced while his expands. Competitive pressures on the manufacturers intensify, and further restructuring takes place upstream.
In this story, vehicle manufacturers and their suppliers rue the day Jack Welch saw the chance to improve the automotive value chain.
Today, this tale is fiction. But given the vulnerability of the industry and its rapidly changing dynamics, tomorrow it could happen.