Auto options need a rethink

As the economy works to return to a semblance of normalcy, strategic planners will be expected to better target vehicle content to meet specific consumer demands more efficiently. This will be critical to addressing consumer affordability and industry profitability in the new normal.

To maintain sales volumes, the industry has traditionally created hundreds of combinations of features and functions to connect with potential buyers. There can be 1,500 configurations associated with any given make and model on the lots of dealerships across the country. But even with this variety, the chances of consumers finding their unicorn — a vehicle that has the specific combination of content desired — are going to be pretty small.

The current approach is somewhat at odds with what J.D. Power has learned about consumer preferences. While it is true that buyers across the spectrum of mass-market and luxury vehicles demand a robust array of advanced standard features, the laws of diminishing marginal returns appear to quickly manifest as more content is added.

Buyers now expect vehicles to come with keyless remote entry and Bluetooth hookups for phones. A lot of vehicles now have Apple CarPlay or Android Auto so consumers can effectively have navigation in their vehicles. Power windows, power mirrors, air conditioning and backup cameras are also expected. However, once these basic thresholds of content are met, everything else is a cherry on top.

This reality is not stopping automakers from believing that consumers need more choices. It is a mindset that has contributed significantly to the rising cost of new vehicles over the past decade. And it is elevating costs for dealerships that are paying floorplan interest.

Until now, these issues have been papered over by managing finance and purchasing terms. Going into 2020, incentives were at one of the highest points in recent history, with discounts accounting for more than 10 percent of the average price of a vehicle. We also saw more customers consider leasing or explore extended loan terms.

While lease payments have historically been more affordable than loan payments, the dynamic has changed as consumers shift from accepting 60-month loans to embracing 72- and even 84-month loans to keep payments in check.

The new normal may not be able to sustain these financing strategies. This has prompted the industry to explore ways of reducing the cost of new vehicles by reevaluating configuration strategies.

From a strategic planning point of view, the industry's approach to bundling and packaging vehicle content hasn't really changed in many years. Vehicle models started with basic cloth seats, with the next version upgraded to power seats, followed by leather interiors and then sunroofs and so on. There was a textbook hierarchy.

As baby boomers and Generation Xers make way for millennial and Gen Z customers, it may be time to redefine how content is bundled. This is especially true as younger consumers take advantage of new tools and resources to gather insight into what vehicles are available.

What buyers actually want largely remains a mystery to most automakers and dealers. This is about to change.

The seeds of a long-term solution have been planted with the development of Voice of the Vehicle technologies that will provide insight into user behavior.

J.D. Power is working on such analytics to better understand the features customers are interacting with, how many times they turn a function on or off and how many times they override certain features.

The technology that enables this analysis is still in its early stages. In the meantime, J.D. Power is working with the industry to correlate transactional data with configuration information to build models that provide insight into the features that consumers prefer.