Will Shifting To Services Boost The Automotive Industry?

Uli Muench

To stay competitive and offer the customer a better experience, automotive companies need to make innovative changes. This includes offering services that are integrated with the products the company makes. This ultimately requires a shift in the entire business model.

The automotive industry is the one to watch in terms of major changes and disruptions through technology, explains Bob O’Donnell, founder and chief analyst at Technalysis Research. He notes that “cars as a service” is the main driver shifting industry focus.

How will these manufacturers change their business models to include services? How will including services affect automotive manufacturers?

Benefits of providing services to customers

Automotive manufacturers that offer services can expect benefits from this new business model. Analyst firm IDC estimates that manufacturers who successfully use service-quality measures to enhance the customer experience will have 20% more aftermarket revenue than their peers. IDC also notes advanced manufacturers are already switching to a model with more services. This solidifies the direction the industry is taking, so companies that do not follow this model will be left behind the competition in terms of revenue and customer experience.

Offering services is a way for vehicle manufacturers to increase profits. This is important for an industry that already comes with small profit margins. And it will become even more important as new cars require advanced technology that may decrease profit margins even more. If a company charges for value-added services on their vehicles post sales, they have a new and ongoing income stream.

Ways to incorporate services

Frost & Sullivan’s Sarwant Singh explains that digitization has started to change the automotive industry from one focused on hardware to one based around digital services. He describes the projection of digitization in the industry, noting that it “is expected to move rapidly from ‘digital services’ to ‘car-as-a-service’ to ‘mobility-as-a-service,’ thereby the car becoming an element of a connected living solution by 2030.”

Manufacturers can create new offerings by providing support and convenience services that complement their products; for example, remote monitoring, predictive maintenance, and prescriptive maintenance. Instead of another company taking care of the product’s maintenance, the manufacturer could maintain the product.

This approach is similar to a jewelry company that cleans its own jewelry to retain a warranty, or an air conditioning manufacturer that provides technicians to maintain and repair its air conditioning units. You see applications of this business model in many industries, and it will eventually transpire within the automotive industry as well.

The automotive industry can approach this business model differently than other manufacturing industries by focusing on products’ entire lifecycle during the design and ideation process. Once the customer has the product, manufacturers can offer aftermarket services for upgrades and quality assurance.

Nonetheless, O’Donnell believes that automotive manufacturers still need to figure out how the service-based model will work. They need to determine the types of services that will benefit vehicles and the ones consumers will want and spend hard-earned money on. For a while, industry changes might be a work in progress.

How to add services to a business model

The Internet of Things (IoT) provides the capability to add numerous services to automakers’ traditional business model. For example, vehicle manufacturers can use the IoT for remote monitoring. IoT eases the process of manufacturers tracking product defects and maintenance needs. It also helps provide notifications to customers in a timely manner. Furthermore, it allows manufacturers to easily provide software updates for the growing amount of software code found in modern vehicles. Manufacturers can also use IoT to track consumer preferences to better which understand services to offer.

The business model will shift to creating products that determine the service itself. The connected product can tell when it needs maintenance or a correction and determine whether a fix can be provided remotely or through a service call.

By offering services along with products, vehicle manufacturers can keep up with customer needs and propel their businesses into the future. Modern vehicles are increasingly focused on technology, which lends itself to creating a service-based model. OEMs can satisfy customers and increase profits by using IoT to incorporate services into their business models.

Learn how to bring new technologies and services together to power digital transformation by downloading The IoT Imperative for Discrete Manufacturers: Automotive, Aerospace and Defense, High Tech, and Industrial Machinery.


Uli Muench

About Uli Muench

Uli Muench is Global Vice President of the Automotive Industry Business Unit at SAP.