CASE STUDY 1: CAN DETROIT MAKE THE CARS CUSTOMERS WANT?
1. Why is AutoNation having a problem with its inventory? Why is this also a problem for auto manufacturers such as GM, Ford, and Chrysler? How is this problem impacting the business performance of AutoNation and of the auto manufacturers?
AutoNation, the largest chain of car dealers in the United States, with near1y $18 billion in annual revenue, is the leading seller of automobiles in the country. The company has 244 dealerships in 16 states and sells four percent of all new cars sold in the United States. in other words, AutoNation is the largest automotive retailer in the United States and is the leading provider of new and pre-owned vehicles. AutoNation owns and operates over 310 franchises throughout the United States. It was founded in 1996 by entrepreneur H. Wayne Huizenga. AutoNation operates over 293 franchises across the USA, and has approximately 24,500 employees. It sells 35 different manufacturer brands nationwide across 15 states and is the leading automotive retailer by sales in the United States. It is ranked 156 in the 2015 Fortune 500. The company has a large internet presence, offering its entire inventory for online searching.
AutoNation Inc. Chief Executive said the auto industry is unlikely to grow in 2014 at the same rate it has been growing in the former few years. That means inventory levels should be limited to avoid heavy incentive programs. While U.S. new-vehicle sales have roared back from the depths of the 2009 recession, the growth frequency is predictable to slow this year, forcing auto manufacturers to fight harder to gain market share. That turns up pressure on auto dealers, including Fort Lauderdale, Fla.-based AutoNation, as auto manufacturers tie payments to dealers to hitting certain sales quotas. U.S. dealers have about $100 billion worth of unsold cars and trucks sitting on their lots. AutoNation Inc. Chief Executive said discounts are starting to rise across the industry already, even if they aren't as obvious to consumers. Among them are stair-step programs where car companies give money directly to dealers in exchange for hitting monthly sales targets.
AutoNation has excessive inventory that it can't easily sell. Main reasons are,
• Upsurge in gasoline prices
• Weakened U.S. economy
• Customers want fuel efficient cars opposed to the gas consuming cars
• Auto manufacturers production line not set up with the appropriate processes to change production models
For further explanation, the upsurge in gasoline prices coupled with a weakened U.S. economy have made the problem even worse. U.S. dealers' lots are bulging with unsold gas-guzzling pickup trucks and SUVS. Detroit auto manufacturers have lost even more market share to the Japanese and Koreans, who are adept at producing small fuel-efficient cars. U.S. auto manufacturers are scrambling to revamp their product line-ups, but they cannot move quickly enough.
AutoNation Inc. Chief Executive said new-car supplies in the U.S. are rising rapidly, putting pressure on auto manufacturers as they try to avoid a profit-sapping price war. "I think 2014 is a test, it was easy for the last four years. You could support double-digit growth and build for inventory. But now that is all starting to change,” AutoNation Inc. Chief Executive said at a conference in Detroit.
AutoNation Inc. Chief Executive predicts a three percent to five percent growth rate over last year's light-vehicle retail and fleet sales of 15.6 million units. That creates a problem with stock on the ground as auto manufacturers have been building vehicles to support double digit growth to rebuild retail inventory during the past few years. Retail inventory is about 3.5 million units, or about $100 billion worth of goods, which is more like a 90- to 120-day supply instead of the industry-accepted 60-day supply. AutoNation Inc. Chief Executive criticized the 60-day inventory figure, saying it includes fleet sales.
In other words, that level is striking given that auto manufacturers have pledged not to overstock dealers the way they did in the run-up to the financial crisis and the auto-sales collapse of 2008-2009. Auto manufacturers book revenue when a car is shipped, not when it is sold at the dealership. At the end of 2013, auto dealers had 3.45 million cars and trucks in stock, enough to last 63 days at the current selling rate, according to research firm Auto data Corp. A 60-day supply of cars is typically considered as healthy by the industry. But the inventory levels are much higher than that closer to 90 to 120 days of supply if cars sold to fleets are excluded from the selling rate.
AutoNation Inc. Chief Executive declined to name specific manufacturers that have overproduced, but said the manufacturers are also concerned mostly with revenue from the wholesale sale to dealers. AutoNation Inc. Chief Executive called for an industry change in how auto manufacturers record revenue. Industry executives are generally upbeat, but agree that sales growth is slowing down and that overstocking poses a threat to the relative pricing discipline that has characterized the U.S. industry during the past several years.
Impacts on AutoNation and auto manufacturers are,
• Auto manufacturers will produce the cars and send them to dealerships; as it is imperative to keep their plants running regardless of demand and increased employee cost.
• The financial performance of AutoNation and other auto manufacturers as their manufacturing processes are not set up to quickly change production models and have been geared towards optimizing the efficiency of the production plant.
For further elaborations, one reason is that their manufacturing processes are not set up to quickly change production models and have been geared toward optimizing the efficiency of the production plant: It has become imperative for the manufacturers to keep their plants running regardless of demand to pay for the rising costs of employee healthcare and pensions.
Furthermore, auto workers must be paid most of their salaries regardless of whether they are working, so the manufacturers want them working all the time. Pushing out factory-friendly vehicles keeps revenue streams flowing because the automakers are paid as soon as the cars ship to the dealers. U.S. auto makers have to project their model line-ups and manufacturing requirements about three years in advance, and experts say there are too many plants in the United States to keep busy all the time.
2. What pieces of data do AutoNation need to determine what cars to stock in each of its dealerships? How can it obtain these data?
Historically, dealers have been independent or small chains selling a single brand of car and having little bargaining power. They had to accept whatever the auto manufacturers shipped them, even if it was bad for business. With the growth of chains like AutoNation, the dealers have gained more power in the relationship.
Many dealers will order a customized vehicle for a customer, but such an order usually adds six to eight weeks to the transaction. The customer who wants to buy on the spot must choose from cars on the lot that the manufacturer has already configured, priced, and shipped. Despite manufacturer incentives and rebates to entice customers to purchase, dealers often have a glut of new cars sitting in their lots for months at a time that no one wants to buy. The swollen inventory and slow turnaround hurt dealers because they must borrow money to pay for the cars the manufacturers ship.
For years, AutoNation's CEO, has pressured the Big Three to cut back on production and focus on building cars that customers actually want. AutoNation already has experience working with data on the habits of car buyers and the most popular configurations of all makes of vehicles. The work started when the company put forth a major effort to consolidate the customer lists from its hundreds of dealerships. The manufacturers are concerned mostly with revenue from the wholesale sale to dealers.
AutoNation uses proprietary analytic software as well as assistance from DME, a marketing firm with expertise in creating customized direct mail campaigns. The chain has divided customers into 62 groups that receive mailings that have been customized for each group with relevant sales pitches and service specials. Service revenues in particular have received a boost from this sort of targeted marketing. AutoNation's goal for its data is to offer products and services that its customers want rather than sifting through its data to find customers that might want the products it already has.
In other words, AutoNation collects data on the habits of car buyers and most popular configurations sold. They do this by using proprietary analytic software. Which stores preferred customer references at each outlet. Internal source, primary data. As well as assistance from DME which is a marketing firm with expertise in creating customised direct main campaign
In information technology, proprietary describes a technology or product that is owned exclusively by a single company that carefully guards knowledge about the technology or the product's inner workings. Some proprietary products can only function properly if at all when used with other products owned by the same company. Proprietary analytics uses data mining, machine learning and statics techniques to extract information from data sets to determine patterns and trends and predict future outcomes. A prime motivation behind development of products using proprietary technology is straightforward - buyers are compelled to use other products marketed by the same company. Nevertheless, the strongest reason in favour of using proprietary standards leads to the strongest reason against: customers may be disinclined to buy one product that limits their choice of others. The IT world is increasingly moving toward open standardization.
CIOs picked business intelligence and analytics as their top technology priority for 2012. The market research firm predicts that enterprises will spend more than $12 billion on business intelligence, analytics and performance management software alone. As the market for business intelligence solutions continues to grow, the community is responding with a growing number of applications designed to help companies store and analyse key business data. In fact, many of the best tools in the field are available and enterprises that need commercial support or other services will find many options available. Business intelligence tools that can replace proprietary solutions includes complete business intelligence platforms, data warehouses and databases, data mining and reporting tools, ERP suites with built-in BI capabilities and even spreadsheets.
DME - Integrating marketing campaigns that build brand awareness, encourage customer loyalty, and most importantly, increase response rates and revenue. DME really understands the ever-changing needs of our business providing the most efficient printing and fulfilment solutions. DME has literally become an extension of data, marketing and fulfilment teams which sets Industry Standard with Marketing and Data Management Platform. Their customer service is second to none. Always prompt, always professional, and always proactive.
One of DME's many strengths lies in its ability to be a one of a kind and innovative company that provides its clients with unparalleled services that cannot be found elsewhere. Rather than adding to AutoNation's host of software vendors and providing them another marketing and data management system, DME custom built a platform to do it all.
DME also offered AutoNation new production technology that would greatly decrease overhead cost for printing their direct mail pieces while creating more targeted campaigns. DME was able to reduce inventory, manage multiple brands and process multiple orders in the same print run. The technology eradicated the need for any pre-printed shells or storage. Each mail piece is customized to show each individual's exact car model or specify which service was due.
DME offer AutoNation technology that was unrivalled in the industry along with a platform that was created and customized specifically for their needs. DME's platform, called Red Rocket Technology, eliminated the need for AutoNation's over 80 marketing vendors. This seamless platform better managed the company's information that spread across 373 locations, 17 different states, and 35 different brands and over 1,100 different variables. The management of this information and the ease of access of the software left AutoNation with a lot more time to devote to customer service, follow up advertising and new sales promoting.
The Red Rocket Technology Platform provides a single source of truth for clients and contains valuable insight into a company's sales and service success. Red Rocket creates sales and marketing lists, reports and analytics to make AutoNation better, faster and smarter every day. The system also ensures data hygiene, consolidating customer variables and feedback into one platform that makes marketing campaigns much more successful.
Because of DME's new technology platform that allowed for more easily accessible data for personalization, AutoNation saw a 53% increase in response rates in marketing campaigns. Each order, either service or sales related, saw an increase of 11% in revenue. Fin ally, the platform eliminated over $2.3 million in unnecessary marketing costs.
3. What is AutoNation's solution to its problem?
The automotive industry faces the challenge of better managing ever-changing information in a cost effective way. Managing data across locations, across vehicle brands and models and providing customers with up-to-date and relevant marketing materials can be costly. Customer information management can be a job in and of itself without the proper technology to assist.
AutoNation is such a large company, it faced these challenges on an exponential level. Current processes were bogged down due to multiple data storage systems and multiple operational processes across locations. Marketing campaigns for service and new sales were focused around direct mail pieces that were pre-printed shells with overlaid with non-targeted texts and featured very little personalization capabilities. Multiple marketing campaigns for multiple vehicle brands left AutoNation with over 2 million irrelevant pre-printed shells a year that featured out-of-date slogans or car makes. In keeping with its strategy to continue its aggressive growth and leveraging its e-Commerce business model, AutoNation needed to effectively manage the revenue generated by the lead transfer programs.
The largest complaint that consumers have when considering a vehicle purchase is the fact that the process takes too long. Even with all the novel technology procedures that dealerships have employed over the former several years, the purchase method is still as long and cumbersome as it was twenty years ago. AutoNation solution is to implement the use of the data to help major manufacturers produce cars in demand and shipped to locations where they will be most effective.
AutoNation is trying to apply the principles of market intelligence to auto manufacturing. By mining consumer data, can not only determine the models that are in greatest demand, and also pinpoint the configurations of each vehicle among thousands of possible variations that are most popular with buyers. That way, the manufacturers can focus on building these vehicles in the numbers that the data dictate. AutoNation recently started to roll out a vehicle purchase program, transferring much of the buying process online. It promises consumers a 30 minute in-store automobile purchase transaction. It would seem that AutoNation listened to the auto buying public and may well transform how cars are purchased in the future. They certainly don't have a shortage of locations available to consumers. The entire industry is watching to see whether they can accomplish this and if consumers will embrace it. If their program is successful, and consumers start to realize that they can buy a vehicle almost as swiftly, AutoNation could hold a serious competitive advantage. If the process is successful and other dealerships are slow to adopt something similar, it could also result in an increase in customer loyalty to AutoNation.
4. What obstacles must AutoNation overcome to implement its solution? How effective will the solution be?
AutoNation is planning initiatives aimed at improving B2B, B2C, and internal application integration, reporting and analysis. The company is expected to be planning efforts to build and leverage solutions using the latest technologies. Sources have indicated increased interest in business intelligence development tools. AutoNation is planning IT projects to support acquisition and divestiture. The company is planning efforts to improve the company's consumer facing digital presence, including web and mobile sites and applications, e-commerce platforms, content management, and modern UI.
The worldwide automotive industry has been enjoying a period of relatively strong growth and profitability, and annual sales have reached prerecession levels in some regions. Yet considerable uncertainty about the future remains. Obstacles that must be overcome are convincing the three major manufacturers to integrate customer data with production line demand.
First and foremost, United States and Canada - Automotive industry in the United States, Big Three (automobile manufacturers), when used in relation to the United States automotive industry, most generally refers to the three major American automotive companies: General Motors, Ford, and Chrysler (FCA US). General Motors, Ford Motor Company, and Fiat Chrysler Automobiles US are often referred to as the "Big Three," being the largest automakers in the United States and Canada. General Motors, Ford and Daimler Chrysler have dominated the U.S. auto market for decades. In other words, they were for a while the largest in the world and two of them are still a mainstay in the top five. The Big Three are also distinguished not just by their size and geography, but also by their business model.
The term is also sometimes used in relation to the three major automakers of other countries. Japan - Japanese automotive industry, Japanese automakers Toyota, Nissan, and Honda, among many others, have long been considered the leaders at producing smaller, fuel-efficient cars. Last but not the least, Germany - Automobile industry in Germany, The German trio Audi, Mercedes-Benz and BMW are often referred to as "Germany's Big Three", although the actual major automobile manufacturers are the Volkswagen Group (producer of Audi), Daimler AG (producer of Mercedes-Benz), and BMW.
Integrating customer data with production line demand by convincing the three major manufacturers will be highly effective. For first and foremost, integrating customer data with production line, turn vast amounts of data into meaningful insights that AutoNation can act on. This data management allows to collect and manage data, store and retrieve data from customer and production line sources, and distribute that information to more audiences quickly and accurately. In another form, it will enable to discover and communicate meaningful patterns in data. Using integrated data and applying analytics to customer data with production line to describe, predict, and improve performance, recommend action, and guide decision making. Next point is that, by integrating customer data with production line can support design, build, and manage production with greater visibility and control by manage, track, and control all production line related information with customer preferences. It will be beneficial as well as effective for auto manufacturers to improve the performance of the core business and business support processes inside and outside of the auto industry which span organizational boundaries.
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