Thought Of The Day: Cars

My Year hasn’t got off to a great start so far. I’ve had injuries from downhill mountain biking on what would normally be a more junior track for me; my shopping bag burst open as I entered the supermarket car park, sending my shopping all over the floor; sunstroke wiped out the last day of my Christmas break; and finally my car exploded, causing me to have to folk out for a new one – money that would have otherwise been spent on a holiday to Japan and a new (big) project this year.

I don’t like spending money on cars. While cars are certainly a nice item, for me cars are just a necessary money pit. During my ponderances on my unfortunate situation, I reflected on others who might find themselves in a similar situation. I think myself lucky to have money to buy a nice car, but I expect that people in my situation usually don’t have money to easily replace their car, otherwise they probably wouldn’t have been driving a car that’s so close to “replacement” in the first place (my excuse is that I’m not really a car person). This line of thinking went on to consider the effect of government green car policy and it’s affect on car prices, equity, stock and demand, which then moved towards thoughts of a certain listed car company’s future. Ultimately, in line with my recent penchant for predictions, I started thinking about the future of the car industry.

Tesla’s business model of not allowing anyone to work on, repair, buy/replace parts or service their cars is an interesting move. It turns the purchase of one of their cars into a subscription service. Of course car companies have sort of been doing that with the (competed) spare parts market, but tying customers in by withholding parts is a new move in the modern car industry, to my knowledge.

Trying to get recurring revenue is not uncommon in novel industries like the IT industry with hardware, software and even virtual infrastructure rental. Recurring revenue is a great way to reduce business risk, improve efficiency and ameliorate planning.

This made me wonder how else the car industry could become more like the IT industry. After all, cars have greater and greater reliance on software. Perhaps cars could be bought and then have software subscriptions to unlock features or improve performance? For example, you might buy a subscription to use the radio that comes free with a car, or subscribe to be able to use the built in GPS or bluetooth.

The graphics card industry is also interesting to me. As it’s expensive to build machines to make unique graphics cards, sometimes a factory might make only high end graphics cards, but use a hardware chip to limit some, in order to create two lines of graphics cards – a cheap one and an expensive, high performance one.

Such a model could also apply to cars. On-board computers already limit speeds to fit local safety, speed or emissions regulations; why not make powerful cars, reduce the number of factories / models and limit all cars, making high performance an option via subscription? That way people can buy a cheap car and get suckered into upgrading via subscription when they can afford it – paying more in the long run and providing an ongoing income stream for the car company, long after the sale.

I believe that more businesses will try to push customers towards subscription models in the future because of the afore mentioned benefits.

Hopefully you have enjoyed this article and it holds something useful or at least thought provoking to you, in regard to your own business.

One reply on “Thought Of The Day: Cars”

Today I read that major car manufacturers are starting subscription services… imagine that.

The way it’s being done is how you’d expect a dinosaur board of director’s to do it. They recognize the trend (which is now very old) towards subscription services and want the annual recurring revenue (they understand the accounting value behind that), but have zero ability to innovate because they’re too old and aren’t innovators – they just know how to have a firm hand on the steering wheel to stop the company driving off the road.

As time goes by and such a board are cleared out, my predictions have a better chance of coming true.

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