Steve Greenfield is the CEO and founder of Automotive Ventures. Steve’s company invests in startups and early stage companies in the automotive industry, and he is often relied upon to provide insight on the current state and future direction of the industry.
In this episode, we discuss the significant changes that have taken place in the automotive industry over the past year, including the increase in new car inventories and the impact of rising interest rates on consumer behavior. We also discuss the challenges facing dealerships, including the shift towards e-commerce and the importance of adapting to the changing market.
In recent years, there has been a shift towards electric and autonomous vehicles, as well as direct sales models. This has led to a challenging environment for traditional car manufacturers, as they try to keep up with new competitors entering the market. One solution for these OEMs has been to focus on producing fewer vehicles than demand, in order to maintain high margins and protect their brand value. However, this strategy may not be sustainable in the long run, as it could lead to market share loss to newer direct brands. On the other hand, dealerships have been faced with high inventory levels and a shift towards used cars, as well as rising interest rates and inflation.
We discuss the significant changes that have taken place in the automotive industry over the past year. Just one year ago, dealerships were selling everything at MSRP or above and interest rates were low, leading to a very different environment than the one we have today.
Now, new car inventories are up 78%, interest rates are closer to 7.5-8%, and there are likely to be additional interest rate hikes in the coming year. Despite these changes, Steve predicts that we will continue to see a “whipsaw” in the market, with used cars softening and high payments scaring off potential new car buyers.
One of the biggest challenges facing dealerships today is the shift towards e-commerce and the need to adapt to the changing market. Steve advises dealers to focus on creating a strong online presence and building customer trust, as well as investing in technology and data analytics to stay competitive.
In the automotive industry, manufacturers have struggled with overproduction and over distribution in the past, leading to the need for incentives to boost sales and ultimately devaluing their brands. However, in recent years, manufacturers have vowed to avoid these mistakes and instead focus on producing just enough vehicles to meet demand.
This approach has led to healthier profits for OEMs and dealerships, but it also creates a quandary when sales rates don’t keep up with inventory. This can result in a surplus of certain models, like the Volvo XC 90, which has an 800 day supply. In this situation, manufacturers may be tempted to incentivize sales to move excess inventory, but this approach can ultimately come back to haunt them.
Instead, it may be more effective for manufacturers to focus on long-term supplier agreements and retooling factories for the production of electric vehicles, which are becoming increasingly popular. However, this also carries the risk of overproduction if consumer demand for EVs does not meet expectations. It will be interesting to see how manufacturers navigate this balancing act in the coming years.
The discussion in this episode is centered around the potential for connected car technology to revolutionize the automobile industry, specifically in regards to the profit potential for original equipment manufacturers (OEMs). David suggests that as more vehicles become connected and able to receive updates and additional features remotely, OEMs will have the opportunity to generate billions of dollars in high margin revenue through subscriptions and other microtransactions. However, it is also noted that the distribution of this revenue and how it will be shared with dealers is still uncertain and will likely be a source of tension. David also mentions the potential for OEMs to use data collected from connected cars to offer insurance and other services directly to consumers. It is suggested that by 2030, the impact of connected car technology on the industry will be significant and could potentially result in major changes to the traditional sales and service model.
Overall, it’s an exciting time for the automotive industry as it adapts to new challenges and changes. Stay tuned for more insights and predictions from Steve on the future of the industry.
Stay tuned for an engaging conversation with two experts in the field!
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