The end of the season brought weaker than expected automotive sales, bringing the industry to its steepest decline so far this year. Sales dropped 7% from the previous July, to 1.4 million cars and light trucks. And with the automotive industry standing as the country’s largest manufacturing sector, this auto sales spiral could have huge economic implications in the US.
But what do those effects look like, exactly? While this decline seems dire, and it appears like it could ruin the automotive industry for good, remember how cyclical economics actually are. Entrepreneur and venture capitalist Brad Feld once said, “you don’t have to believe history repeats itself, but you should accept that history rhymes.” Let’s take a look at how history has given us a sneak peek into how we can turn an economic shift into a win for the future of manufacturing.
Room for Rent
Take the US housing market for example: In the 1800s, home ownership was at an all time low. Boarding with other families was commonplace – as many as half of urban Americans spent part of their lives either as boarders in others’ homes or as hosts of boarders in their own.
But, as the century turned, so did the housing market. Options started to open up, and home ownership in large cities began to rise. Then, with the hit of WW1, that changed again. The US Housing Corporation began providing housing for wartime production workers near arsenals and shipyards, and “room for rent” signs began to pop up all over, signaling another turn in the ongoing continuum of ownership versus usership.
When the war ended, and these housing changes continued to cycle, people started leaving the cities and moving into suburban communities. Space was abundant, building as cheaper, and the American dream was possible again.
So what does all of this housing fluctuation have to do with declining car sales?
Well, as the housing market changes, so does the automotive industry. When people started buying cars to commute to and from the suburbs, it became auto sales’ turn to enter the ownership versus usership continuum. Decades went by, people began moving back into cities, and now car sales are falling again.
From Loss to Gain
Simply put: ownership has never been a steady line. History is cyclical, and often comes back around sooner than we think. The market always finds a way of to turn loss into gain, cost into profit, and downtime into uptime.
Take AirBnB for example: the rise of the room-letting website is a testament to the rebirth of “room for rent” signs. And this collaborative consumption, the sharing, swapping and renting of possessions, is otherwise known today as the sharing economy. It’s a wave of “non-ownership” spurred by technology like ride-sharing apps and one-to-one vacation rentals that is allowing communities to be a new source of usership.
Automotive ownership may be on the decline, but that doesn’t mean that people aren’t still using cars and trucks to get around. Fleets of cars are replacing taxis. Uber Freight is elbowing its way into the trucking industry. These automobiles are still being bought, used, and repaired on a regular basis, just not by individual owners.
A New Focus
While this may seem strange, or even scary, to manufacturers, it’s actually good news. Automotive after-sales has always been a hidden profit lever, and in a world where these goods are cars and trucks being sent out and used by the fleet, it’s up to rental companies and manufacturers to maximize equipment uptime to, in turn, maximize overall customer satisfaction and organizational revenue.
History is a pretty accurate indicator of the future of manufacturing, and the idea of usership and the sharing economy isn’t actually new. The only difference between now and the 1800s is that now we’re armed with the right knowledge and technology to put the focus where it should naturally land: on product uptime and the profit margin available in after-sales service.
While new product-based revenues may be declining, after-sales service margins are continuing to provide new revenue and profit opportunities. In fact, upwards of 35% of manufacturers get more than half of their annual revenue from after-sales service support, while just 12% say service and replacement parts are competitive differentiators.
Today’s most successful companies are looking beyond the new product side of their businesses and shifting the way they view post-sales service, implementing service-focused growth strategies and optimizing service operations. This aspect of the supply chain, focused heavily on maximizing product uptime, could be the key to success in the future of manufacturing. That is, at least, until the continuum shifts again.