Tag: McKinsey

How to Worry about Mobility

I was impressed by this article, How to Worry about Climate Change.  It was neither activist nor skeptical, but rather placed the threat in an appropriate policy context.  So, I was inspired to update my earlier post on the “mobility revolution.”

McKinsey has some new research out which, I feel, overstates the case.  The case, as you may recall, is that four trends will come together in some kind of perfect storm:

  • Electrification
  • Connectivity
  • Autonomous driving
  • Shared mobility

The best research on mobility is still this series of papers from the BCG.  Like me, BCG is reserved about the U.S. market.  I strawman McKinsey a little by focusing on U.S. car dealers.  Their focus is on manufacturers, with a European orientation.

The right way to worry about mobility is to ignore the interaction effects, and look at each trend individually.  This is where I differ from McKinsey.  They model three different outcomes – small, medium, and large – for each of the four trends.  This gives them eighty-one different scenarios to evaluate (consultants love this stuff).

Electric Cars

My local BMW dealer has a lot full of i3s and i8s.  Electric cars won’t change auto retail at all – service, obviously, but not sales.  This “revolution” only affects dealers if Tesla succeeds in doing it without a dealer network.  From my perspective, not having a dealer network is a weakness, and a sign that the company lacks confidence in its product.

Connectivity

It turns out Jacques Nasser was right.  Kids today will ride in a hamster box as long as it has satellite, wireless, navigation, and a sound system.  Gone is my generation’s enthusiasm for hemi heads and dual overhead cams.  No one drives a stick anymore, and the steering wheel will be next (see below).

Connectivity will change auto retail the same way electric cars will – new features to sell and service.  I have the BMW connectivity app on my iPhone.  Connectivity in terms of telematics will open up new opportunities for service retention, as I described here.  There are new opportunities in F&I, and even lot management, as people invent more things to plug into the OBD port.

Autonomous Cars

I am deeply skeptical about self-driving cars.  People who promote them tend to focus on SAE level four, and overlook the greater challenge of full autonomy.  I see self-driving in limited contexts, like self-parking and advanced cruise control.  Check out BMW’s lane-departure technology.  This is cool stuff, and what it means to car dealers is … more expensive cars!

Remember that the nightmare scenario for self-driving cars only occurs when the cars are smart enough to be widely shared, i.e., robot Uber drivers.  A car that can autonomously drive the kids to school is years and years away.

A close examination of the technologies required to achieve advanced levels of autonomous driving suggests a significantly longer timeline; such vehicles are perhaps five to ten years away.

Like “catastrophic anthropogenic global warming,” that date keeps moving out as we approach it.  In 2012, Sergey Brin said self-driving cars would be widely available by 2018.  In 2016, Mark Fields said no steering wheel by 2021.  McKinsey, in any year, always says, “five to ten years from now.”  For a clear-eyed look at the challenges, see here.  For more about luxury driver assistance see here.

That about does it for my deconstruction of three mobility trends that should not worry car dealers.  Next week, I’ll report on that fourth one.  Now that I am living in a big, modern metropolis, I can see shared mobility first hand.  I may not even need a second car.

How to Go Freelance

41tQiXO81hLSince I posted Why I Freelance a few months ago, people have been asking me for advice on how to get started.  So, this week I fulfill a promise to share some pointers.

There are probably books on this, and they’re probably better organized, but here is my experience.  We start with the easy stuff:

  • Form a legal entity. I have tried various forms over the years, including a Latin American SA.  What I recommend for you is an LLC.  This leaves you free to elect C- or S-Corp tax status later – and you don’t need a lawyer.  You can form an LLC online for a few hundred dollars.
  • Draft a consulting services agreement. For this, you will need a good lawyer.  It is always better if you can send a prospective client your standard contract.  This frames the negotiation in terms favorable to you.  Pay special attention to the non-compete terms.
  • Find a good accountant. If you are good at tax prep, and using a “disregarded entity,” you may be able to do the firm’s returns on your own.  Otherwise, seek professional help. Pro tip: pay Uncle Sam quarterly to avoid a surprise at tax time.  Canadian pro tip: keep your HST receipts in a separate account.
  • Choose a tax status. The last time I was incorporated in the U.S., I used an S-Corp.  This is a hassle because you have to deal with payroll tax.  It was handy for me because I was able to have my wife on the payroll.  The Canadian version of this is called “income splitting.”
  • Set up a web site. No, don’t look at mine.  It’s overdue for an update, and this here blog is my main presence online.  Depending on how you plan to market yourself (see Networking Tips for Consultants) you will spend more or less money on the web site – and you may have to learn about SEO.
  • Open new bank accounts, and obtain a corporate credit card. Using the corporate card is an easy way to keep your business expenses separate, and it’s a source of working capital.  When I started at GMAC, it was months before I got paid, and I had accrued thousands of dollars in expenses.
  • Learn how to use QuickBooks. As you can tell by now, keeping the books is a big part of running your own business.  You will need to keep track of your accounts, and payroll, and 1099s, and present your clients with professional-looking (and accurate) invoices.
  • Obtain health insurance. I can’t help you here.  I haven’t lived in the U.S. since Obamacare took effect.  I understand it’s expensive.  At present, I have an international Blue Cross policy.  Depending on your tax status, this is deductible on either your business or your personal return.
  • Plan your budget. Figure out how much income you need to pay the bills, and then figure out how you can earn that much – after taxes – assuming you are on the beach for three months of the year.  That’s a sardonic Big Six expression, “on the beach.”  It does not mean happy hour in Playa Bonita.
  • Identify your prospective clients, as specifically as possible, and where they’re located. Unless you have a versatile skill set and live in a high-demand area – developing software in Seattle, for instance – you will be on the road.  I could write a whole ‘nother article about living on the road.

I presented the easy stuff in a short list that you can print out and check off.  Now, the hard question is, why should somebody buy what you’re selling – and for how much?

As of this writing, I know that I can rent a good software developer for about a hundred dollars an hour, and down to $65 for newbies.  The rental agency may keep up to 25% of that, which is not the scam it sounds like once you consider they have to do all the stuff on that list – plus find the gigs.

If you can possibly manage it, work under contract for whatever agency serves your trade – they’re ubiquitous – and learn everything you can about how they do business.  Learn how they handle sales, contracts, billing, payroll, benefits, beach time, and something called “realization.”

Your situation will depend on how old you are, and where you are in life.  The best way to start is with a firm, while you’re young, and before you have kids.  Consulting can be demanding.  If you have a family, I recommend keeping your day job, and then picking it up after the kids are grown.  I know a bunch of successful “mature” consultants.

I was fortunate to start in a Big Six firm (there are four now) that taught me how to manage clients, how to sell an engagement, and how to write a statement of work.  I had classroom training, role playing, one-on-one instruction, and a whole lot of hard knocks.  That early experience was priceless – and I can’t distill it into a blog post, sorry.

The good news is that I was a lousy staff consultant.  All of this stuff is trainable.  I hope these few pointers from me will help you to make the transition.  On the other hand, if you’re having second thoughts – that’s valuable too.  It’s not for everybody.

Five-Part Series on Online Car Buying

I wrote this ad-hoc series last fall, around the topic of online car buying. It started out as technical post on how to do tech strategy, and then one thing led to another. Here is a guide to the five articles.

The first two are from the perspective of a traditional dealer system, like a menu, that needs to find a new home online:

The next two are from the opposite perspective, online car buying sites that need to add traditional dealer functions:

Finally, when I had looked at all of the car buying (and shopping) sites, I needed a way to classify them:

I hope this makes the series more readable. If nothing else, it will help me to keep the blog organized. Enjoy!

Why Price Transparency Matters

About a year ago, the McKinsey report came out, Innovating Auto Retail. It looked at how traditional dealerships will fare in a world dominated by online shopping, and how the business model needs to change. McKinsey has some good ideas, which they tested using a simulated dealer network. In the simulation, one dealer in six had to close.

For online shoppers, the primary motives are convenience, the expectation of lower prices, and avoiding certain unpleasant elements of the sales experience at dealerships, such as “haggling over the price” – McKinsey

Recently, Auto Trader conducted a survey of modern buyer behavior. It is more dealer friendly, but it reaches some of the same conclusions. The core function of a dealership is to provide expert assistance in choosing a vehicle, and to do test drives.

What does not belong in a dealership is the hour-long F&I ordeal. Customers, according to the survey, are ready to leave after ninety minutes. Spending sixty of them in the box is a non-starter. The more of this process that can be completed online, the better.

Vroom No Haggle

One finding in the Auto Trader survey that differs from McKinsey is the assertion that customers actually prefer to haggle over price. I see an editorial like this about once a week, and I just don’t buy it. It’s obviously self-serving for expert sales people to insist that customers enjoy the process – even as they argue against price transparency.

My purpose here is not to make a moral point about Sales, but a practical one about F&I. Pricing is the key obstacle to completing virtually all of the transaction online. You have all of this time consuming activity around financing and products – backed up, waiting for the price.

I would suggest that the opportunity to play games with the sale price is not worth what it costs F&I in lost profits and efficiency. Someone is going to figure this out. Here are a few possibilities:

  • Use no-haggle pricing, like Vroom.
  • Use transaction prices, like TrueCar.
  • Do the haggling online, like MakeMyDeal.
  • Use some hybrid approach, like AutoNation.

AutoNation recently had a falling out with TrueCar, but they have always been a leader in trying to solve the pricing problem, probably because they are aware of the efficiency issue (and the CSI issue). I understand that many sales people still consider haggling to be an important part of their job. Times change.

Innovating Automotive Retail

McKinsey’s latest survey is required reading for people in our business.  The first section is a recap of things we already know about customers going online, but the last ten pages are dynamite.  They model the impact of their ideas on a sample dealer network, increasing its gross profit by 3 to 5% (your actual mileage may vary).

McKinsey’s ideas include superstores, test drive centers, pop-up stores – and an array of online “touch points” already familiar to my readers.  These ideas are presented from the perspective of an OEM, but would also be relevant to a large public group.  Weak dealerships are converted to service centers.

McKinsey

One in three customers would buy a car online, according to the study, which cites the “unpleasant experience” of haggling over price.  This is where old school dealers have really hurt the industry.  I have long been an advocate of a more transparent process – what you might call the Best Buy model.  Now, we can look forward to a business more like Amazon.