Paul Fisher spoke to Nick Gill about the trends and challenges facing the car industry and the findings in Capgemini’s new report, Global Digital Mastery Series: Automotive.
Nick Gill is leader of Capgemini’s Global Automotive practice. He has 25 years technology consulting experience, working with global manufacturing companies, including two stints at General Motors Europe.
He is responsible for managing a portfolio of clients across OEMs, suppliers, and dealerships.
Paul Fisher: You’ve been covering the car industry for many years with Capgemini, what has changed in recent years? Has the pace of change picked up?
Nick Gill: Capgemini used to think of automotive as not worth investing in unless we got a large ERP program or a major truck business transformation, but in the last four or five years this has just totally flipped. All our leadership now think it’s one of the most interesting areas we should be investing in, because there is so much happening - so much change.
The report doesn’t paint a particularly good picture of the auto industry in terms of digital awareness and transformation. Could you highlight why you think it’s lagging?
The auto industry lags badly in its use of social media compared to other sectors. Global Digital Mastery Research Series: Automotive (Capgemini 2018)
Its a fundamental challenge. The automotive industry is the most “industrialized” in the world. The whole business over the last hundred plus years has been around perfection, producing the best products at the highest quality with the highest first-time success rate. And that means that everything is analysed to a huge level of detail and you don’t change things unless you’re sure. The digital world is the reverse of that. You need to experiment and fail, fail fast and learn and not necessarily have the most perfect understanding before you try things. It’s all about putting something out there and let the consumers decide - you learn very quickly. This is hard for automotive where there is a steeper learning curve than in, say, other sectors like retail or finance.
Why is that?
It takes about three years to develop and build a car. How do you go from a business case that has to be signed off by 23 people, at different levels of hierarchy where each time a more senior person decides whether it should go ahead or not.
Whereas now, you want these “Bright Young Things”, these “Millennials” to come out and suggest things and you’re able to say: yeah, let’s try that. Let’s give it a go and okay if it doesn’t work, well we’ve learned something.
I found a little bit surprising, or perhaps disappointing, that the industry has not moved on as I would have hoped. Is it a problem from the top?
Well you need vision in the senior leaders, but these guys, you know, they are treated like gods! The CEO of every automotive company, you know them and what they say and when they say it. But fundamentally now these people have to somehow get it and I think they are. They do get the need for CASE (Connected Autonomous Shared Electric) absolutely now. I mean they really do get it!
So they have woken up to need to change production and model types but do they get digital, the need for digital transformation of their operations?
I think they do but it’s not yet a passion. The report shows that they’re not spending as much on social as they should be, for example, and they’re not spending as much on digital in retail and stores and it’s because it’s just not being driven down through the channels.
I went to WebSummit and it seems that there is something happening – a digital buzz, but it’s kind of on the shiny outside. For example BMW, Daimler and Volkswagen were all present there looking very cool with “developy” stands trying to recruit young software developers. It’s kind of working. But from what you’re saying is that it doesn’t yet feed into what is still a very hard industrial business, that at some point it meets a steel wall and stops.
This is an over simplification, but five or eight years ago people could see this digital customer experience happening. So you’d be nurturing leads on the internet. Then it moved into digital sales, but it’s been very much a front end thing.
Then it moved about three or four years ago into digital manufacturing, back into the real operations of companies and that’s been a bigger struggle - the operational side. There were lots of experiments, lots of proofs-of-concept, lots of prototypes that were happening in manufacturing plants, in operations and engineering centres in the industry. Yet somehow not many of those proofs of concept turned into massive deployments.
Was Capgemini involved in any of these?
Yes, we’d do these proofs of concept and they’d come up with some pretty good results. So we’d think, well let’s let’s try the same thing in these four plants. So you get four plant managers who have to be convinced and they’ll be telling you, well actually the shop floor systems we’ve got are slightly different and actually the manufacturing processes we’ve got in those plants are slightly different, and this is a really busy time of the year, come back in six months and we’ll look again! You know, it’s still a struggle and even on the front end, I think there’s still a lot of tension around digital sales.
The retail side is still basically in the dark ages, isn’t it? The choice is hugely limited, the price is fixed, the financing is rigid. It seems that while the rest of the world is racing ahead on online retail the car industry is miles behind.
One of the problems is the business model. Obviously the OEMs are trying to sell cars and the retailers are trying to make a profit after selling cars plus plus everything else they can bundle. And what you end up with is a disconnect because the OEMs don’t own the retail channel. The problem with this sort of distributed channel is it’s difficult to push something through into it.
But you also have to accept that it is an incredibly complex process. Imagine you can order anything online and they OEMs give you a what’s called an available to promise (ATP) date. You might say,’I want this car in a purple with pink spots, leather upholstery and the sunroof”, click a button and it says this is going to be available in three months time. But that hides a huge amount of complexity. How you schedule and sequence it into the whole manufacturing process and then get it out to the client? You will find that in the end the retail model that’s been used is still the traditional model.
It’s a digital veneer, so most of the time even if you try to order a car online, at some point it will point you towards a dealership.
Exactly, yes. Either you’ve got to complete the sale with the retailer or even if you choose that one exact configuration available online at that price, you’ve still got to pick up the car from a retailer. And because the OEMs know clearly that the retail channel is critical to the whole industry, and they don’t want to skip around it. Unless you are Tesla.
Tesla; that’s the great fear running through the global industry. If they don’t become digital someone will come along and eat their lunch. But on the other hand, like you say, building cars is hugely complicated and it’s not that easy for someone to come along and replace Daimler and BMW for example?
So what Daimler and BMW absolutely do not want is just to be a supplier of hardware in a chain where all of the customer contact is through Apple or Google, for example. In the early days Sergey Brin [co-founder of Google] said the last thing his company was going to do was work with the traditional manufacturers because ‘we’re about disruption and changing the world’.
Well now they are saying, ’of course we’re going to collaborate’, because they realise that it is incredibly complex to build these cars, but that’s also because they realise that is not the bit that is most interesting as we move more towards the autonomous and robo-taxi world. It’s potentially a bleak future for for the OEMs if they are reduced to just building those things.
I guess they must be hoping that significant numbers of people will still want to own a car and want the experience of driving a brand.
Even in countries like Norway where over half of sales are electric, many people are going for premium electric vehicles - Teslas and BMW i8 for example. These are not necessarily a car just to get you from A to B. What many analysts see now is that they will be a division into a world of people who see mobility or transportation as a means of getting from point to point and those that still want more.
Are there OEMs doing it better than others, better at transforming themselves?
I think perhaps some of the premium brands have had more money to invest and that is the delta between being successful and very successful - they have invested more. They’ve tried and experimented a bit more but like your comment earlier, it is on the periphery. It’s not really in the inner workings of a lot of companies. A lot of the online auto sales on Black Friday - that’s being driven by the marketing department.
That’s a very good point. The auto CIOs I’ve met so far still talk very much as CIOs have always done, in that they’re grappling with legacy issues, mainframes, all the stuff that’s really unsexy and to them digital is something that’s being done elsewhere.
Look at the recent Paris Auto Show, where BMW was launching the new 3 Series - 90% of its sales still come from that very traditional vehicle. The stands had EVs and AVs on them but it still felt like the old world with new lipstick on.
It has got one foot in the past or the present where most of the money’s coming from, and yet BMW are having to invest massively in these vehicles which will look and feel, and have a different business model to a 3 Series.
And IT is exactly the same. In automotive many of the core systems are 30 plus years old. Everybody wants to get rid of them and everybody knows they need to get off them: but they don’t - because its bloody difficult and they still need them.