New digital business models in the automotive industry

The automotive industry is on the cusp of the biggest disruption in its history. By 2035, we expect the traditional profit pools based on vehicle sales and the highly profitable aftersales business to decline significantly as a share of total operating income. At the same time, we expect high growth rates for future mobility services and car-as-a-platform solutions. More than ever before, it will be the automotive companies’ responsibility to validate which products and services can generate sustainable revenue and profit moving forward. According to the Deloitte study “The Future of Automotive Sales and Aftersales ”, the share of digital services in overall global revenues looks set to rise by more than 400% within the next 15 years. As digital customer services become increasingly relevant, finance departments will need to adopt a faster, more agile approach to respond to changing revenue streams, address new customer requirements and ensure the smooth operation and delivery of digital services.

Proxy OEM revenue tree

Deloitte has identified four major trends for automotive finance departments:

• Services: Meeting customer demands and offering a unique customer experience are essential factors for the successful launch of digital mobility services. It will be the finance department’s role to provide the customer insights that will enable the company to better understand the market and improve its service offerings. This is essentially an extension of the steering model to include the management of new business model performance.
  
• Processes: Finance can develop, introduce and support the standardized processes needed to give customers direct access to the service portfolio and ensure the proper management of back-office finance tasks like billing and payment.
• Governance: Finance ensures the efficient and effective management of partner relationships (e.g., with payment processors) and acts as the steward of internal and external data related to digital customer services.
• Data: Finance ensures compliance with general data protection rules as well as the development of consistent information models and tools.

The telecommunications industry pioneered digital services – a role model for automotive companies

About a decade ago, the telecommunications industry faced the challenge of introducing digital services. So, rather than reinventing the wheel, automotive companies can draw on the telecommunications industry’s experience in order to leverage and adapt that knowledge for their own purposes.

As part of their evolution into a digital services provider, telecommunications companies needed their finance departments to adopt a customer-centric approach across the entire customer lifecycle. This allowed them to give the steering management team the information they needed and to continuously improve their service offerings. The evolution of the traditional business model is a factor in the automotive sector as well, with OEMs and suppliers engaging in direct contact and interaction with the end customer for the first time. This requires a dramatic shift in business steering and management. In particular, as it applies to financial control and reporting capabilities, finance departments must adapt their approach to the challenges presented by new digital services.

A shift in focus from a product-oriented to a customer-centric business model forces finance to collect and harmonize customer data, define new KPIs and develop flexible reporting solutions. To use an example from the telecommunications sector, customer lifetime value (CLV) has emerged over time as one of the key financial KPIs. CLV represents the value of each customer over the entire relationship with the company by discounting future cash flow predictions. Based on this data, Finance can perform detailed analyses of customer segments to provide customer-driven insights and to support the development of optimized pricing models. The automotive industry can build on the pricing structures and strategies for subscription models as well as the methods of service bundling and rewards for customer loyalty that have been developed in the telecommunications sector.

Deep-Dive #1: Project example for “Integrating CLV into the steering model”

• Client: Global player in the TMT industry
• Size: > €40 bn 
• Scope: Definition and implementation of CLV and integration into the steering model

Establishing a customer-centric view across the entire lifecycle has been a key success factor in the telecommunications industry. This customer lifetime approach was pivotal in allowing telecommunications clients to tailor specific offerings to their customers, to consider new partnerships as well as sales channels and to improve their product bundles and pricing without losing sight of “actual” customer profitability. Customer lifetime value helps telecoms companies to improve their management performance, while also generating better customer service offerings and higher profitability.

Finance departments in the telecommunications industry are also role models for automotive companies when it comes to the processing capabilities they need to achieve their digital mobility solutions. Coping with an increase in the number of transactions combined with a decrease in the value of each of those transactions will be a significant challenge for finance departments in the automotive industry. They will need to implement efficient billing, payment and accounting processes, whether it relates to credit checks and payment reminders or the processes and systems required to recognize the correct revenue from digital services (IFRS-15), which are delivered over a longer time horizon. Order-to-cash processes, for example, must allow for mass transactions by bundling several discrete transactions into a single invoice. Payment solutions developed for the telecommunications business model can be easily adapted for use in the automotive industry.

Deep-Dive #2: Project example “Invoice consolidation with SAP BRIM”

• Client: European telecommunications company
• Size: > €40 bn 
• Scope: Definition of the functional concept and implementation of a systems solution for consolidating digital services invoices

SAP BRIM (Billing and Revenue Innovation Management) is a comprehensive solution to manage a large number of customers and a high volume of transactions, offering specific functionalities for mass invoice processing. Originally developed for the telecommunications industry, SAP BRIM facilitates end-to-end business processes for order-to-cash scenarios and offers flexibility in pricing calculations based on dynamic or customer-specific criteria. Some of the key benefits provided by SAP BRIM are lower operational expenses, high-volume transactions, improved customer retention, greater financial transparency and efficient management of the partner value chain.

As the number of customers and transactions increases, the more important data governance will become. Similar to the TMT industry, automotive finance departments will have to act as data stewards and successfully manage a large amount of internal and external customer data. The governance role of finance also includes the efficient and effective management of partner relationships, as collection of customer data typically involves various external partners (e.g., for supplementary services such as GPS tracking).

Finance departments will also need to establish a consistent information model and an IT landscape that complies with the key principles of the General Data Protection Regulation (GDPR). Any tools they use must be able to combine data from several sources to generate data-driven insights and right-time steering as well as a holistic view of the customer. A customer call center with access to all relevant customer and invoice information is essential to ensure customer satisfaction. All of the infrastructure, tools and personnel must be deployed and trained before the new range of digital services are launched.

Expansion stages of digital services

Driven by the evolution of the business model to include more interaction with end customers, the automotive industry must expand its steering and operating model to include operations management going forward. Finance departments need to adapt their financial control and reporting capabilities in particular to the challenges presented by digital services and they must respond to the shift in focus from product-orientation to customer-centricity. Harmonization of customer data, new KPIs, flexible planning and reporting solutions, as well as a strong technical backbone are essential. The telecommunications sector has successfully managed this shift in perspective and can serve as a benchmark and role model for automotive companies looking to adapt their finance operations.

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