“Clean slate” – what does a fresh start really mean?

This week I have been focused on the members’ only workshop we held on 21st January in Frankfurt to report back on our thoughts on what distribution networks might look like if you started with a “clean slate”, i.e. no legacy of any sort.  The attendance at the workshop was great with almost 50 people from a wide range of manufacturers, distributors, dealers and service providers.  We got great feedback, but also some challenging questions and ideas for further refinements.  That’s all great – that’s what workshops are for! Members can download the presentation via this LINK.

Although the detail of the main research remains something that we will only share with our subscribing members, the concept does offer a future role for suitable dealers, but the proposed changes mean that their role would be far less entrepreneurial than it traditionally has been.  (We will publish a briefing with more highlights in the coming weeks, and if you’d like to receive that then please let me know.)  A few of the questions and comments related to these changes gave me further cause for thought on the flight back last night.

In the workshop, I described our “clean slate” as what I would be looking at from the perspective of the start of the distribution channel, with the factory behind me, facing the challenge of how most effectively to make money from the 4,000 or so cars a week that might be coming off the production lines.  Having described our vision, we then went through a “back-casting” process that describes the barriers that would have to be overcome to get close to that vision when in practice the slate was not clean, but crowded with manufacturer sales organisations, dealer networks, independent repairers and many other players involved today in selling and servicing cars.

A back-casting process typically involves some compromises with the vision, as it is not realistic to discard all the legacy or make massive changes to get a perfect fit, but do not yield a corresponding risk/return benefit.  Three areas stood out for me where possibly we had to think again about our assumptions, and they are each fundamental to how the business operates today.

The first is that we put manufacturer over-capacity, the focus on production efficiency and the consequent need for buffers between production and the customer in the “too difficult” box, and said that this is a given which any new distribution concept needs to deal with.  But given the likely scale of change in distribution under any future scenario, is there a case for the upper end of the supply chain to find more flexible solutions, even if this is at a cost, because that might be less than the cost of dealing with the consequences?

Secondly, we described a role for some dealers – we have not quantified the numbers, but many of the better organized and managed businesses could continue in adapted roles, and make more money, with lower risk and investment.  However, it would no longer be an entrepreneurial, trading business.  One question put to me related to the family investors in one group – some were engaged, others were not, but particularly in the case of external financial investors, few see their investments as long term.  Should we consider today’s investors as stakeholders who need to be accommodated in a back-casting exercise, or is the reality that many will choose to quit their dealer investments anyway in the next decade, and assume that others can be attracted by the different business profile which they might see as more forward-looking?

Thirdly, we propose a model that would remove the practices that lead to high volumes of relatively young used cars coming to market – and which today are one of the main profit sources for dealers.  This is also the main area where dealers can apply their entrepreneurial talents (and increasingly use processes, data and technology) to secure an acceptable return from today’s flawed model.  If we address the flaws in the model, is it right that we should protect the used car business that allows it to exist?

We’ll be giving these questions some more thought in the coming weeks.  We’d also welcome input from others who have a view on how clean our slate should be.