May 31, 2001
by Anton Zuiker
If you buy a new car this year, you’re likely to use the Internet to inform your purchase and better your bargaining power. But buy a car in 10 years, says economist Susan Helper, and you’ll use the Internet to learn more than just price and model differences. You may well be able to order a car online that is custom-made just for you.
Imagine a car with the curves of a Corvette, the efficiency of a Honda motor and the bike rack of an SUV. Not so far out, says Helper. By 2015, you could be using the Internet to piece together your vehicle with mix-and-match components of the entire auto industry, which will have banded together to offer integrated consumer choice. Then again, your imagination might be limited to choosing from among different varieties of car stereos, says Helper. It will all depend on how the car industry responds to the choices it is facing today.
Helper is associate professor of economics at the Weatherhead School of Management at Case Western Reserve University, with a Ph.D. from Harvard University. An expert on the supply chain of the auto industry, she serves as a research associate at the Center for Regional Economic Issues at Weatherhead, as well as research affiliate at the International Motor Vehicle Program at MIT. She and colleague John Paul MacDuffie, economics professor at the Wharton School of the University of Pennsylvania, have recently posted to the Internet a research paper on the e-commerce effects of the evolving auto industry that is generating much interest among auto manufacturers.
Their analysis is insightful, and quite exciting. While they don’t go so far as to claim, like Christopher Lloyd in the film Back to the Future, “Where we’re going we don’t need roads,” they do drive home the point that we could soon see opportunities that could make buying a car a whole new experience.
The “build your own” phenomenon depends upon the auto industry embracing modularity. In this, separate modules of auto parts become standardized – seats would be installed into all vehicles the same way every time, and consoles would be inserted into the dashboard at common junctures. Today, for example, car seats are installed in a variety of ways; even the rails with which many are attached to the floor are nonstandard – to say nothing of the variations of seat belt arrangements. With modularization, seats would be installed into all vehicles the same way every time, and consoles would be inserted into the dashboard at common junctures.
Dell Computers has shown that modularization can work. It offers consumers the ability to order, online, a computer with the components – memory, CPU, monitor, drive space, etc. – that each shopper prefers in a desktop or laptop computer. But making this work in the production of cars and trucks – with some 4,000 to 5,000 parts for each vehicle – remains a huge feat.
Auto design today is “integral,” says Helper, with each model designed with its unique space considerations. “Taking a radio out of Ford Taurus and putting it into a Focus won’t work,” she says. If you’ve ever listened to NPR’s Car Talk guys, you understand how each car model is different from the other. “That’s where you get a sense of how integral a car is,” says Helper. How a ‘63 Mustang is different from a ‘75, and those share little in common with the 2001 model except for the name.
Click and Clack may be able to rattle off the distinctive details of each model, but with modularity, any consumer would be able to learn the variations. Already, says Helper, Ford has two separate designs for its compact but sporty Focus car – one designed for a young generation, with plastic-heavy interior with snowboard rack in the hatchback, and the other designed for the Baby Boomers, with leather seats and a rack to hold groceries.
But Helper cogently points out the economic forces that might prod the auto industry toward modularity and customization. Modularity, she argues, could make the final assembly process much shorter and simpler, and build to order would drastically reduce inventories. The corner dealership, therefore, wouldn’t need a hundred vehicles with their hoods open to attract your attention. You’d get a 360-degree view of the engine right on your computer monitor.
But don’t expect the dealership to fade away. “I don’t imagine the institution of the dealer going away,” says Helper. As the industry moves the choosing of a vehicle to the Internet, dealers will still exist to offer a test drive appointments and specialized service packages.
The dealership as an institution, she says, just happens to be the major barrier to a total auto e-commerce: laws in all 50 states require the existence of dealerships, says Helper. Today, to buy a new car or truck, you must buy one from a dealer.
But go visit any of the major auto manufacturers online and you’ll get a sense of the movement away from the dealer showroom.
On Chrysler.com, for instance, under the Build Your Own head, is this: “Part of the excitement in choosing a new vehicle is in being able to take your time choosing the features that best suit your lifestyle.” Meaning, in the comfort of your home, take your time to browse the offerings. All the while, Chrysler will track the configurations you try out, and use that information to fine-tune its offerings.
“On the Internet, companies can see what configurations of autos consumers are playing with, though not necessarily buying,” says Helper. On possibility with future modularity is that the number of design options would decrease because automakers would want to offer only the most popular configurations. “But limited options don’t seem to bother people,” says Helper.
As in other industries, the Internet facilitates e-procurement across the auto industry. This low-cost, high-speed method of communication is necessary for “build to order” to be economically feasible. So surf away, and tell the automakers what you want them to build.
True customization is at least fifteen years off, says Helper, and even that isn’t such a sure thing that she’s willing to bet her 1992 Saturn. In the meantime, she says, expect a flurry of fanciful options for your car or truck today. With commuting times rising – American drivers spend an estimated 25 billion hours per year in our cars, according to a Goldman, Sachs report – and vehicles becoming more spacious, the number of features and luxuries is growing. These options run the gamut of communication services to plug-and-play consoles with expansion slots for personal productivity.
GM offers Cadillac owners the OnStar system to connect to a GM operator for directions. Some autos have airbags that include a sensor that notifies the auto company to dispatch help when the airbag has been inflated, and Hertz Rental Cars provides the Neverlost Navigation system with realtime global positioning satellite locating. Just as cell phones in Finland can tell a person about restaurants and specialty shops nearby the phone’s current location, autos in America will chirp to tell you when you’re passing a McDonald’s, just in case you’re gettig a Big Mac attack. (In the paper’s best line, MacDuffie writes, “Finally, there is the annoying detail that drivers need to devote a certain amount of attention to driving.” Safety, certainly, should be everyone’s priority when designing a vehicle and the instruments inside.)
There’s a third possibility to the future of the auto industry, says Helper. “These changes could combine with regulatory changes to create an entirely new car.” Consumers, write Helper and MacDuffie, could influence the course of the auto industry by exercising their voting power, by supporting legislation curtailing pollution and traffic congestion and advocating new fuel cell technology.
Helper spends a lot of time in Detroit, and sometimes gets to try out new auto concepts. “The coolest was when I got to drive a car with no rearview mirror. It had cameras mounted on the back, and a monitor where the mirror would have been.”
Mirrors? Where auto purchasing is going, we don’t need mirrors. Just a computer and an Internet connection.
Helper’s paper, “E-volving the Auto Industry: E-Commerce Effects on Consumer and Supplier Relationships,” is available online at http://weatherhead.cwru.edu/helper/brieauto3.pdf.
Anton Zuiker ☄
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