The ongoing digital transformation of the automotive industry introduces a new set of technological and regulatory challenges automakers must address in order to implement an innovative and flexible digital strategy.

The automotive industry has experienced a major comeback since the 2008 financial crisis thanks, in part, to advances and innovations in the digital sphere. Public demand for further digital advances is resulting in a fundamental shift in how consumers perceive car ownership, usage, and operation. The automotive industry’s digital transformation may still be in its infancy, but it’s already mandating significant changes to the consumer purchase experience today and remodeling the product experience for tomorrow.

Car Buying – The Past, Present, and Future

The way consumers engage with car manufacturers and dealers during the purchase process is evolving.

Then

For decades, the car buying process started with a search in the automotive section of the newspaper and ended with an all-day affair at the dealership. Customers had few ways to compare options, ratings, and overall value on their own terms before they were inundated with sales-driven information on the showroom floor. Buying a car became synonymous with high-pressure situations and getting taken advantage. The entire undertaking was often viewed as a burdensome task, rather than an exciting purchase experience. Although websites and online search capabilities eventually gave consumers more tools and confidence during the sales process, purchasing a vehicle remained an unpleasant necessity.

Now

Today the car buying landscape is radically different, thanks to a wide array of emerging digital resources. Social media enables anyone to peruse personal experiences and unbiased opinions about vehicles, dealerships and financing options. Recent polling by Crowdtap found that 87% of respondents say they consider friends’ comments on social media when evaluating an automotive brand.

Dealers have changed their digital habits as well. Digital showrooms that utilize tablets, video walls and tabletop touchscreen surfaces to augment the physical shopping experience are becoming more common. Shoppers can virtually explore car models and evaluate options, then immediately take preferred models for a test drive or complete a purchase on-site. Audi developed a digital showroom that lets visitors configure a life-sized virtual vehicle using real-time 3-D rendering technology.

This shift is being driven by a consumer base increasingly immersed in digital environments. 63% of car shoppers compare vehicles on mobile devices and 75% of car shoppers would consider buying entirely online. Automakers in the present market who don’t provide a unified digital experience for vehicle comparison, payment estimation and purchase across all devices risk losing business to competitors who do.

On the Horizon

Despite recent progress on the part of automakers, car buying can still be a time-consuming and challenging task. Consumers peruse an average of eight websites before they feel that they have enough information to make a purchase. To help navigate this information overload, customers are looking to bots powered by artificial intelligence. One promising example designed is “Carla,” a machine-learning customer service and sales bot designed by CarLABS. Through Carla, CarLABS provides real-time car-shopping advice to consumers, publishers and dealers.

While still in early experimental phases, augmented and virtual reality will continue to grow in both popularity and scope. This technology will transform the car-buying experience by allowing shoppers to:

  • View cars in realistic environments
  • Inspect life-size images of car models that aren’t on the lot
  • Make real-time configurations to suit their preferences
  • Take virtual test drives, often beyond the dealership or in remote locations

An early competitor in this area, REWIND, released its True-VR car configurator for Oculus Rift in conjunction with the launch of the Lexus NX, allowing consumers to virtually walk around and sit inside the NX. Users could change hubcaps, colors, dashboard configurations, and more. Similarly, Vroom offers a 360-degree car-viewing experience on the HTC Vive VR unit.

An Evolving Product Experience

As consumers have gained the ability to fluctuate seamlessly between smartphones, tablets, desktops, wearables and smart home assistants, multi-channel integration has become the expectation. Vehicles are becoming another cog in the connected digital experience.

Increased Integration

Advances in Internet of Things (IoT) technology have led to a surge in vehicles that can connect to a car owner’s existing gadgets and applications. As early as 2014, AT&T connected more new vehicles than it sold new smartphones. Machina Research expects that by 2020, 90% of new cars will feature a built-in connectivity platform. This integration with the platforms and devices consumers are already using allows automakers to create new and better experiences, adding value and competitive edge to their vehicles. These may include products and services dedicated to maintenance and repair, finances, food, lodging or entertainment.

Connected vehicles that link to mobile devices, RFID readers on the road, traffic lights, and infrastructure provide the opportunity for improved navigation based on driving habits, traffic notifications, and alternate routes. General Motor’s OnStar system, for example, enables users to send an intended destination from their smartphone directly to the car’s navigation system.

This connectivity also creates new marketing channels for manufacturers and dealers, as it allows offers and contextual notifications to be sent to in-vehicle dashboard displays.

Personalization

Connected cars introduce the ability to deliver highly personalized experiences through connection to smart devices, stores, user accounts on third party platforms and the driver’s web history. Jaguar Land Rover has introduced intelligent cars that learn driver behaviors and preferences. New Land Rovers integrate with mobile phones and other devices to offer calendar reminders, personalized navigation guidance, and tailored entertainment choices – they can even detect a gym visit based on information from a fitness wristband and adjust the temperature in the car for a cool-down.

As driver profiles become more developed, the ability to carry personalization from vehicle to vehicle via mobile devices will support vehicle sharing and advanced permissions management.

Predictive Maintenance

Advancement in analytics software has enabled predictive maintenance supported by sophisticated in-vehicle diagnostics systems, smart components, and cloud connectivity. This allows select car parts to proactively signal when maintenance or replacement is needed. General Motors’ OnStar system uses this technology to remind users when maintenance is due by running monthly checks of the engine, transmission, anti-lock brakes, and other systems, and then sending the vehicle’s owner a status update via email.

Confronting the Digital Challenges

The new automotive frontier isn’t without its obstacles. Manufacturers and dealers will have to get ahead of these threats and develop forward-thinking solutions to embrace the digital opportunity.

The Data Gap

While a data-driven approach is becoming increasingly essential in the automotive industry, 70% of auto executives believe that effective data use in their own companies is still immature, if it’s even being implemented at all. The challenge lies in determining exactly how to manage data and leverage it to its full potential to drive growth, revenue, and customer satisfaction.

Security and Data Privacy

The introduction of connected software systems into vehicles requires that automotive companies secure personal customer data as well as access to the vehicle itself. In 2015, Fiat Chrysler had to recall 1.4 million cars after a hack of its Jeep UConnect system. General Motors experienced a similar security breach after a hacker developed a device that gave outsiders the ability to take over several vehicle functions through the OnStar RemoteLink iOS app.

Uncertain Regulatory Constraints

When exploring new frontiers like connected, assisted or self-driving vehicles, automotive companies face limited, inconsistent or unclear regulations across geographies. This is impacting technology development and deployment, as well as car insurance and liability. Since 2012, at least 34 states and Washington, D.C. have considered legislation related to autonomous vehicles – 60% of those in the past year.

Staking a Competitive Digital Edge

While there is no indication that the rise of ride-sharing services is disrupting auto sales just yet, this could change in the future. Experts predict that global ownership trends could reduce vehicles in operation by 250 million and reduce new sales by 30 million units annually by 2035.

In Gothenburg, Sweden, AB Volvo partnered with developer UbiGo to test a smartphone app that serves as a single interface and invoice for public transit, car sharing, rental cars, taxis, and bicycles. Toyota recently partnered with ride-sharing company Uber, DiDi with Google, Volkswagen with Gett, and GM with Lyft. Multimodal transportation that links both public and private transport across the road, rail, ferry, walking and cycling are emerging as a preferred option for consumers, allowing maximum customization to meet traveler preferences and resulting in both time and cost savings.

Forward thinking automakers are forming key partnerships with disrupters to stake a competitive edge. These companies understand that, while purchasing decision factors such as safety, quality and value have remained fairly stable, demand for innovative technology is increasing and this technology will dramatically reshape how society thinks about and interacts with vehicles. Automakers who do not prioritize digital transformation risk continual loss of market share to those competitors who do evolve and seize the competitive edge.