E-Commerce Spreads Cost Savings Across Auto Industry

Compiled By Traci Purdum E-commerce will bring important cost benefits to the auto industry over the next 5 years. The savings will come not only from purchasing, but also many other functions such as product development, according to a study by Roland Berger Strategy Consultants in conjunction with Deutsche Bank's Global Automotive Research Team. "Many industry forecasts have suggested that the efficiency gains achievable through e-commerce will reduce the cost of a car by several thousand dollars. But estimates of this magnitude understate the challenges that automakers and suppliers face in implementing the necessary channel changes," notes Michael Heidingsfelder, a partner at Roland Berger. The study was based on interviews with 150 leading players in various elements of the automotive sector, including manufacturers and suppliers and the technology companies servicing their initiatives. Among the survey's other notable findings:

  • Savings will come from unlikely sources. For example, purchased-material cost savings will represent just a small part of the overall story -- about 30%. Instead, Berger research suggests close to 70% of the potential cost savings will come from reduced product development, inventory, manufacturing, sales, G&A, transportation, and warranty costs.
  • The North American industry's transition toward "build to order" vehicles has been exaggerated and, in light of significant physical, structural, cultural, and financial limitations, it will not progress as quickly as many industry observers anticipate. Rather, the traditional vehicle sales model, which involves the purchase of a vehicle out of a dealer's inventory, is likely to dominate for the next five years and will probably still represent more than 50% of the market in 10 years -- especially in the United States.
  • Cost savings from auctions will dissipate over time as business becomes concentrated among the most cost advantaged suppliers. Reverse auctions for auto parts have generated dramatic levels of cost reduction over the last six months, but these levels (10%-40%) are not sustainable as they do not reflect the true cost of doing business within the industry.
  • Tier 1 suppliers will be able to retain more of their cost savings than lower tier suppliers. The greatest benefits will accrue to companies that supply engineered, and/or highly differentiated products because they have relatively lower risk of having to pass all of their cost savings through to customers. Companies that supply commodity type components -- or products that are fabricated to specifications determined by the automaker -- are at greater risk of margin contraction.
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