Financial Times reports (via Business Standard) on Indego, a new business model for a new-style car company. According to AT Kearney and Martin Leach (former head of Ford Europe), who have developed the model, the business could be profitable in three years and make a long-term operating margin of almost 22%, more than four times the norm for volume car manufacturers.
The car industry currently works by massive investments in factories which produce large numbers of vehicles to push through dealers as news sales, with the second-hand market left to itself.
Indego would set up small assembly units in retail parks, importing most of the car in flatpack form from India or China and, partly thanks to plastic panels replacing paint, allowing fashion to dictate rapid changes.
Broadly, the new model is of a company selling trendy transport solutions rather than cars. The customer would pay for a package, not just a vehicle.
Production would actually be slightly more expensive than the big factories, because of the loss of scale and the "soft" tooling which lasts less time. But the plants would be more flexible allowing more frequent updates of vehicles, so there is always something fresh to persuade drivers to upgrade to.
But the cards would not be sold. The biggest increase in profitability, on the Indego model, would come from leasing the vehicles - so when one driver returns a car, it can be refreshed and released as a second-hand model. In effect, the second-hand market, profits from which are currently shared by dealers and private buyers, would be controlled by the manufacturer. Leasing also opens up the world of financial services.
Customers have to take insurance from the manufacturer but, beacuse there is no second hand market, there would be little incentive for theft. What would you do with a stolen car you couldn't sell? So the insurance could be cheap and profitable.
Servicing and repairs would be included in the lease, again locking in profits not currently seen by manufacturers.
The other big changes involve cutting costs. Research budgets would be kept down by concentrating on having "good enough" products, not the best; development costs would be low because cost would be outsourced. On the other hand, customer-care would all be in-house, reversing the current model of outsourced call centres.
Some of what is being suggested is already underway in the industry, while much of it is lifted from successful businesses in other sectors including Dell, the computer maker; EasyJet, the airline; and Zara, the clothes retailer.