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  • Luxury Carmakers’ Focus On Improving Efficiency Through Reduction In Waste

    A car manufacturing company makes significant contributions to the economy of the country where it does business. Job creation and enhancement of exports are some of the areas in which auto manufacturers have a definitive impact. However, there are environmental impacts that arise from car manufacture, distribution, use, and scrapping that need to be taken into consideration as well. This has rendered the automotive industry a constant source of scrutiny and study.

    There are several areas in which luxury car manufacturers can improve their efficiency, hence reducing the overall wastage. In this article, we explore the strategies that car manufacturers in the luxury vehicle segment can utilise to improve their net profits.

    1. Renting instead of selling - This is a business model in which the luxury carmaker charges customers a certain amount of money to utilise its services and products. This results in greater convenience and peace of mind to the customer. The automaker also gets higher profits. This business model has already been successfully implemented in the music and movies industries. When this concept is utilised in the automotive industry, it can reduce consumer waste significantly by promoting the longevity of the vehicles.
    2. This model can also help automakers by improving customer loyalty and eliminate reduced product turnover. Effectively, per unit profits are improved without the need to continuously increase the sales numbers.

      Offering a lease programme on a long-term basis will be beneficial. The carmaker can charge customers a monthly fee for renting the vehicle. The automaker will retain the ownership of the car and offer it a lifetime warranty. The automaker will also cover the repairs of the car at no additional charges. The customer will only have to pay a fixed fee each month for the duration of use.

      This strategy proposes a significant shift in business model with a highlight on renting instead of selling. This model promises higher margins, improved customer loyalty, and more stable revenues based on service.

    3. Closed-loop recycling - This refers to using self-sufficient recycling processes and materials suited for the same. Closed-loop recycling is particularly desirable as it allows the product to be recycled back to its initial condition. Luxury car makers can come up with programs that will collect vehicles nearing their end of lives directly from the users. Some companies already have such programs today but the car owner is expected to contact the collection center for surrendering the vehicle. This can result in customer inconveniences.
    4. Ideally, luxury car manufacturers should offer greater incentives so that customers are compelled to return their vehicles towards the end of life. This way, the automaker can extract the eligible materials for closed-loop recycling directly and these can be remanufactured into new cars.

      This mode of recycling brings down the energy use by up to 75%, resulting in manufacturing process cost savings. This also enables automakers to keep track of the vehicles after the first sale and utilise the complete potential of these cars.

    5. Broaden the usage of products - Product refurbishment, recycling, and replacement can be done when car manufacturers directly engage with customers. When the points of contact with the customer increases, companies will have more opportunities to improve the brand loyalty, customer engagement, and profits. Currently, there is a lot of wastage in the industry as new cars are only kept by car owners for less than 10 years, while the average lifespan of a luxury car is 13 years.

    The focus should be on the manufacture of vehicle parts that are reusable and recyclable from the beginning. Integrating these strategies into the design of products and manufacturing will reduce costs for production down the line.

    Final Word

    The industry of luxury cars can profit greatly by using circular economy strategies. Car manufacturers have already made good progress as far as sustainability is concerned. However, they can do more. The strategies mentioned above will help in improving efficiency and reap in greater profits for automakers. Moreover, the innovations in business model are useful for continued development and sustainability.

    GST Update: GST of 18% is applicable on car insurance effective from the 1st of July, 2017

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