The automotive industry is considered comparatively dynamic. Proponents of this view point to its bright palette of new products, its current merger-mania, and its constantly changing personnel makeup as evidence of this. Nevertheless, since the era of Henry Ford, any changes to the automotive industry's basic business model have been merely evolutionary in nature. Despite lean production, lean distribution and the considerably greater involvement of automotive suppliers, vehicles are still manufactured in a capital-intensive assembly line process and delivered to customers via a network of dealers and sales outlets.

Just imagine, then, how much things would change if the computer manufacturer Dell's business model, Yahoo's portal economics and Vodaphone's pay-per-use principle were transferred to the automotive industry!

E-business and the Net economy have the potential to radically change the automotive industry's basic business model, driving on this dynamism to the heights reached in Silicon Valley. Richard Wagoner, Chief Operating Officer at General Motors, pronounced at the Detroit Motor Show 2000 that the introduction of e-business in the automotive industry constituted a major change, "bigger than anything we've seen in the business in my career".¹⁾ The New York Times titled in January 2000 "GM aims to build cars the way Dell makes computer"²⁾

With their NetCar vision, consultants at Roland Berger and Partners have developed a new concept for the automotive industry that is consistently oriented to the Net economy. Although almost all the components of the NetCar mosaic already exist within the industry, at least partially, combining them in a finished business model is as new as it is radical.

The building blocks of the NetCar concept are ModCar, PortCar, FreeCar and SoftCo; these individual components complement each other perfectly, increasing momentum in the industry and forming a completely new model which may mean the end of the automotive industry as it is today and the beginning of a new era of transport and information mobility.

ModCar – a modular vehicle and manufacturing concept with an open space frame onto which modules can be docked in a similar way to "plug&play" components

The basic construction element for ModCar is an open space frame with standardized module interfaces. Different supplier communities can then concentrate on the various modules, limited only by interface compatibility and quality and safety requirements.

It would thus be possible to create, for example, an interior community, within which manufacturers such as Recaro or Johnson Controls, established systems partners of the automotive industry, would come together with companies such as IKEA or NOKIA, each offering its own interpretation of how the interior should be designed. Other supplier communities could also be established for the chassis, exterior and drivetrain.

In the NetCar concept, vehicles are sold primarily over the Internet; the customer is directed via a system of links from the automotive manufacturer's webpage to those of the various supplier communities, and configures his own "mass-customized" vehicle. Since the components provided by the supplier communities are also branded goods, the automotive manufacturer is able to highlight this additional selling point in his advertising.

The suppliers themselves are responsible for pricing the individual modules, and payment is transferred directly to them, with a margin (e.g. 10%) retained for the automotive manufacturer. This modular pricing system also does away with the need for purchasing in the traditional sense (disintermediation).

The vehicle can swiftly be assembled from the frame and modules and delivered to the customer within 5 days. In a completely transparent manufacturing process, the customer is also able to obtain real-time information on his vehicle: virtual plant tour, car status tracking, "e-mail from your car".

The ModCar can, of course, also be reconfigured at a later date and is thus adaptable to its owner's taste and wallet as well as suitable for technology upgrades.

Initially, all this seems a little far-fetched. However, in terms of design and manufacturing technology, the concepts of the Smart and of future small Fiat models are actually not so far removed from this vision. Moreover, in the USA, customers have been able to configure their class 8 trucks for years, selecting the supplier of their choice for large components such as engine, transmission and axles. And companies in other industries, for example Dell, the computer manufacturer, have already tried, tested and successfully launched similar models.

PortCar – integration of Internet and telematics technology makes the car a portal for e-services

Even today, some 90% of innovations in vehicles are electronically operated. In future, the core product, i.e. the car, will be enhanced with numerous Internet and satellite communications services. Dynamic navigation, online booking of service slots, remote diagnosis, remote upgrading of vehicle software, voice-activated email, gameports and pay-per-view functions for passengers are just a few examples of the car of the future, a traveling communications center.

GM's OnStar initiative, the 24-7 Concept Car from Ford (a traveling Internet portal in a highly modularized vehicle, available 24 hours a day, 7 days a week)³⁾ and the Communiport Mobile MultiMedia System from Delphi show that the future of the automotive industry has already begun.

 FreeCar – the vehicle frame and the portal function are provided to the customer free of charge

The value of a network rises exponentially with the number of users. Contrary to the traditional economy, value within a network is created not by scarcity, but by diffusion. It is the principles of free economics and the economics of speed which are relevant to networks: users pay not for access, but for usage, and it is first come, first served – "the winner takes it all".⁴⁾

Precisely these rules apply to the NetCar. The NetCar has to be produced in large quantities, particularly because it would otherwise be economically unfeasible to maintain the fragmented supplier base (the more suppliers per module, the fewer cars per supplier). Only the fast-movers will have the opportunity to establish their open space frames as semi-standard. In order to swiftly penetrate the market, it might be advantageous for automotive manufacturers to heavily subsidize the frame, at least initially, and to provide the Internet platform with free or subsidized access to its supplier community. The manufacturers would recoup their outlay through suppliers' sales since their margin is a percentage of the income from each vehicle.

The extensive portal function for e-services which is the cornerstone of the PortCar concept should also ideally be provided free of charge. The expense would then be recouped on a pay-per-use basis such as that currently employed in mobile telecommunications.

At the Detroit Motor Show 2000, Ford introduced its new Ford Focus with extensive telematics technology.⁵⁾ The secret of this vehicle is, however, that it has no need for an expensive on-board computer since it is linked to the main computer in Portland, Oregon. Thus it is easy to imagine equipping a vehicle with a portal function at zero cost. Jacques Nasser, Ford's CEO, recently compared this strategy to the business models used in mobile telecommunications and by Gillette. Gillette sells its razors at a low price and makes its money on blades.⁶⁾

 SoftCo – automotive producers become providers whose assets are not machines and plants but brands and their customer base and who can thus achieve market capitalization ratios equal to those of Microsoft and AOL

If you compare the ratio of current value to tangible assets for automotive manufacturers to that for Internet companies such as AOL or software companies like Microsoft, it becomes clear where the capital of the future is heading. Companies like AOL and Microsoft have few tangible assets, instead they have a highly valuable customer base and an almost monopolist market power created by establishing their product as the standard product.

The automotive industry must face up to these companies on the capital markets which are interested not in whether a particular industry has a capital-intensive structure, but in the shareholder value it creates.

The automotive manufacturers of the future must shift their focus from tangible assets to soft assets. Only by optimizing these soft assets while reducing tangible assets will they remain attractive to investors.

Ford's strategy of becoming "The leading automotive consumer company" is a decisive step in this direction: the company is expanding the functions which reinforce direct customer contact and is avoiding investing in manufacturing. Last year, for instance, Ford bought KwikFit, the express car-repair service, and has invested heavily in improving the company's Internet network. By contrast, it has avoided investing in manufacturing by more closely integrating its suppliers and introducing operator models. Examples include the Ford Amazon project in Bahia, Brazil, and the financing of body construction in Cologne using an operator model concept.

The NetCar concept does not presume to become reality overnight; it may be that only a small section of the automotive industry develops in this direction. However, there is little doubt that individual components of the NetCar concept will be made use of by all automotive manufacturers.

The NetCar concept puts current industry practices in the dock; individual automotive manufacturers must contend with the Net economy as they see fit. The pressure for action is great, or as Michael Dell so adequately put it, "In 5 years all companies will be Internet companies or not companies at all!" If automotive manufacturers do not seize the opportunity and rise to the challenges of the Net economy, others will do it for them. AutoByTel and VirginCars have proved that new players have little difficulty in entering the automotive business. The message to manufacturers is thus "Participate or perish!"

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