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Going Beyond CPM to Address Today’s Automotive Challenges

Jul. 8 2019 by Sadek Fahmy, Senior Solutions Specialist - CCH Tagetik NA

Performance Management

Changing Automotive Trends

The automotive industry has forever stood as one that must keep a close eye on its profitability. Small per unit profit margins, high costs of producing vehicles and minimal margin for error makes profitability a top priority of automakers.

In a study conducted by PwC regarding trends transforming the automotive industry, they mention “Manufacturers must find a way to continue to invest in the future despite falling margins.” And the only way to do this is to understand your complete financial picture at the most detailed level possible. PwC goes on to say “Companies that invest 25% of their R&D budget in software applications are rewarded with strong growth….Decisions about the long-term structure will be made between 2020 and 2025.” The chart below summarizes PwC’s expectations for US Vehicle Sales through 3030.

Source: https://eu-smartcities.eu/sites/default/files/2018-03/pwc-five-trends-transforming-the-automotive-industry.compressed.pdf

This shift in sales will represent the most disruptive change in the automotive industry to date. It is imperative that current automakers invest in their data to be as prepared as possible for all possible scenarios. Competition will be fiercer and margins will be smaller than they have ever been. Look at Tesla for instance. 14 quarters operating at a loss before finally catching profits for 2 quarters. Tesla wanted more from the Model 3, but they are finding it harder and harder to squeeze out margins at such a low price.

The Need to Analyze Profitability at the Detailed Level

Today and in the past, most automakers have analyzed their profitability down to the model level. They can then analyze this information by region, maybe be dealer size, sales channel and so on. With this analysis, they’ll be able to see that some models (Model A and B) are all very profitable models and maybe Models C and D are less profitable, with Model E running at a loss. This will allow them to make business decisions on which models to discontinue, which models to advertise more, or even which models to produce more. This was all typically done in MS Excel or Excel in conjunction with an old piece of software. But the reality of the situation is that if this level of information is important, why not dive deeper? Why not look at which trim packages of Model A may be less profitable than others. Maybe even some Model A trim packages could be losing money but you wouldn’t even know it because that level of detail goes beyond your analysis. Maybe the decision could be to eliminate some Altima trim packages, resulting in a more profitable model.

With today’s moving focus on to big data, data analytics and machine learning, we must begin using all of our available data and start enhancing our ability to analyze and report on it. This data will require a modern software platform as a backbone. We have the data available to us in various systems, but nowhere to centrally store it, run calculations on and report on at a detailed level. The need to leverage this data is as prevalent as it has ever been with today new competitors, you may have heard of Tesla and Fisker, and tomorrow’s future entrants into the industry.

Technology to Empower the Organization

Modern technology now permits us to leverage software that allows us to take the data to the next level. Rather than having details down to the model level, let’s go down to the trim or even better, VIN level. Let’s understand the profitability at a level of detail that we never envisioned that we ever could. Being naïve due to a lack of information is no longer an excuse. The information is at our fingertips, and now we have the ability to leverage cutting-edge software to be better informed. It’s no longer 1990. We are approaching 2020!. In the past, we’ve been intimidated by the sheer size and unstructured nature of the data. But today, we have the tools – or a single tool – available to access and normalize the millions of records spread across multiple systems, clean it up and present the details in understandable and effective formats. Visualize data that we previously were never able to or maybe use Artificial Intelligence to find patterns within the data that our human eyes struggle to find within millions of rows of unorganized data.

CCH Tagetik’s introduction of the new Finance Transformation Platform, powered by the Analytic Information Hub, makes it a perfect fit for the needs of the automotive industry. It allows its users to leverage unlimited dimensionality and optionally the processing power and speed of SAP HANA to store and process extreme sums of data.

Leveraging CCH Tagetik’s Finance Transformation Platform will allow us to easily maintain our finances using the traditional CPM/EPM tool functionalities, but now introducing the capabilities to store, run calculations and analyze at the lowest of levels. Whether it’s as low as VIN level information or trim level, within CCH Tagetik, the details are available right at your fingertips. Perform what-if analysis and model out increases in profitability using CCH Tagetik’s driver based planning, its built in allocation engine and its built in calculation engine. Connect operations with finance to stay agile with changing trends and be able to accurately play out what-if scenarios and reforecast more frequently.

The best thing about CCH Tagetik is that it is all finance user owned and operated. No need to call IT or consultants to change a report, add a dimension or update an allocation rule. Empower your organization with the capabilities of CCH Tagetik and start preparing for the future today.

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