Consulting Knowledge: Auto Industry Deep-Dive - The Brutal Economics of the Auto Industry

Welcome back to The Deep Dive. It is great to have you with us for another installment of the Knowledge Series here at Custom Case Coach. It is great to be back. Yeah, this is a series I'm really excited about. If you are a regular listener, you know exactly what we are doing here. But for the new folks tuning in, let's just sort of set the stage. This isn't just casual chat. We aren't just skimming the headlines. No, fun or all. The goal of this specific series is to build your business acumen really from the ground up. That is the mission. We know a lot of you are casers. You are preparing for consulting interviews or maybe you are already in the thick of it as a new associate. And you know that feeling when you walk into a case interview, you sit down. Oh, I know that feeling. And the interviewer throws a topic at you that you have absolutely no background in. Yeah. I don't know, German agricultural equipment or something. It's the panic moment. Your stomach just drops. It is. And our job, our entire goal here is to eliminate that panic. We want to arm you with the vocabulary, the structural understanding and the core economic drivers of key industries. So you can walk in and feel confident. We want you to feel comfortable no matter what topic comes your way. You'll have a mental framework ready to go. Absolutely. And before we reveal all today's monster of a topic, just a quick request. If you are finding value in these deep dives, if they are helping you crack cases or maybe just sound smarter in meetings, which is also a worthy goal. It is. Please follow custom case coach on your podcast app. And if you have a minute, leave us a review. It really helps the community grow and it tells us what you want to hear more of. We read them all and we genuinely appreciate it. It helps us shape what we do next. Okay. Let's open the file. Today we are looking at a true Titan, an absolute giant. We are talking about the automotive industry. The auto industry. This is the heavyweight champion of the industrial world. It's just massive and every conceivable way. It really is. And I feel like this is one of those industries where familiarity breeds. Well, maybe not contempt, but it definitely breeds overconfident. Oh, for sure. We all know cars. We drive them. We see them parked on the street. We all have opinions on Teslas versus Fords. Right. But understanding the business of making and selling those cars. That is a completely different beast. It's night and day. It really is. And that is exactly why the automotive industry is a favorite for case interviews. It is the perfect storm. Honestly, if you can analyze a car company, you can probably analyze almost anything. Why is that? What makes it such a good testing ground for a consultant's brain? Think about the complexity. Just list it out. You are dealing with massive global supply chains that cross dozens of countries' incurrencies. Okay. That's one. You have huge financial stakes. The capital requirements are the billions with a B. You have incredibly complex labor relations, often evolving powerful unions that have been around for a century. A huge variable. And on top of all that, you are in a consumer facing business that is constantly, and I mean constantly, being disrupted by technology. It's just, it's everything. So it basically touches every single lever of business strategy you could possibly imagine. Supply chain, finance, HR, marketing, R&D. Exactly. It tests your ability to handle moving parts, literally and figuratively. It's a system of systems. As we were preparing for this, one phrase kept coming up in our research and it seems to be the theme of the episode. It feels like the headline. I think I know what you're going to say. Razor Thin margins. That's the one. That is a headline. If you take nothing else away from today, remember that phrase. This is not a software business where you write the code once and sell it a million times for almost pure profit. Not at all. It's a business of physical atoms, of steel and rubber and glass. It's a business of massive costs. And as you said, Razor Thin margins. That reality dictates almost every single strategic move these companies make. So let's map out our drive for today. We want to give you a clear roadmap. We are going to start with the landscape. Who are the key players and what is the crucial difference between an automaker and an OEM? That's a big one. People get that confused all the time. Then we are going to get into the financials. This is the case logic section. This is where we break down the P&L and really get into those margins. That is the most critical part for the consultants listening. If you don't understand the cost structure, you can't crack the case. Period. Then we will look at distribution, the dealership model and the. Well, the fascinating and kind of surprising way of money is actually made there. Yeah. That part's a real eye opener. And finally, we will wrap up with the major trends. The big shift to China, consolidation and of course the autonomous future that's always just around the corner. Let's get the engine running. All right. Part one. The landscape and key players. Now right off the bat, we need to make a distinction that, as you said, confuses a lot of people. We have the automakers and we have the OEMs. Right. And these terms get thrown around interchangeably in casual conversation on the news, whatever. But in a business context, in a case interview, they are very, very different. You need to know the distinction. So clarify that for us. Let's start with the easy one, automakers. The automakers are the brands you know. They're the names on the back of the car. Ford, Toyota, BMW, General Motors, Honda. These are the companies that designed the vehicle. They market it and they handle the final assembly. They are the face of the product. Okay. The brand. The company whose logo is on the steering wheel. Got it. So what are the OEMs? OEM stands for original equipment manufacturer. In the specific context of the auto industry, these are the suppliers. These are the thousands of companies that actually manufacture the parts that go into the car. So give us an example. If I'm looking at a Ford F-150. Okay. Perfect example. Think about the airbags in that truck or the transmission or the fuel injection system, the infotainment screen. Ford probably didn't build that fuel injector from scratch in a Ford factory. They bought it from someone else. They bought it from a company like Bosch or Denso or Magna or Continental. Those are the OEMs. They are experts in making one specific component and they sell it to multiple automakers. So the automaker is essentially the chef designing the final dish and the OEMs are the, I don't know, the farmers and butchers providing the high quality ingredients. That's a good analogy, but I'd actually push it even further. In the modern auto industry, the chef is sometimes just plating the food. What do you mean? The OEMs are doing a massive amount of the innovation and the R&D. If you see a car with a cutting edge safety sensor like a lane key assist or adaptive cruise control, the odds are an OEM designed and built that entire sensor system and the automaker just integrated it into the bumper and the car's software. Wow. So that implies a very deep level of codependency. One can't exist without the other. It is absolute codependency. You cannot build a modern car without a global network of thousands of OEMs delivering parts just in time to the assembly line. That's an incredibly complex dance. Okay, that's a really important distinction. Now let's talk about the Titans, the big three. In the US, this is a legendary phrase, Ford GM, which is General Motors and Chrysler. The historic anchors of the American economy. For a huge chunk of the 20th century is the big three went so with the nation their fortunes were tied to the countries. And looking at the data we have, they are still massive. Together, these three still hold approximately 40% of the global market share. Which is a staggering number when you consider how many different car brands exist in the world. But this is a huge but we have to be careful with that stat. Oh, so 40% is a concentrated share. Yes, but it used to be much, much higher. The story of the last 40 years really since the 70s has been the slow and steady erosion of that American dominance. Right. Because the industry isn't just Detroit anymore. It's not just American. Not at all. Structurally, the industry today has three main centers of gravity. You've got the United States, you've got Japan and you've got Germany. So from Japan, we're talking about Toyota and Honda primarily to absolute giants. Giants of efficiency and quality. And from Germany, you had the Volkswagen group, which is massive. It includes brands like Audi and Porsche. And then the luxury brands like BMW and Mercedes-Benz. Exactly. So if you are visualizing a map of where the industrial power lies, you have these big pins in Detroit, in Tokyo, in Nagoya, and down in Munich, in Wolfsburg. That's the production map. That's where the headquarters are. But, and this is a critical pivot for any case analysis, we need to talk about where the customers are because that map looks very different today than it did even 20 years ago. This brings us to market sizing. This is a classic case interview skill. You often need to do some back of the napkin math on market potential. Let's look at the two biggest markets right now. The US versus China. Okay, give me the numbers. Let's compare them. Alright. The US has a population of, let's say, roughly 300 million people. The GDP is massive, around $18 trillion. It is a huge, wealthy market with very high purchasing power per person. But it's a mature market. That's the key word, right? Exactly. It's saturated. Think about it. Almost everyone in the US who needs a car and can afford a car already has a car, maybe even two or three. So the US is primarily a replacement market. A replacement market. Meaning, you're mostly selling a new car to someone whose old car broke down or their lease ended. Precisely. You're not creating a new car owner from scratch, for the most part. The total number of cars on the road isn't growing that much year over year. Okay, so that's the US. Now compare that to China. The numbers are just on a different scale. China has 1.4 billion people. Their GDP is listed here around $11 trillion. So smaller than the US in total value for now. But it's been growing at a much faster rate. But the key here is the population delta. It's more than four times the number of people. It's over a billion. million more people. And the middle class there is exploding, millions of people are reaching income levels where they can afford a car for the very first time. So China is an acquisition market. Precisely. You are selling cars to people who have never ever owned a car before. You are creating new drivers. The sheer volume of potential new consumers is like a gravitational force pulling the entire industry east. We are going to talk more about that strategic shift in our trend section, but it perfectly explains the competitive environment. The notes we have described the rivalry in this industry as just fierce. It's a dog fight. It's a brutal street level fight for every single sale. And here's the key dynamic you need to understand for a case. The US big three are currently losing market share. So even though they still hold that big 40% chunk, the trend line is pointing down. Yes. The big picture story is a slow decline in share for them. And the culprit is globalization. It completely leveled the playing field. You have Japanese and German manufacturers making incredible cars, often more efficiently and with higher perceived quality. And now you have domestic Chinese manufacturers and Korean manufacturers like Hyundai and Kia entering the ring and becoming major global players. So everyone is fighting for a slice of the pie. And in the traditional markets like the US and Europe, that pie isn't really getting any bigger, which leads to immense, immense pressure on pricing and costs. And that pressure leads us directly into the financials. This is a perfect transition. Let's move to part two, the financial structure. This is the section I want everyone listening to really focus on. If you are prepping for a case, this is the core logic you need to internalize. This is the case logic. It's the engine room of the industry. If you understand the P and L, the profit and loss statement of a car company, you understand their entire strategy. Everything they do is a reaction to their financial structure. Let's start the top line. Revenue. How do these companies make money? Obviously the simple answer is they sell cars. Primarily yes. The vast majority of revenue is generated through new vehicle sales. But there is a massive problem on the revenue side. It connects right back to that fierce competition we just talked about. There is a broad inability to charge premium prices. Okay, I have to play doubles advocate here for a second. I walked past a dealership yesterday and the prices on the windshields were eye watering. You see pickup trucks for $70,000 SUVs for $90,000. How can we say they don't have pricing power when prices seem so high? It's a great question and it's a really important distinction. High prices don't necessarily mean high pricing power. Pricing power is the ability of a company to say, you know what? I'm raising my prices by 5% this year just to increase my margin and have the customer accept it without thinking twice. A big apple can do with the iPhone. That is the perfect example. Apple has immense pricing power. But that doesn't really happen in the mass market auto industry. Why not? The consumer has too many options. The products are too similar. If Ford raises the price of the F-150 by $5,000 just to make more profit. What does the consumer do? They walk across the street. They walk across the street and buy a Chevy Silverado or a Ram 1500 or a Toyota Tundra. The products are, for most buyers, very close substitutes. So they're highly commoditized in a way, even though they're complex machines. In economic sense, yes, brand loyalty exists, but it has a breaking point. And that point is usually a few thousand dollars. So automakers are what economists call price takers, not price makers. They have to price according to what the market will bear, what their competitors are doing. And that implies that revenue is almost entirely dependent on volume. You can't make more money per car. So you just have to sell a lot more cars. That's the only lever they can pull on the revenue side. And that volume that number of units sold is tightly, tightly coupled to the macro economy. Right. You cannot sell cars in a bad economy. It's one of the first things people stop by. Exactly. Cars are what's called adorable good. It's a major purchase and it's postponable. You don't need a new one today. If unemployment goes up or consumer confidence goes down or interest rates rise, the very first thing a family cuts from the budget is the plan for a new car. They just keep driving the old one for another year or two. So sales can fall off a cliff overnight if the economy just sneezes. We saw it in 2008. Sales didn't just dip. They collapsed. It makes revenue extremely volatile and proseclical. Okay. So to recap the revenue side, it's hard to control. It's dependent on volume and it's incredibly volatile. Now let's look at the other side of the equation, the cost structure. This is where the real headache starts. In any manufacturing business, you have your fixed costs and your variable costs in the auto industry, both are astronomical. It's a brutal combination. Let's break them down. Fixed costs first. Define that for us in this context. Fixed costs are what you have to pay every single day, whether you sell one car or one million cars. They don't change with production volume. In auto, the biggest one is P P and E property, plant and equipment. The factories, the assembly lines, the robotics, the stamping presses. It's a mind-duggling amount of capital tied up in physical assets. And we have a data point here for that. Let me see. Yes. Approximately $10 billion per year per major automaker. $10 billion. Let that sink in just to maintain the existing stuff, to keep the lights on, keep the factories running, update the robotics. That is a massive, massive hurdle. You start every single year, $10 billion in the whole before you sold a single car. And that's not the only fixed cost. On top of that, you have R&D research and development. Which is effectively a fixed cost, too. You have to design the next generation of cars three, four, five years before they go on sale. You have to engineer them. You have to crash test them. You have to develop the engines and the new EV batteries. You can't just stop. You can't just stop spending on R&D because you want to save money for a year. If you stop, your product becomes obsolete in one product cycle and your company dies. The mandatory expenditure. So you have these massive fixed costs that are effectively non-negotiable. That creates a huge, almost desperate pressure to scale. It's the scale game. That's all it is. You have to spread that $10 billion in fixed costs over as many units as possible. Let's do some quick math. Okay. If you sell one million cars in a year, that's $10,000 of fixed cost you have to load on to each car. But if you can manage to sell two million cars, suddenly it's only $5,000 per car. That $5,000 difference is your entire profit margin. It's everything. Wow. So producing at full capacity isn't just a goal. It's a matter of survival. It is. An empty factory is a cash burning machine. Okay. That covers fixed costs. Now let's look at the variable costs. These are the costs that are attached to each specific unit you produce. Right. If you make one more car, you incur these costs. The big drivers here are first raw materials, steel, aluminum, copper, rubber, glass, plastics, all of the precious metals that go into catalytic converters and batteries. And the prices for those fluctuate on global commodity markets. So it's another thing you can't really control. Very little control. And then the other massive variable cost is labor. And regarding labor, we have to talk about the union. Yes. The auto industry, especially in the US and Europe, is heavily unionized. Think of the UAW in the United States. This drives up the hourly wage and benefits costs significantly compared to non-unionized sectors. But for a consultant, it's not just about the cost being high. Okay. It's about the cost being rigid. What do you mean by rigid? Remember we said revenue is super volatile and can drop off a cliff. Right. In a normal business, if your sales drop 20%, you try to cut your variable costs by 20%. You might have to lay people off to match production. But with strict union contracts, you often can't. You might have job security clauses or rules that mean you have to keep paying workers, even if the assembly line is stopped for a few weeks. So your revenue plummets, but your labor costs stay almost the same. Exactly. It's a recipe for disaster and a downturn. It absolutely destroys profitability. So let's synthesize this margin squeeze. This is the core of the case. You have massive, non-negotiable, fixed costs, billions and factories and R&D. Sure. You have high variable costs expensive, fluctuating materials and rigid, expensive labor. And on the revenue side, you have intense global competition that prevents you from raising prices to cover all those costs. You've got it. You're squeezed from the top by low pricing power and you're squeezed from the bottom by high, inflexible costs. And the result is razor-syn margins. Yeah. Often in the low single digits. For every $40,000 car they sell, they might only make $1 or $2,000 in profit. It's an incredibly tough business. And that explains something we mentioned earlier. It explains why the automakers are so aggressive with their suppliers. Remember the OEMs we talked about? Like the parts manufacturers. If you are a purchasing manager at GM and you're getting squeezed from every direction, what do you do? You turn around to your suppliers, the OEMs. And you say, look, I need that scaring wheel for $5 less next year. I need that transmission for 10% less. Make it happen. And because the automakers are such massive buyers, placing orders for millions of units, they have all the power in that relationship. They have massive buyer power. So the pressure just gets passed down the supply chain. The OEMs get absolutely crushed on margins because the automakers are fighting to protect their own survival. That is a brutal, brutal ecosystem. It is. But. And here's where it gets really fascinating from a business model perspective. There is a part of this industry that makes money in a completely different way with much better margins. Okay, this I want to hear. This takes us to part three. Distribution and the dealership model. Right. So you're an automaker. You've somehow managed to build a car and make a tiny profit on it. How do you actually sell it? For most part, you go through a dealership. The dreaded dealership experience, the haggling. the paperwork. Loader hated it's the primary channel. In many places it's legally mandated. But the financial relationship between the automaker and that dealer is unique. It revolves around a concept that you absolutely need to know. Floor plan financing. That sounds like some serious industry jargon, let's unpack it. It's critical to understanding their incentives. When you drive past a Ford dealer and see 300 cars sitting on the lot, the dealer has not paid cash for those 300 cars. That would be an insane amount of capital to have tied up an inventory. Right, that would be millions and millions of dollars. So the dealer usually buys those cars from the automaker, using a line of credit, basically alone. Often from the automaker's own financing arm, like Ford credit or GM financial. Okay, so they're financed. Yes. That inventory of cars sitting on the lot is called the floor plan. And here's the kicker. The dealer has to pay interest on that loan for every single day. Each car sits on that lot, unsolved. Oh, wow. Okay, hold on. So every day a car doesn't sell. It's literally costing the dealer money in interest payments. Exactly. It's a ticking clock. It's like a melting ice cube. If a car sits there for 90 days, the interest payments might have already eaten up the dealer's entire potential profit margin on that vehicle. That explains everything. That explains why they are so aggressive at the end of the month or the end of the quarter. They're not just trying to hit a sales target. And they need to stop the clock. They need to get that car off the floor plan so they stop bleeding interest payments. They need to move metal, as they say. Okay, that makes so much sense. But here is the aha moment that we found in the research for the dealership model. We all assume dealerships make their money selling cars. It's a natural assumption. That's what you see in the front of the building. They don't do they. They make some money selling cars. But the margins on new car sales are often tiny. Sometimes, especially on a less popular model, they might break even or even take a small loss on the sale of the car itself just to move the unit and get a sales credit from the manufacturer. So how do they stay in business? How are there so many of them if they're not making money on their primary product? Service lane. Car repairs. Car repairs, maintenance parts, the oil changes, the tire rotations, the brake jobs, the engine work after the warranty expires. What is the real profit center? The margins on parts and labor are incredibly high compared to selling the car. That is absolutely fascinating. So the big flashy showroom is basically just a customer acquisition channel for the greasy and mechanic shop in the back. In many ways, yes, it's the classic razor and blade business model. You sell the razor, the car cheaply, maybe even at a loss. So you can sell the proprietary high margin blades with the service for the next 10 years. That completely changes the incentive structure of the entire business. The dealer doesn't just want to sell you a car. They want to sell you a relationship that brings you back for service every 5,000 miles. Exactly. And that's before we even get into the other profit centers like financing and insurance, the F&I office, where they make a lot of money too. But the service bay is the long term golden goose. And don't forget the secondary channels, like auto parts shops for the DIY crowd. But for the mass market, the dealership service bay is where the real sustainable profit is made. Okay, this is a huge insight for any case study. The money isn't where you think it is. So we've covered the players, the money and the dealers. Let's talk about the people actually driving these things. Part four, customers and vocabulary. Right. Let's break down the customer segmentation. It's not just one group who buys cars. Well, the most obvious one is personal car users. That's you and me. Right. That's the B2C business to consumer market. That's who all the advertising is aimed at. But then you have these huge B2B business to business segments. Like rental car companies. Exactly. Companies like Hertz, Avis, Enterprise. They're massive bulk buyers. They'll buy thousands, sometimes tens of thousands of cars at a time in a single deal. And commercial users. Right. Which are corporate fleets. Think about a pharmaceutical company that needs to give a car to every sales rep or a construction company with a fleet of pickup trucks. And finally, government, police cars, mail tracks, military vehicles. All of these B2B segments are huge. And do these different segments matter for a case interview? Absolutely. They're completely different sales motions. If your strategy is to sell to Hertz or the federal government, you aren't talking about super bowl commercials and leather seats. You were talking about volume discounts, total cost of ownership over five years, maintenance contracts and residual value. Yeah. And the national economic calculation made by a fleet manager, not an emotional decision by a family. Makes sense. Completely different value proposition. Now, let's hit a couple of key vocabulary terms that are reshaping the customer experience and the entire industry. Sure. These are the buzzwords, but they're important. First one, ride sharing. Companies like Uber and Lyft, obviously. This is a fundamental change to the consumption model. For 100 years, the model was ownership. Now, we aren't just buying cars. We're buying mobility as a service. You're buying access to a ride from A to B, not the asset itself. And the second one, which is linked to that driverless technology. The move toward removing the operator entirely. Autonomous vehicles. We will talk about that more in the trend section, but strictly as a vocabulary term, it represents the biggest technological shift in personal transport since we switched from the horse and buggy to the car in the first place. And this all leads to a really interesting anecdotal connection, a personal decision-making process that more and more people are going through, to own or not to own. This is a calculation everyone in a major city is making now. You have to sit down with the spreadsheet and weigh the total cost of ownership. Which includes the car payment, insurance, gas, parking, maintenance, depreciation. All of it. And you have to wait at against the convenience and cost of using alternative transit, like the subway, the bus, or just using ride sharing services whenever you need to go somewhere. It's interesting because if you live in a dense city like New York or London, the math is changing fast. A few years ago, owning a car was a given for most middle class families. Now, it might actually be cheaper and easier to just uber everywhere. And for the automakers, that is a terrifying thought. It's an existential question. If individuals stop buying cars and just use ride shares, does the total volume of cars sold go down? Or does the demand just shift from personal sales to massive fleet sales to uber? That is the billion dollar, maybe trillion dollar question. Let's look at that future. Part five, major trends. We touched on this, but let's go deeper. The first big trend and probably the most impactful one over the last decade is the shift to emerging markets. This is huge. We mentioned the population stats earlier, but it bears repeating. The annual demand for new cars in China is now greater than in the US. Greater than the US. Not just catching up, but has surpassed it. Yes. In terms of sheer volume, China is the new engine of the global auto industry. The growth for the next decade is coming from emerging markets like China, India, and Southeast Asia, not from the traditional strongholds of North America and Europe. So if you are the global CEO of Ford or Volkswagen, your strategy has to be China first in many, many ways. It has to be. You have to design cars that appeal specifically to the Chinese consumers' taste. Their technology preferences, their need for more rear seat legroom. The US market is still incredibly important for profit, especially with trucks, but it's not the only driver of strategy anymore, not by a long shot. OK, trend number two. Consolidation. We are seeing active M&A mergers and acquisitions across the board, Fiat bought Chrysler, then that combined entity, FCA, merged with Peugeot, the French group, to form a new giant called Stellantis. Why is it just about ego about being the biggest? Or is there a strategic reason? It's all about math. It goes right back to those fixed costs, that $10 billion a year in PPNE and R&D we talked about. Right, the cost of entry is massive. The best way to combat high fixed costs is to get bigger. To achieve economies of scale. If you merge two companies, you can share vehicle platforms, you can share factories, you can share engine development and R&D costs. You spread that $10 billion over even more cars. So consolidation is a survival strategy. It's purely defensive in a lot of ways. It is the only way to protect those razor-thin margins in the long run. The thinking is, you either consolidate or you die. The small players are getting squeezed out. And that's happening with dealerships, too, right? Yes. Big dealership groups are buying up smaller family-owned ones to the exact same reasons of scale. Okay. Trend number three, technology and partnerships. Automakers are now forming these deep, sometimes strange partnerships with IT and tech companies. This is a very new phenomenon. It used to be Ford built everything Ford, GM built everything GM. Now they're realizing they aren't software companies. Because cars are becoming computers on wheels, a modern car has more lines of code than a fighter jet. Exactly. And the industry had set some very, very aggressive goals for itself. Our source material here notes a prediction of autonomous vehicles by 2021. Now obviously, sitting here today, we know that timeline was wildly optimistic. Just a bit. But it shows the race mentality. They know that whoever solves self-driving first, whoever owns that software stack could potentially win the entire future of the industry. But the automakers can't do it alone. They need partners from Silicon Valley, like Google's Waymo or chip makers like Nvidia. And that must create a fascinating culture clash. A huge one. You have the slow, methodical, safety-obsessed, 100-year-old world of manufacturing trying to partner with the move fast and break things world-to-tech. It's a real challenge. And finally, a trend that's more of a summary. The ongoing threat to the Big Three. It just bears repeating. US dominance is fading. It's not gone, but it is not what it was. Globalization has leveled the playing field. big. three have to fight tooth and nail for every inch of market share now. There are no free lunches anymore. So what does this all mean? Let's wrap this up. Let's move to our outro and synthesis and really boil it down. Okay. If we boil all of this down for a caser who is about to walk into an interview, here is the summary. Here's your cheat sheet. To succeed in an auto case, you must must must look at volume. You cannot price your way to profitability. Your recommendation has to be about selling more units. And on the cost side, you have to find efficiencies. You have to manage those massive unions and the fluctuating raw material costs. Exactly. And you have to understand the hidden profit centers. You have to be the smart person in the room who realizes that the profit might actually be in the service lane, not in the shiny showroom. Okay. So based on all that, here is a final provocative thought for our listeners to mull over. We talked about how the whole dealership model is propped up by the money they make on repair. Right. The service lane is the golden goose. And we also talked about how electric and autonomous cars are the inevitable future. But here's the rub. Electric cars have far fewer moving parts than a gasoline engine. They don't need oil changes. They barely use their brakes because of regenerative braking. They are fundamentally simpler to maintain. And autonomous cars in theory shouldn't crash nearly as often so no body shop work. So there's the paradox. If the money for the dealers is in repairs and the cars of the future require dramatically fewer repairs, what happens to the entire dealership model? That is the existential crisis waiting in the wings for every dealer principle in the country. If the service lane revenue dries up over the next decade, the entire business model of automotive distribution has to change. It collapses. Does the dealership, as we know it, just disappear? Do automakers start selling direct to consumers like Tesla does? It opens up all these possibilities. And if ride sharing takes over, do individuals stop buying cars entirely? Are we moving from a world of selling a product world, of selling a subscription service for mobility? It raises the question, are Ford and GM going to be manufacturers in 20 years? Or are they going to be fleet operators managing millions of autonomous ride sharing vehicles? It's a fascinating and probably terrifying future for them to contemplate. Indeed. All right. That brings us to the end of this deep dive into the automotive industry. I feel like my own business acumen has gone up a few points. It was a fun ride. It's a complex topic, but hopefully we've broken it down into a useful framework. Hi, thanks so. If this helped you, if you feel a little more confident about facing an auto case, please go follow Custom Case Coach right now on whatever app you're using and leave us a review. It helps us help you. And it helps us grow the community of casers. We're all in this together. Until next time, keep casing and stay curious. See you next time.