Start Your Engines: The Green Flag is About to Drop on the Auto Industry’s Innovation Race

When it comes to digital transformation, the auto industry has a huge gap between leaders and laggards. More than a 50-point spread (on a 100-point scale), according to McKinsey’s Digital and AI Quotient scores. One of the biggest reasons why? Legacy software. 

Legacy modernization isn’t exactly a new conversation, but auto leaders haven’t been able to make a lot of progress over the years. Now, though, there are several factors in play – including increased competition and technological advancements (read: AI) – that are poised to kick-start the move from talk to action.

This newfound alignment between the need for change and the ability to execute will set the stage for an intense race that will effectively condense almost 20 years of unrealized innovation into something closer to two. That’s why auto industry leaders need to understand how their competition is changing, how technology is evolving, and why now is the time to modernize their legacy infrastructure. Otherwise, they may find themselves out of the race.

The Competition is Heating Up – And Forcing Change

It’s no secret that the auto industry has historically been slow to change. That’s mostly because it hasn’t felt any real pressure to do so. Traditional automakers have enjoyed the ability to compete on a relatively level playing field against companies facing constraints similar to their own.

But now serious competitors have taken the field to disrupt that longstanding order. Rivian stands as an obvious example: its tech-forward direct-to-consumer model has allowed them to introduce modern tools into the dealership, connecting online & offline to create a seamless customer experience. Elsewhere, Chinese EV manufacturers like BYD and Geely have flexed their tech-infused supply chain dominance to produce quality vehicles at affordable prices.

With their strong focus on technology and doing things differently, these former upstarts have become legitimate power players (and in the case of Tesla, a budding leader) in the industry. In other words, those objects in the rearview mirror are much closer than they once seemed. And the bar has been raised. 

This sudden shift has provided a jarring incentive for traditional OEMs – and their partners throughout the industry – to make more aggressive technology investments of their own. Put simply, innovation is about to go into hyperdrive.

Legacy Tech Infrastructure Has Become a Drag

Under current market conditions, there’s certainly an appetite for change. But in a world where consumers increasingly expect to have things quickly and easily available at any time, the legacy technology underpinning much of the auto industry’s infrastructure simply isn’t keeping pace.

Most dealerships, for example, use a traditional dealer management system (DMS) to enable service booking. The DMS ecosystem is incredibly fragmented, with many customizations and add-ons to match a specific dealer’s needs. So if one brand wants to offer a new service across all dealer partners, they may need to integrate with 100’s of booking systems in their network – a challenge to scale and support. The impact for customers: a disjointed front-end digital experience.

And the drag isn’t just on the customer-facing side of things. This legacy software is embedded in almost every aspect of the dealer experience – from how cars are valued and sold to how salespeople talk to and deal with customers.

Still, while many top dealership groups have considered building their own DMS or moving to a more modern one, most have found it risky to shake up the status quo. While this risk-averse mindset makes sense in context, it has cost dealerships the opportunity to modernize its legacy software.

And this digital journey should be a warning sign for the auto industry at large. The good news, though, is that today’s digital tools make modernization easier than ever.

AI Presents New Opportunities

Gen AI can help companies throughout the industry get up to speed and close the gap with their rapidly growing competitors. In particular, it can help software development teams more quickly modernize legacy systems by:

• Making it easier to anticipate how changing one part of the codebase or SaaS platform will impact other parts of the ecosystem.
• Accelerating the iterative software development & testing process.
• Enhancing risk management from end to end. 

As industry leaders embrace modernization to move beyond their legacy systems, they’ll find countless potential customer-facing use cases for AI as well, including: 

• Service scheduling: AI can help streamline this key profit-driver for dealerships by proactively helping customers to book at times that work for them, and the dealership. 
• Lifestyle marketing: AI tools can help both OEMs and dealers analyze customer behavior to tailor messages and vehicle recommendations that speak directly to each customer’s specific lifestyle and buyer journey.
• Enhancing transparency: AI tools can give customers an in-depth snapshot of what a vehicle costs and what they can afford – including residual value, financing costs, and incentives – to provide a better view of the total cost of ownership. This can help build trust by showing that the dealer cares about their long-term financial well-being.

These sample use cases are just the tip of the iceberg, of course, but they all demonstrate how AI can help auto leaders build a little more flexibility into their operations. Coupled with faster software modernization, these types of upgrades can be exactly what the industry needs – and right when it needs them most.

The Race is On – Don’t Get Left Behind

Success today means understanding that there’s greater need for flexibility than ever before. The competition isn’t the same. The customer isn’t the same. So the old ways of doing things can’t stay the same.

It’s time to challenge the decisions and assumptions that have held for so long – and use the tools that are available now to compress more than 20 years of possibility into the next two years of reality.

The race is on. The question now is which auto leaders will have the foresight to seize the day and pull ahead.

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