The Impacts of Disintermediation in Automotive Industry

Disintermediation in Automotive Industry
Disintermediation, or channel compression, is the process coming from economics of cutting out the middleman and allowing consumers to buy directly from a wholesaler rather than through an intermediary such as a retailer . This occurs when the distribution chain is shortened by eliminating some or all intermediaries between the local firm (product producer) and the end consumer. Electronic Business (or "E-business") has made it possible for consumers to buy directly from companies online and offer them with a wide selection of products, services and different combination options, thereby eliminating the “middlemen,” hence leading to disintermediation. Examples of industries where disintermediation has occurred include the music, publishing, travel and retail industries.
As the trend of online purchasing and the great change of consumer's buying behaviors, more and more people are likely to purchase online without going to physical stores and social media becomes one of the most important ways for business companies to promote their products and conduct marketing. So many companies nowadays choose to develop e-business within its business scope to reach broader market segments and potential customers. As a result, the fast development of e-business reduces the number of physical stores and intermediaries as well. So customers enable to buy products and services from companies' own operated website and manufacturers directly.
History of Disintermediation
The concept of disintermediation first emerged in 1967 when many consumers began taking their money out of bank savings account in order to reinvest directly in bonds or stocks to seek for higher interest returns. So the word "disintermediation" was firstly used in financial industry since investors were given the opportunity to buy stock, bonds and other online security products directly without an intermediary such as a bank.
However, as technological advance and the trend of online shopping, this word is applied more frequently as "cutting out the middlemen" in economics world, especially in retail, food, and healthcare industries nowadays.
How E-business led to Disintermediation in Automotive Industry
Disintermediation is part of business evolution influenced by new technologies and people's changes of purchasing behaviors. Many people now conduct new methods to reach their customers more effectively and to reach broader market segments. The E-business with its use of new e-marketing methods now is the biggest technological trend in many industries, such as automotive and food industry.
Change of purchase behavior
Unlike before which customers prefer going to physical stores to look for cars or ask for assistant; to make shopping decisions nowadays, people are more likely to search for car information and others' driving experience online, which they depend heavily on brand web site and online researching. So this makes good sense for companies to build their own effective and interactive online communities, or communication platforms, with their customers, which allow manufactures to communicate with customers directly and use interactive approaches to improve mutual relationship. As the trend of E-business, it is necessary for companies to make changes with their traditional ways of marketing and sales, even for automotive industry.
Pressure to cut prices
The pressure from customers to cut prices is also a push for automotive industry to transit from offline sales method. By selling from brands' own channel online, car manufacturers eliminate the blocks of the supply chain and could better control their prices; what is more important, they could offer customers the same purchasing and after-sales experience. Also, E-commerce mode enables car manufactures to provide more options and possibilities for reaching required information immediately by customers and markets through collecting Big Data. It also enables manufacturers to review offers from every producer and identify individual needs in order to reach cost and value savings of a purchase. In deed, the online purchase environment improves customer satisfaction with great experiences during the process of a purchase.
Impacts on Automotive Industry
Operating expense reduction
Doing business electronically definitely has impacts on the automotive industry in every portion of the supply chain. The operation of physical stores ensure the needs of customers to some extent: salespeople could sell new or used car at retail level, it could carry a variety of certified pre-owned vehicles and different functions cars for customers to have pre-testing, or customer after-sales services could be provided in store. The operation cost of physical stores is high, but the emergence of e-commerce actually eliminates the expense of maintaining a physical retail store, the reduction in leasing and utility fees for examples, and could assist the consumer in saving money through lower prices.
Convenient purchase experience
Ordering online allows the consumers to shop at any time without traveling to a store or office. Instead of having a direct intermediary, the Internet web provider serves as an intermediary making these transactions available between customers and manufacturers, which is much more convenient than shopping in store; and the expense of having Internet access for the company is greatly lower than the cost of leasing and employing salespeople in stores. Consumers now could design their own cars online and could check if there are enough available items for customizing their cars at any time and any places. What is more, by ordering online, consumers could choose cars with the best functions at their expected prices, so they could have better purchase experience and greater satisfaction with the online purchase.
Examples of Companies
Tesla is one of examples of disintermediation in automotive industry. This company chooses to use a different policy of selling without dealers, which it offers its own outlets, having only a few vehicles for car displaying and for customers to have test driving before purchase; and then complete their full purchase online without "middlemen". Tesla finally succeeded in this way, having raised auto gross profit by about 34%. The company has total control over its customers' experience, building online community and solving customers' problems at the very first time. Based on Tesla's success, two brands, General Motors and Audi, also have decided to start trails to selling directly online.
Based on Tesla's success in its disintermediation strategy, two brands, General Motors and Audi, also have decided to start trials on selling directly online without physical stores or have planned to reduce its offline purchase to some extent.

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