Venture capitalists and equity firms talk future of auto tech
Much innovation is emerging in the automotive sector. Even a glance at it foretells an exciting future for automotive technology and its benefits and challenges to OEMs, dealers, lenders, vendors and consumers.
This article touches just briefly on a few highlights of these coming attractions.
To learn more about these new ideas, products and solutions attracting venture capital (VC) and equity firm investments, be sure to catch the upcoming Automotive Intelligence Summit, which is being held July 23-25 in Raleigh, N.C.
There, you will engage with this discussion, hosted by Cherokee Media Group, publishers of Auto Remarketing magazine. For this article, I interviewed several VC and investment firm executives: two speaking at the Summit, two who are not. All are actively involved in auto tech investing.
Quin Garcia is managing director for Autotech Ventures, a Silicon Valley VC firm investing in ground transportation and automotive vehicles and services innovations. His general session, “Leveraging Startups to Drive Corporate Innovation and Profits,” will discuss how to leverage startups to solve auto industry pain points.
Autotech Ventures investments include Lyft and Frontier Car Group, an online wholesale used-car auction for emerging markets, and others.
In a phone interview, Garcia said fintech and related disruptors owe their momentum to two events:
- Moore’s Law: a principle that computer speeds and capabilities double every two years — having driven electronics “very cheap,” so smartphones and cloud services have become practical.
- The proliferation of wireless networks so “everyone is connected.”
“Our firm acts as a bridge between startups and automotive corporations so they can compete together against the big tech giants who are entering the space,” Garcia said.
He shared trends on the horizon:
- Increasing the volume of autonomous vehicles on roadways will result in fewer collisions, therefore decreasing demand for collision parts and services.
- People are using various new mobility services in urban areas, and as a result, there should be less private vehicle ownership and fewer private-party sales.
- Increasing volume of electric vehicles in certain regions will cause lesser needs of maintenance for these vehicles, but will require new diagnostic equipment, new types of aftermarket components, and specialized mechanic skills.
Huron Capital Partners is a private equity firm specializing in the recapitalization of private companies in the lower middle-market. Its auto-sector investments include the XLerate Group, a provider of used-car remarketing services, and Drake Automotive Group, a specialties-markets aftermarket parts brand.
Gretchen Perkins, a partner at Huron, said aftermarket investments offer a large installed base.
“The used-car market is strong, the miles driven continue to increase — in fact, they are the highest they have ever been — and though cars are made better, the replace and replacement cycle continues,” she said.
“Up the road, we expect to see investment opportunities in adjacencies to the core technology for autonomous driving. An example of such might be in optics companies who will be part of the new infrastructure to help autonomous cars navigate,” Perkins said, adding that Huron also invests in the growing traffic safety and access control markets to support autonomous transportation.
Fraser McCombs Capital is an investment firm leveraging technology to transform automobility. Managing partner Chase Fraser is excited about Over the Air (OTA) Updates, an emerging wireless and 5G communication methodology for communicating two-way vehicle sensor and onboard computer and vehicle maintenance data to OEMs and their dealers.
To capitalize on this market, Fraser McCombs is invested in Israeli startup Aurora Labs. The company’s self-healing software enables vehicle manufacturers to respond proactively to future vehicle software architectures, processes and services, according to the investment firm’s website.
This two-way communication allows OEMs to push software updates to their vehicle’s many onboard computers, without having to take those vehicles off the road for that service.
“Down the road, it should be a boon for dealers to monetize this data,” Fraser said. “Service leads have always been of poor quality, but OTA updates are rich in data and will ultimately be an effective way to get consumers back into the franchise.”
Vroom is another Fraser McCombs investment.
“We like this investment, although this model isn’t for everyone. Many consumers still want to visit a dealer’s used-vehicle lot before they buy, but there is a subsection of the market that doesn’t want to do that,” Fraser said, “and while they’re a minority of the car-buying market, that minority, in aggregate, is quite large.”
Jeremy Alicandri is managing director for global automotive strategies firm Maryann Keller & Associates. Alicandri’s general session, “Fireside Chat: Exploring the Costco Auto Program,” will include Rick Borg, who is the executive vice president of the Costco Auto Program.
According to session details provided by Alicandri via instant messaging, the Costco Auto Program has assisted its members with auto buying since 1989. In 2018 alone, Costco members purchased more than 650,000 vehicles through the program — approximately 25% more than in 2017. Pre-owned sales accounted for 16% of the cars purchased — more than double the previous year.
During this fireside chat, Borg and Alicandri will explore why the Costco Auto Program is the largest volume automotive purchasing affinity program in the U.S., and how it’s poised to grow further.
This program began in 1989, and strict processes in place ensure that participating dealers serve their members with no-hassle prices at a specific service-level, Alicandri said. The program is tightly controlled and monitored.
Unrelated to Costco, Alicandri noted that while the franchise dealership model is well over a century old, new technology and societal preferences claim to threaten its foundation.
“Silicon Valley’s ride-hailing and autonomous technologies have convinced many that car ownership is fading away,” Alicandri said.
“Some digital-based initiatives are being designed to disintermediate the dealer, but many of these hyped technology shifts can only succeed with the cooperation of the industry incumbents, automakers and dealers, and the success of the U.S. retailing is based on a profitable partnership between the two.”
He said dealers have an active role and offered these points:
- Rideshare and subscription programs will not have a significant impact on car ownership in the near future but will increase total vehicles in operations as these services replace public transportation and otherwise create new mobility options for consumers.
- Electric vehicle economics still do not work — without government incentives — and thus their penetration remains limited by financial and practical considerations.
- Margin compression driven by new-car pricing is increasing dealers’ investment and emphasis in used car sales, F&I, and parts and service
Each player within the automotive ecosystem has a stake in emerging auto tech technologies. How these advancements are perceived is usually a glass-half-empty or half-full attitude.
While startups often are seen as competitors to the status quo, Autotech Venture’s Garcia asked our readers to see opportunities, too. Tomorrow’s game-changer innovations — as Amazon, Uber, TrueCar and Google were a few years ago — are already shaping the future of automotive.
“What would you do differently today if you knew technologies coming in the next five years would disrupt your business as those established businesses have? How would you manage or determine your business model differently?” Garcia said. “Together, we can harness innovation to make more money.”
Source: Auto Remarketing