Looking Ahead with the Shortening Innovation Cycle

It’s a risky business, predicting the future. Want an example from recent history? Go back to November of last year, right before anyone had ever heard of COVID-19, and read some predictions of what 2020 supposedly had in store for the automotive retailing industry.

Now that you’ve got a good laugh out of the way, I should remind you that even though there are obvious perils to trying to predict the future too closely, that doesn’t mean we can’t examine current trends and draw conclusions with a reasonable degree of certainty. Indeed, dealers do this every day, with everything from sales numbers to employee expenses.

One especially interesting trend right now (that’s getting comparatively little attention, thanks to COVID-19 dominating the 2020 conversation) points to a potentially unique future on the near horizon.

Vehicles are Becoming Drivable Smart Devices

There’s no doubt that technological advances are having a transformative effect on our vehicles. With in-car Wi-Fi becoming the norm, people have the ability to stay online constantly. Vehicle integration with apps and devices from Google, Apple, and other major technology companies has set new standards for convenience. Using remote access, manufacturers can perform technology updates and send recall information without you ever having to lift a finger.

In other words, our vehicles are becoming drivable versions of the devices we carry in our pockets. And, just as the development times for those devices have continued to shorten over time, so too will the gap between new vehicle models begin to decrease.

Accelerating Change

There’s a term for this speeding up of technological advancement: “accelerating change.” In essence, accelerating change means the pace of technological progress gets exponentially faster over time because every new round of more powerful technology builds off the previous round’s innovations.

In other words, if it seems like technological advances are coming quicker and quicker every year, it’s because they are!

So, what does this have to do with shorter vehicle model cycles? Remember, as we digitize our vehicles, keeping those components on the cutting edge will require continual advancement. That’s a side effect of incorporating information technology into a vehicle to such a great degree – something that wasn’t even imaginable just a few decades ago.

The Shortening Innovation Cycle

The shortening innovation cycle points to some interesting possibilities:

• Customers will begin trading up more frequently as new technology becomes available with increasing regularity. As a result, the used vehicle market will experience a significant and sustained glut.

• Manufacturers will face pressure to push out new models quicker if they want to retain their customers, as there will be added temptation to switch brands to a competitor’s more technologically-advanced model.

• Overall sales numbers and manufacturing costs will rise.

• Shorter-term leases could regain popularity as the perceived “life span” of vehicle models goes down. As a result, dealers, lenders, and buyers may need to create new methods of financing.

Some of these may sound outlandish, especially in an industry where the safe bet is usually seen as the pessimistic one. It’s worth noting these predictions aren’t set in stone. If 2020 has taught us anything, it should be that none of us really knows what tomorrow will bring.

But, we do know the accelerating change for technological advancement – especially information technology – has accurately predicted our progress for over 50 years now, and there’s no evidence that trend will stop anytime soon.

It remains to be seen whether the industry will respond in exactly the way I’ve laid out. But, there’s little doubt that exponential progress will continue, and it will come faster and faster.

What will dealers do with these challenges and opportunities? How will they market new technology, choose who to target, approach vehicle financing, and deal with a bloated used vehicle market? These questions may determine who will retain a competitive advantage in the coming years.

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