Imagine 25,000 automobile parts sourced in wildly different locations throughout the world, magically converging upon an assembly plant to create a vehicle. Consider the complexity for the CFO — the billions of dollars spent for design, for building plants, and for marketing and advertising.
Consider the attention necessary to address taxation and regulation and the complex economic rationale derived from vehicle line profitability, return on invested capital, cash flow and optimal capital structure.
But if anything, the life of the CFO is about to become even more complex.
For the carmaker and supplier, the financial implications largely end when the vehicle leaves the factory. The car then becomes mostly someone else's business, except for auto financing and parts supply. The sale is made to the dealer and the revenue recognized.
However, a vast range of new technologies and technological abilities — graphic processing unit chips, LIDAR, mapping software, deep learning and artificial intelligence — are transforming consumer behavior and revolutionizing the way we lead our lives, including how we use our automobiles.
New realities
This doesn't mean the traditional carmaking business is going away anytime soon, but car sales will decline as mobility services reduce the need to own automobiles.
Thus, car companies must change to accommodate a world where revenue comes more from providing services. That is a dilemma for the CFO, a dilemma of business models: the need to serve multiple innovation paces at once.
CFOs must maintain the traditional pace of the business that reflects the sale of cars — consumer interaction once every three to five years — but must also accommodate new business realities for the faster-paced transactions necessary for emerging, service-oriented markets — indeed, consumer interactions as often as many times per day.
Great potential
Those emerging markets have great potential: mobility services, power provision, fuel services, data aggregation and insurance, for example. This will produce a trillion-dollar market for mobility services alone, thus changing the auto industry.
But adding service businesses requires far-reaching strategic decisions affecting complex revenue models, balance sheets, capital structure, taxation and governance.
This sea change in the industry requires new key performance indicators for the CFO to set a new drumbeat for measuring growth, profitability and sustainability. Some metrics that will be important: revenue passenger miles, recurring revenue and number of active customers.
New indicators for profitability are: passenger revenue per available seat mile, revenue per available seat mile, cost per available seat mile, customer acquisition costs and recurring margins.
Entering the mobility service or any service business market is a profound change.
For the office of the CFO it will mean a radical difference in how they operate. Both the metrics for strategic drivers and key finance considerations require rethinking, restaffing and reinvesting in an infrastructure to accommodate an entirely different kind of business model.
While it can seem overwhelming, it's important for CFOs to be thoughtful and lead by looking outside the industry to find innovative solutions and business models to meet these challenges.
The question for CFOs is not if the business model will change but rather are they ready for the drastic changes coming to the automotive industry?