Lessons from the Auto Industry

It may not be intuitive how something as nebulous as “transparency” can be the cornerstone of a company.   

Consider the transformation of the auto industry.  Once, dealerships employed skilled, highly compensated sales professionals adept at negotiating the best margins on each car.  Buyers had little information to help them understand the true value of their purchase, other than what their neighbor paid or an outdated “Blue Book”.  Though many dealerships haven’t strayed from this model, others have taken a different course over the past 10 years.  Some have chosen to utilize the accessibility of information to buyers, and the trend of buyers becoming educated before they walk in the door as an advantage.  They have basically said, “OK, no more games… we’ll open up our books, show you the invoice, and win your business through a building of trust.”  Replacing high priced sales professionals are younger associates that respond to emails and internet inquiries.  With that comes lower overhead, and lower requirements on margin to make the same after tax profit.

The more significant thing that happens is a transformation of the industry.  Those that refuse to adopt a transparent model look like they are trying to hide something.  Trust is diminished quickly, and buyers flock to where they can see clearly the value of the merchandise.  Soon, the industry as a whole is held accountable.  Margins are squeezed.  Companies that were inefficient start to struggle.  The well run companies pick up market share, because they can make money with the transparent, low overhead model.

This transformation is about to happen in the energy efficiency industry.  Gone are the days when the promise of energy savings was enough to mask the true value of a conservation measure.  If an efficient light bulb costs $1, a buyer won’t pay $2 just because it will save energy.  They used to, but they are smarter and more sophisticated now.  Companies that continue to sell rolled up solutions and refuse to clearly demonstrate the economic value of each component will be faced with a new type of competition.  Like the auto industry, some will step out and say, “Ok, no more games…we’ll open our books, show you the costs, and win your business on trust.”  And that will transform the entire industry for the better.  It’s about time.