I wrote a short article last year entitled ‘125 Years’ Change in 125 Months’. Given what has happened since, and my involvement in the Atonic4 partnership, I felt it was worth an update.
At the risk of jumping on board the pandemic bandwagon of articles that are predicting the future, I review the changes that have already happened and those arising from the Spring of 2020.
Our contention is that changes caused by the pandemic will accelerate the pressure on our industry to transact directly with the consumer using digital tools.
Between us, we have worked in and about the automotive sector since the mid-eighties. During that time, plenty has changed, but mostly in the detail. Cars are boxes with internal combustion engines. They are sold by manufacturers, through wholesalers, to retailers. Consumers have typically bought the car, albeit using finance products.
The business change curve was horizontal for 125 years but went vertical in 2019. There was a continual stream of announcements from manufacturers, retailer groups and industry suppliers. The announcements covered new operations, services, products, job roles and so on.
The manufacturers are planning the move away from engine production – there are factories all around the world. They are making or buying batteries and electric motors. Their R&D investment is focussed in new directions, i.e. digital technology and guidance systems. Moreover, some have set a firm date for carbon neutrality, for example, the Volkswagen Group.
In the first half of 2020, most factories were closed for six to eight weeks. I’m sure many will have used the opportunity to lean out and re-think.
Importers, or National Sales Companies, or Wholesalers provide the link between the factories and the retailers. They have a job to educate the market about electric cars and their use. They are working with partners to grow the charging infrastructure. Their role is evolving with the shift to agency direct sales models and provision of digital services.
In the first half of 2020, these organisations had to deal with a sales crash in the middle of their biggest month. They had to reduce cost in their own organisations while doing everything in their power to keep the networks afloat. For a short time, their focus had to be on survival and not the future.
The retailers may have the toughest job in the supply chain. They work on narrow margins and so their focus can be short term as they strive to hit the month’s number. Meanwhile, they face the challenge of selling engine, hybrid and electric cars alongside each other. Sales channels are changing, e.g. Agency as noted above. Their aftersales operations will require an overhaul to ensure they can maintain these new car types, that will require less service time, and, therefore, less revenue. They will be reviewing their property requirements to cope with 24/7 service operations, shops in shopping centres, and so on.
In the first half of 2020, retailers had to close at very short notice and figure out what they could and couldn’t do for customers. To begin with, they settled on maintenance for key workers’ cars, before restarting sales activity once clearance was obtained from Government. In amongst the survival activity, there was clear cooperation between groups and plenty of digital innovation as retailer-based solutions were spun up. ‘Home Delivery’ and ‘Click and Collect’ became part of the automotive retail language for the first time.
By this, I mean suppliers of advertising, logistics, contact centres, port operations, vehicle handling and remarketing. These companies, by their nature, are adaptable and so can adapt to their customers’ requirements. I believe some are preparing to pick up some of the tasks traditionally performed in other parts of the supply chain.
In the first half of 2020, the suppliers working in the digital marketplace accelerated their activity and were trying to support the industry by delivering quick capability to allow online sales.
What is Driving the Change?
The key drivers prior to the crisis were:
- Climate Change including Government targets, emissions testing, electric vehicles and other alternative fuel vehicles.
- Technology including digital technology, connected cars, autonomous systems and artificial intelligence.
- Consumer because other sectors are more advanced in many areas including customer service, online sales and subscription models.
Each of these on their own would make cause significant change in any industry. However, when you think that they are all happening now, it is easy to understand how seismic the effect is.
You may think we’ve missed the ‘Disrupters’ such as Tesla and Dyson. In our opinion, there have been many attempts at disrupting the sector over the last 40 years and none has really made a difference. Think about AsdaDrive, JamJar, Daewoo, etc.
Tesla created an electric car from the ground up but some of the ‘old’ manufacturers had done that. They sell them in broadly the same way as everyone else. Dyson’s plans don’t look disruptive either – and at the time of this second article, had been pulled.
The Viral Disrupter
All parts of personal and buisness life are affected by the current crisis, but there are some key factors affecting the sector. First, there is the change in the Digital world.
- There are millions of new digital users who have completed a year’s digital learning in very short order. They now know there is nothing to fear from smart phones, WhatsApp, Zoom and online shopping.
- The existing population of digital users is using these services much, much more. They have expanded the range of tools they use and the time they spend with them.
- And then there’s how they are being used. Innovations such as virtual pub meetings, Zoom bands, Houseparty parties and so on.
Second, there is the change in what constitutes a constraint.
- It takes three years to build a hospital. How about nine days for NHS Nightingale?
- It takes two years to re-purpose an HMRC computer system. How about six weeks for the UK Government Job Retention Scheme?
- It takes years to create an automotive direct sales ecommerce solution takes years? How about one month for China in January?
Thirdly, and the most speculative point in this article, is how will customers want to move around and transact with retailers?
- Will those forced online by necessity ever go back to bricks and mortar?
- How much will the UK’s mileage reduce because people are used to home working?
- Will people prefer a cheap small car to public transport?
- What about car sharing schemes?
- Will parents allow their kids to use the retailer’s play area that has been used by other kids?
- And what about test drives?
At the time of writing, it is impossible to predict the actual changes that will take place in the industry and in customer behaviour.
The response by Government and all parts of our sector have been fast and innovative, e.g. the furlough scheme, extending MoT dates, lease payment holidays, use of digital, etc. There will be much more.
There will be short-term actions. People must be kept safe and new ways of working must be deployed. Teams split by furlough must be brought back together. Unsold stock must be sold. Production volume must be balanced with a new demand.
Then it’s full steam ahead into the future.
Our Crystal Ball
In our opinion, two of the key challenges are to create true choice for the customer and to fix the distribution model that doesn’t deliver for anyone involved.
We believe that the option to do nothing has gone. The mantra that ‘no one will ever buy a car online’ is defunct. The only remaining ‘analogue’ buying experience is automotive. It means that the transparency and fairness associated with other buying experiences is missing.
We believe that the manufacturers will accelerate their programmes to create a proper end to end, omni-channel sales process. They will increase their targets for online sales and bring forward the due dates for those targets.
None of them want to be last to the party. The grocery ‘party’ has Tesco, Ocado, Sainsbury, Asda and Morrisons but no Marks and Spencer. They were too late.
But like the grocers, the choice for the customer will stay in place. They will choose between ‘bricks and clicks’.
Direct Sales via Agents
In the medium term, we believe it is very unlikely that manufacturers will want to go back to the status quo. We believe that retailers won’t want to carry on scrapping like mad for 0.8% return on sale. We believe that the direct sales, or agency model, will ultimately improve margins for both. Add in a true digital channel, and the customer gets a choice and a better experience too.
We also believe, based on our own experience and research, that the retailer groups may be more open to this approach for retail than the manufacturers think.
In the UK, most Fleet business is conducted via the agency model so this is a known quantity. It also represents over 50% of sales for some brands. And there are also examples of specific models being sold this way to retail customers. Add a digital option and you’re not to far away from the omni-channel solution.
What to Do
As written above, there are vital short-term actions under way that focus on health and safety for everyone. The world has had a massive shock so car buying may not be a priority for many. Sensitivity is the first priority.
There are many challenges. There are a myriad of partial online solutions across manufacturers and retailers which has increased during the Spring. Then, there is the challenge of how to speed up the existing programmes.
Everyone has now been invited to the party. Let’s see who turns up first.