Ben Little, Founder and Director at Fearlessly Frank
Car sales are crashing. In the UK, new sales plunged by a third in June despite the easing of lockdown measures after worse falls in April and May, which saw sales plummet 89%.
The Society of Motor Manufacturers and Traders (SMMT), which released the figures, said this was “not a recovery and barely a restart”.
Changing consumer attitudes and working patterns post-Covid will certainly impact the future of motoring, with more home working and less commuting on the horizon. Conversely, there are (and will remain) fears about accessing public transport.
However, this is an industry that was already facing drastic changes and disruption. While coronavirus might be to blame for lack of sales, it has merely exacerbated and accelerated challenges in the automotive industry and associated sectors.
The four tectonic plates of change
For too long, automotive executives have clung on to a model of managing decline without innovating far enough or hard enough to build business resilience.
Could the shock of Covid-19 finally shake the industry out of its inertia, or will it all prove too little, too late?
There are four major plates of change, each bumping into each other with seismic consequences for the industry – these are the areas where urgent innovation is needed.
Engineering technology is driving new possibilities and realities
Emissions and fraudulent actions have effectively ended the diesel engine. From a peak of 50% of new cars sold in the UK in 2014 to just 25% in 2019, the drop is precipitous. Meanwhile, last year sales of electric cars were up by 144%, according to the SMMT. Expect this e-trend to continue as tax breaks continue and urban areas increasingly adopt ‘clean zones’.
Consider that this month Tesla displaced Toyota as the world’s most valuable automaker – despite never having turned a profit. Even though every major car marque now offers electric and hybrid options industry watchers seemingly have more faith in Tesla’s electric advantage. Analysts at the stockbroker Jefferies said the coronavirus pandemic could accelerate the speed at which cleaner fuels are adopted.
Customer expectations are changing fast
Consumer brand preference is a weak force in the market, and likely to decline further as mass media fails to deliver the returns of yesterday.
At the same time we are seeing a confluence in legislation and consumer preference towards the cleaner technologies illustrated above: pollution is becoming a consumer issue and a greater influence on sales than ever before.
The fossil-fueled car is a dinosaur in an urban environment: 18 years after London introduced its congestion zone, cities including Leeds and Birmingham (one of the UK’s biggest motor industry hubs) will introduce Clean Air Zones from early 2021.
Distribution and business models are not fit for purpose
More than nine in ten (Source: FLA) of all new car sales in the UK are bought through finance, with this fast-becoming the preferred way to buy second-hand motors, too. And little wonder, the ex-factory profit on an individual car is negligible. Instead, the cash is made on the forecourt through finance and aftersales, which have declining margins.
The UK Financial Conduct Authority has serious concerns over car financing schemes and the commission structures being used. Other regulatory bodies in other countries have similar concerns. Governments everywhere are suspicious of the anti-trust implications of the tied dealer structure to warranties – effectively a three to five year monopoly on aftersales.
There are other challenges the dealer structure faces, such as new entrants and a growing willingness to buy online.
Accepted wisdom dictates that people won’t pay for big ticket items over the net, but this is no longer true, if it ever was. The era of ‘try before you buy’ is almost over, with Covid-19 accelerating this already burgeoning trend.
Yet the car marques remain wedded to their dealerships and distribution networks even as the likes of Amazon and Google ready their assault on the market. Amazon, in particular, with its strong logistics platforms, is well placed to capitalise from such changes.
Digital technologies have arrived in force
Autonomous cars aren’t here yet, but the pursuit of autonomy cannot be ignored.
Car operating systems are having to adapt to iOS and Android operating systems, and cars themselves are becoming programmable with software adjustable to allow users to personalise them. They are most definitely a growing part of the Internet of Things. Think about the last time you saw a car ad. Was it talking about the thrill of the drive or, more likely, the connectivity that car offered?
Mercedes-Benz is investing heavily in its MBUX infotainment system because of the potential to profit from online services – even hinting that it could prove more lucrative than selling the cars themselves. It’s a strategy successfully employed by Apple – could a marque really hope to rival its tried-and-tested system, or have the firepower to invest as heavily?
Can the automotives put the brakes on in time?
The traditional model of car buying and selling is breaking fast, if not already broken. With the likes of Tesla, Amazon and Apple attempting to disrupt the benchmarks have changed.
Survival will require thinking outside of the automotive industry and reimagining what it is a brand stands for: a niche car manufacturer whose audience is the obsessive hobbyist; a finance company dressed in a different way; an on-the-go entertainment system; data company or a mobility service?
It’s time for a new innovation roadmap.
