Back to what...?

As hospital admissions and death rates fall around Europe, the conversation is now around the return to work, rather than the lockdown.  But what faces us as individuals and companies when we do get back?  There is a general recognition that it is not ‘back to normal’ in the sense of what we used to know, but what are the immediate prospects and how will the longer term future be affected by what we as a society, industry and individuals have gone through?

Dealerships have reopened in some European markets already, and it looks like the others will follow by mid-May.  For those markets that were affected – and some like Finland and Sweden largely escaped – there has not been a rush of eager buyers who spent the lockdown doing online research on their next car.  In fact, whatever time people were spending online seems to have been spent on something else like learning how to make bread or facemasks.  Our friends at Sophus3 show that online visitors to car brand sites across EU5 markets fell sharply during March, and have recovered only half that loss during April, with a gentle week-on-week trend.  We should anticipate a slow recovery in sales, which will require some strong action to accelerate.  We know that some OEMs are preparing contingency plans for which dealers to save, which to let go if they fail.

Those repairers who have closed are also now making plans to reopen, with restrictions on how customers bring their cars in, insisting on pre-booking only, contactless handovers and invoicing and special hygiene procedures.  Bodyshops will reopen, hoping that traffic volumes – and therefore accident rates – recover quickly.  It is not good to hope for other peoples’ misfortune, but that is the reality of the crash repair business – no accidents mean no work, and in our view it is probable that this sector will see the most immediate fall-out from the crisis in terms of business failure.  Unlike car dealers, there is no safety net of a shared interest from a ‘big brother’ who can provide temporary support in some form.

I think it unlikely that any OEMs will fail as the result of the Covid crisis, but some might pull out of certain markets, most will cut back on experiments with mobility (as GM already has with Maven).  Some dealers will fail, and those in good business locations with good brands will be purchased by stronger groups, possibly with encouragement and even soft financial support from the OEMs.  Repairers will probably fare slightly better, but those that close will more likely stay closed.  Across the board, there will be redundancies reflecting lower business volumes and elimination of ‘nice to have’ activities.

Looking beyond this, we question what the impact will be on longer term strategic direction.  Will previously important initiatives be dropped in the rush to avoid the ship sinking, or will the disruption instead be taken as a wake-up call to improve the business model, make it more robust, and possibly accelerate plans that had been in the 2025 agenda, rather than 2021?  There is little point in saving a dealership that has no long term future – for either the OEM or the dealer investor.  If the collapse of the travel business means that daily rental can no longer be used as the safety valve of last resort for excess production, then why look to revert to that model as and when the travel market recovers?  If some under-capitalised, poorly managed repairers collapse, why try to reopen that capacity when we know the aftersales market trend is declining?

It is always true in these circumstances that what happens on the ground never matches the blueprint of what you have in the office, existing gaps may widen whilst surpluses stubbornly remain.  However, whilst we all try to breathe life back into the market in the coming months, we should not lose sight of the opportunity to accelerate much needed strategic change next year and the year beyond.