Fighting on multiple fronts
As high temperatures return to a number of parts of the world setting off forest fires that can rapidly surround whole communities, I see a parallel to the challenges that we face as an industry. Over the last 10 days I've participated (with some restrictions due to Covid) in three events and had a number of conversations with friends and contacts from across the industry. Four topics have come up repeatedly which we could liken to four different fronts of an advancing forest fire. They are the continued uncertainty around how electrification will proceed, the wisdom of imposing tariffs on Chinese-built BEVs, the challenges of moving to omni-channel retail (including but not restricted to agency) and the continued consolidation of dealer groups.
Whilst the industry has responded to the regulatory imposition of a transition to 100% zero emission car sales at various dates up to 2035, consumers are not buying into this at the levels required to create any satisfactory level of pull from the market. There are many factors that lie behind customer reticence to go electric but it is not helped by various politicians in the midst of multiple elections indicating that the deadlines should be relaxed in some way. In the meantime, the manufacturers and their supply base sit on underutilised capacity and investments and in some markets will face fines and the need to manipulate ICE sales to make the numbers stack up.
Related to that, we have then got the initial findings from the EU investigation into Chinese government subsidies for BEVs produced in that country, and the initial penalties announced which are on top of the existing 10% tariff level will be painful for all the manufacturers involved including brands like BMW, Renault, Tesla and Volvo. There is still scope in the process for some changes in the penalties, but the consensus amongst industry commentators seems to be that ultimately any sanctions will hit the European industry and consumers more than the Chinese. If high tariffs are imposed, the Chinese will retaliate in a way that will hurt European brands, and investment by the stronger Chinese brands in European manufacturing (which was inevitable anyway) will be accelerated. In the meantime, we have some months of uncertainty until the final decisions are made, which makes any related decisions (for example to take on a Chinese franchise) more difficult.
Omni-channel remains the ideal buying process for the vast majority of new car buyers, a fact reinforced for us in the last month by focus groups that we held across four European markets. At the same time as Ford and JLR are retreating from agency, we see Hyundai putting a toe in the water with the launch of their pilot agency project in Sweden and Volkswagen Group confirming that talks have now started to extend their agency approach to all their products even though they are still struggling to make the approach work with their BEV products. We also do not yet know what the real bottom line impact has been for those manufacturers who appear to have been relatively successful, such as Mercedes.
Finally we have just published our latest top 300 dealer group ranking, as I referred to in my last blog, highlighting that just three hundred groups handle one third of European new car sales. In reality, because of geographical fragmentation, they do not act or behave as one bloc, so there remains a power imbalance between manufacturers and dealers. However, from the perspective of manufacturers and service and technology suppliers for example, this is a relatively small group of decision makers who you need to convince in order to progress your agenda, whatever that may be.
A couple years ago when a number of manufacturers announced their plans to move to agency, Luca de Meo, the CEO of Renault, and recently appointed at that time, said that Renault would remain with the franchise model because there were too many other things going on in the industry. Given the generally accepted military wisdom that you should never choose to fight a battle on multiple fronts, then you can understand why that might make a great deal of sense to him. I am not advocating that is the right solution for everyone, but I do think that there is a huge strategic need for manufacturers to look at all these challenges and others that have not featured quite as highly in my discussions over the last 10 days or so. They need to step back and work out what the big picture is in terms of how they realistically want to end up by 2035. I do not have my own answers yet, and I'm not suggesting it is a simple process, but as we approach the holiday season then perhaps armed with a cool drink and a bit more time, top executives should be working out how – along with their partners in the supply base and retail networks – they can map a way forward through the flames to emerge relatively unscathed on the other side.