Getting a sense of proportion

There are a number of automotive industry related stories running at the moment that are all predicting some extreme outcomes when the reality is probably rather different.  In a time when there are so many competing news channels and social media outlets, we perhaps shouldn’t be surprised that attention-grabbing headlines and ‘click-bait’ become the norm.  However that doesn’t help industry leaders determine where to focus their resources and what actions they should be taking to protect or prepare their business.

The three stories that I have picked up on relate to the death of agency, the collapse of demand for BEVs and the onslaught of Chinese brands in Europe.  There is obviously some substance behind each story.  Ford have abandoned their plan to roll out agency across Europe, instead adopting a modified franchise model that will incorporate some elements of their agency model, and Jaguar Land Rover decided not to proceed with their plans for the UK at the end of this year, saying they will review the question in 2027.  Other manufacturers who have started implementing their agency plans still appear committed, even though the implementation timetables have been adjusted as they realise that this is not simply a case of flicking a switch.  I wrote about this in my last blog, so you can read more there if you missed it.

The stories on BEV demand have largely been triggered by the recent registration numbers which show flat demand overall in terms of BEV share at the European level, with declines in some markets, notably Germany where BEV sales in the first quarter were down, not only on 2023, but also 2022.  In the UK, BEV sales were up 3.8% year-on-year, but this represented a 1% lower market share at 15.2% - well below the 22% level required for this year under the unique-to-UK ‘ZEV Mandate’.  There were significant double digit percentage increases in sales of BEVs in Belgium, France and Netherlands in the first two months of the year, so a very mixed picture across Europe.

The stories about the new brands entering the European market from China have been spurred by the EU investigation into potential anti-subsidy tariffs, the many announcements by the Chinese brands related to their volume ambitions and network plans, offset by negative news stories such as the one in the Financial Times last week concerning a build-up of stock at ports.  This is a story of two halves – yes, there are a growing number of Chinese brands coming to Europe, spurred on by the over-capacity in China as I discussed in my blog at the start of February.   However, some of the stated ambitions are unrealistic in terms of sales volume, ambitions for the fleet market and the viability of the planned sales networks.

All these stories need to be approached with some balance, but at the same time, the established players in Europe need to respond to the various changes.  Neither panic nor inertia will prepare businesses for the changes in these areas, so the question is where the reality lies and what is the proportionate response to avoid being blind-sided or to capture a competitive advantage in situations where that might exist.

Despite some of the headlines, agency is not dead, but that should never have been the objective in the first place.  Agency as contractual format allows a manufacture to legally steer pricing, and it also puts them in direct control of customer data.  How that is actually applied is open to different approaches, so under agency a manufacturer could allow the dealer some discretion over pricing and they could ask the dealer to handle all customer communications on their behalf.  I am not suggesting that this is likely, but the key point is that agency is simply a means to have full control of an omni-channel environment, and in practice I am sure that we will see a variety of approaches taken to delivering omni-channel, some of which will use agency, and others a modified franchise.  What is certain is that for anyone who wants to compete in this increasingly digital world, they will need to move away from the traditional franchise contract and wholesaling model, or be confident that they can make such a compelling offer in the traditional model that it compensates.

In respect of BEV sales, early adopters needed few incentives to buy their Teslas, Leafs and Zoes.  But we have moved on from that, and the volumes that are now required to progress towards 2035 and relevant intermediate thresholds in the different markets require sales to mainstream customers rather than the early adopters.  Where there are incentives – as is the case for business customers in most markets, and for private customers still in a few markets – they will buy BEVs.  However, when those incentives are removed, as happened in Germany in December 2023, we should not be surprised when sales go off a cliff.  These are still relatively expensive cars with some drawbacks for many in their day-to-day usability, and the general press reporting is often negative.  That does not mean that BEVs will go away, any more than global warming will go away.  Our industry needs to contribute to the long term solution and BEVs are an important (if not necessarily the only) part of that.

For the Chinese brands, I previously likened this to a steamroller coming towards us.  The fact that customer acceptance or tariffs might slow down the progress of some does not mean that the steamroller will stop coming.  It is only a pause before they become as well established as the Japanese and Koreans before them.  The established manufacturers need to beat them at their own game (and indeed over half the ‘Chinese’ imports into Europe last year were not made by Chinese brands, so Chinese production and sourcing is part of the likely solution, as is European manufacturing for the Chinese.  We need to compete in the areas where the Chinese have a clear advantage which is not just in product cost, but also in the level of innovation and time to market.  For dealers, it makes sense to try and get a seat at the table now, but don’t expect this to become a cash cow in the next few years when there is little to support the business model in terms of used cars or aftersales.

None of these headlines mean that the need for action has disappeared.  The exact focus, the timing and the priorities may have shifted, but the need for change by manufacturers, dealers and other involved parties remains.  We are seeing a rapidly changing business environment, and perhaps the most challenging task is determining how to allocate finite resources in proportion to both the risks and opportunities ahead.