Holiday musings

Despite the absence of any blogs for the last three weeks, I’ve not actually been away.  The days have shoby getting the ICDP Omni-Channel Cookbook finally completed after some months on the ‘to do’ list (more details here), some interesting client meetings, a classic car rally with my son and several days of hard labour under a baking sun (yes – in the UK!) getting some more jobs done round our house.  My skills with an excavator are improving and our AirBNB is now open for business if you’re ever looking for accommodation near Silverstone.

The period has also allowed some time to reflect on what is going on in our industry, and what faces us in the coming months when everyone returns from their vacations.  The first half of the year was tough for almost everyone in the industry.  Higher interest rates are holding markets back in general, consumer demand for BEVs has stalled, new distribution models have faltered to varying degrees, the used market was affected by the Covid-period decline in new car sales reducing volumes now being defleeted, only aftersales seems to have survived without any shocks.  (But that’s the beauty of aftersales.  😊)

At least from where I’m sitting, it seems unnaturally quiet at the moment – a bit like the scene in the movie ‘Twister’ when the wind drops and the characters look up through the eye of the storm to a clear blue sky above.  As the storm moves on, all hell breaks loose, and I wonder if that’s where we are now as well in terms of the industry outlook?

Inflation has been falling, interest rates are creeping back down again and the fear of the far right gaining politically seems to have abated.  Indeed, according to ‘the Donald’ there’s a risk that we’ll have communists in the White House.  Geopolitical risks remain, particularly in Ukraine and the Middle East, but in industry terms we (perhaps sadly) have adjusted for that and replanned where necessary with new suppliers and supply chains.  What is affecting us now, and I suggest might step up a gear over the next twelve months or so, are factors that are specific to our industry.

Affordability remains an issue for many as the cost to change even for ICE cars seems to have shot up in the period since the pandemic, and mandated sales quotas for BEVs (or at least low emissions vehicles) will affect the EU next year, potentially driving similar behaviours by OEMs that we have seen in the UK this year.  It is crazy to deliberately hold cars back for which there is a demand, and force BEV:ICE ratios on dealers and fleets in order to meet a government-imposed target that has been arbitrarily set.  Perhaps a new European Parliament and UK Government will find a politically acceptable way to ease the pain before the year is out?

The ’lessons have been learned’ promise from manufacturers that accompanied constrained supply and higher profits for them and their dealer networks in 2021-2022 disappeared as quickly as an ice cream in the hot summer sun, so deals, discounts and distress sales through fleet channels have all returned.  With the Chinese looking to build share quickly ahead of the launch of European assembly and use ICE profits to offset some of their additional tariff costs, life will not get any easier for the established players.  I don’t think we will see any brands exit within the next year, but some will definitely be on that slope, possibly irreversibly.

Against this tough background, I don’t expect the direction to change for the new distribution models being rolled out by various brands, but the pace might slow, and as we describe in the Omni-Channel Cookbook.  We recommend a more staged approach, working progressively through modifications in the franchise model to the point where you have improvements in place and the option to switch to agency.  This makes more sense to us than a ‘big bang’ agency transition on a specified date with little opportunity to properly address the change management needs.

Used cars are becoming an increasingly acceptable alternative for many retail new car buyers, but supply of 3-4 year old cars will remain affected by the new car sales dip during 2020-2022 into next year and beyond.  Given the pressures on the new car sales side, franchised dealers who previously did not put as much effort into used as they could have done are now upping their game, and this is putting pressure on the independent used car sellers, particularly those who need scale to cover their investments and operating costs.  If manufacturers, their captive finance companies and their dealer networks work more effectively together to strengthen their eco-system, they can easily build a stronger used car business at the expense of the independents.

In terms of what’s new, the drive to create new digital services will continue, but in ICDP we still struggle to see what – beyond telematics based insurance – will be so tied to the car, and valued by the consumer, that they will be willing to buy this from an OEM, rather than through a service that they already have on their smartphone, or can instal and carry with them from car to car.  We are currently looking at the ‘software-defined vehicle’ as part of our research to see if we can find the buried treasure that some consultants have promised for the last two decades.  Developments in autonomous cars will continue and will yield safety and convenience benefits to all, but real-world constraints will continue to hold back anything beyond SAE Level 3 (where the car can be in control under certain circumstances).  I will not hold my breath waiting for the Tesla Robotaxi launch originally promised for today, now delayed to October 10th.  A true Robotaxi that can be used in most urban environments in the next decade is about as likely as Elon Musk exercising restraint in his tweets (or X’s or whatever we’re supposed to call them now).  Car-sharing will continue to have a niche appeal and fit the needs of some users in certain places at certain points in their lives.  As a universal replacement for having sole access to a car, the probabilities are out there with the Robotaxi.

So overall, I think we will be returning after the summer to more of the same, but with the volume turned up a bit.  It’s going to be a challenging second half to 2024, and probably a tougher 2025, but as the saying goes, adversity can make you stronger.  Going with the tide will not help your business – you need to adopt strategies and behaviours that will help you swim against the tide.

Image: Masterfile