New challenges for a new year?

As my first blog of 2024, then the first priority has to be to wish everyone a happy new year!  I managed to squeeze in a longer break, only returning to work on Monday, but I am sure that many of you share the feeling that it seems a long time since the holiday already.  For many, operationally, it's back onto the treadmill working towards the targets for this month, this quarter, this year.  I certainly know that a number of the manufacturers are holding dealer events this week where they're laying out their ambitions for the year ahead and what support they will be providing to dealers.  All of that is very familiar and I think encourages us to fall back into ‘business as usual’ mode very quickly.

But I think as we set off in 2024 it is worth considering whether the challenges will be the same as last year?  In many ways 2023 was the transition year that took us from the period of the pandemic into whatever you define as the new normal.  Regardless of where you work in the auto sector then a number of external factors are going to create headwinds.  Although inflation has fallen back and interest rates look likely to follow, the economic environment is more challenging that it has been since before the financial crisis. Continuing conflict is foremost a human tragedy, but it diverts resources away from more positive application to support growth and development.  The extreme weather that many of us experienced over the holiday period reminded us about climate change in a way that COP28 probably did not.

Is the backdrop for the industry to deliver not only the operational targets set for the year, but also the strategic changes which need to be made to address changes in buying behaviour, product technology and markets?  We have just published our ICDP research plans for 2024-25, available here, and some of the selected topics are very specific to the immediate 2024 challenges.

In terms of consumer behaviour, one of our greatest challenges is to make BEVs more acceptable to both new and used car buyers without the support of government incentives.  Just before Christmas we saw the very sudden withdrawal of new car incentives in Germany, but we should remember that across all of Europe a BEV owner is still benefiting from lower taxation on the energy consumed and other preferential treatment that is not sustainable in the long term as the total tax take from the parc reduces.  We also believe that established customer behaviours in respect of aftersales that influence franchised and independent shares may change as the result of a trade pull and consumer push, with consequences for revenue and margin on both sides.

Although early experiences and a changed market environment has slowed down the march of agency, the need to reduce cost of distribution has not gone away, but I hope that we will see more progressive approaches that recognise the challenges of changing a century-old distribution model.  From the dealer side, tougher times and a return to ‘normal’ profitability is likely to see more sellers and more realistic valuations.  There won’t be a shortage of willing buyers, but they need to focus on how they achieve synergies from their growing, increasingly international, business portfolios.  Franchised network change will need to address aftersales coverage so I expect a growth in standalone authorised repair points, and wonder whether we may see more evidence of ‘co-opetition’ between the franchised and independent sector as suggested in our Aftermarket of Tomorrow report in 2020.  Skills shortages will remain a challenge across the aftermarket, constraining many from taking full advantage of the opportunities.

More broadly in the aftermarket, there needs to be action on cost-effective repair of BEV batteries.  Given that OEM margins on batteries are wafer thin by comparison with other OE parts, the motivation of OEMs to keep this work in franchised networks will be different, but we can anticipate a string of challenges around right to repair and whether work done by independents invalidates the battery warranty.  We will also see more effort around remanufacturing and reuse as CSR moves up corporate agendas – perhaps another opportunity for co-opetition across the authorised/independent sectors?

In the used car sector, the last year has seen the large independent players take a lot of pain as a result of unstable used car values and difficulty in securing supply.  Unless the new owners are prepared to put new money behind a new strategy, 2024 will likely see the death of Cazoo, founded five years ago with big ambitions, but a deeply flawed view of the market.  The threat to established players in the next couple years is more likely going to come from more OEM involvement in older cars, than it is from start-ups.

All of this is looking at the industry as if it were a closed club, but we have already seen the arrival of the Chinese brands, following on from the remarkable success of Tesla.  BYD has already announced its plans to build EU manufacturing capacity in Hungary, and other Chinese brands have announced their intention to manufacture in the EU as well – more announcements are sure to follow in 2024.  Every new product announcement shows new levels of excellence, and occasional software glitches in early cars are not exclusive to the Chinese brands as we all know…  Manufacturers will need to learn to move faster, dealers should be working out where to place their bets.

In the background, whilst we are past the ‘hump’ of BER changes, such as they were, there will be no shortage of regulatory action this year either.  Access to repair and maintenance information (RMI), handling customer and connected car data, sustainability and investigations into whether agency agreements are actually operating in a legally-compliant way are all going to be on the agenda at EU and national level, and we will see more local actions by municipal governments that discourage car ownership and usage within cities.

As the French say, ‘Plus ça change, plus c'est la même chose’ – the more that changes, the more it’s the same thing.  (The English vernacular equivalent is a bit more colourful).  We’re into a new year with some familiar challenges and others that are going to step up a gear or are new.  The task remains the same – keep on top of the day-to-day business, but be aware of and respond to the new threats and opportunities!