Playing whac-a-mole

This year, ICDP reaches thirty years since the launch of the first European Research Programme, so we have been looking back in the archives in preparation for our Members’ Meeting in Berlin in two weeks where we will share some old material that includes some not-so-dated thinking.  We think of our industry as fast-moving and talk about the scale of change, but in reality, whilst the product technology has certainly moved on, and digitalisation has had a big impact on what we can do, the reality is that some of the underlying behaviours, challenges and opportunities are quite similar.

Digitalisation has allowed us (ICDP and the industry as a whole) to better understand how customers behave and given us new opportunities to communicate with them, but in practice the industry still tends to broadcast messages to customers rather than developing personalised messages.  We recognised the existence of online channels but downplayed the impact they would have, still believing that dealers would have an important role to play.  That remains our view now, as over 80% of new car buyers want the opportunity to flex their journey across both online and offline channels at different stages.

Omni-channel was also reflected in ICDP thinking around dealers where we suggested that manufacturers would have more control of the new car franchise, leaving a role for the entrepreneur in used cars, aftersales, customer acquisition and different forms of leasing.  We suggested that dealer groups would become multi brand as a defensive reaction to this, but that some smaller dealers would choose to exit the business rather than adapt to the new world of manufacturer control.  Agency came fully into focus in 2011 following the 2010 Block Exemption review, and we suggested that there was potentially a ‘middle way’ with a balanced sharing of responsibilities between manufacturer and customer by customer type and channel.  Still seems worthy of investigation today…

Improving new vehicle supply was a key part of the original ICDP agenda, leading to our participation in a UK initiative called ‘3 Day Car’ that looked at the feasibility of building a car to order and getting it to the customer in three days, replicating what Dell was doing.  The answer was yes, but although many in the industry made strong progress on new vehicle supply in the ten years or so following the foundation of ICDP, the ‘push’ model crept back in during the era of zero interest rates, but then ‘lessons were learned’ during the restricted supply/high profit post-pandemic period – before we ended up where we started from 30 years ago.

Looking at our work on used cars, many of the key indicators remain as they were in terms of the market size (other than Belgium and France which have grown), used:new ratio, share of franchised dealers’ business and stock turn.  Speaking to a dealer group head at the Faconauto Congress earlier this week, he pointed out that the opportunity for franchised dealers to build a large, profitable used car business is highly dependent on having a supply of 3-4 year old used cars, which in turn is driven by the penetration of leasing type products.  I suspect that the market growth in Belgium and France is the result of the higher penetration of leasing there.  He also made the point that short cycle product from daily rental fleets being pushed into the dealer network is also a negative factor.  It substitutes for new car sales (forcing the manufacturer to find other channels which becomes a self-perpetuating problem) and absorbs the dealers’ working capital so that they have limited capacity for genuine used cars, even if they were available.

In the aftermarket sector, we were already forecasting a decline in the overall size of the market in the late 1990s, but with a growth in the share of the parc held by older cars, which would therefore become the battleground for the franchised and independent.  We suggested that greater use of extended warranty and service plans, more effective exploitation of the customer database, lean parts supply, multi brand offers and menu, and differential pricing for older cars could all help protect dealers.  No change there then!  Some manufacturers tried to get directly involved like Fiat and Ford acquiring independent chains, but those clearly did not work (much like manufacturers acquiring dealers) though some large dealer groups have acquired major independent parts distributors more successfully.

In the mobility area, we highlighted the obstacles as being the high cost of providing flexibility, low vehicle utilisation within the fleet, a still-strong ownership ethic within customers and the importance of cars as an extension of the customers’ personal space.  All remain true today, although one example within the ‘personal space’ requirement of being able ‘to smoke if I want to’ looks a bit dated now.  Addressing the flexibility and utilisation barriers today may be aided by modern IT, but also by using this offer as a way to reduce the pain of other challenges such as BEVs being pushed into the market by regulatory pressure, and the opportunity to leverage used car stock in a more flexible way.

Regulation has been a key part of the scope of our work from the start (and is still handled by the same person within our team, our now-Research Director, Andrew Tongue).  The issues that came up in 1995 look wearingly familiar today – the balance of power between manufacturers and dealers, and access to parts and repair and maintenance information to ensure a level playing field.  We also looked at in-car data and connected cars a couple years later, and in this area we were perhaps over-ambitious.  Condition monitoring and predictive maintenance are technically feasible, but largely remain restricted to commercial vehicle fleets, and a single central data processor for the car and features-on-demand are only now emerging.  To be fair we only described these as ‘future’ rather than assigning a date.

What you won’t find in the ICDP archives are the more fanciful projections of some that all cars will be sold online, the dealer is dead, robotaxis will replace ownership or that the skies will be full of flying cars.  I’m proud to be leading a team that has got it so consistently right over the years (and quite a few team members have been with ICDP for most or all of its thirty year life).  It would be good to report that some of the issues and challenges had been nailed and that we had moved on more in some areas, but in the meantime we’ll continue to play whac-a-mole, calling out opportunities and risks where we see them, and trying to support our members in addressing them.