Automotive distribution and retailing research, insight, implementation
digital+disruptors.jpg

ICDP's blog

Our blog

News and views from ICDP

Rebuilding new vehicle supply to support online channels

Global sales by Amazon increased in the second quarter by 40% on 2019, above and beyond an unprecedented 26% year on year jump for Q1. Despite the jump which takes global turnover to $US 81.24 billion, (81.24 €Bn), Amazon has invested heavily in adapting to Covid, spending an additional $US 4Bn on employees, facilities, PPE, and staff ‘thank you’ bonuses. Many retailers with a strong online presence have adapted rapidly to the new world and have taken the opportunity to respond to changes in customer behaviours that may turn out to be more permanent than anticipated at the beginning of the pandemic. However, many sectors have seen retailers struggle with the move to customer demand for online and omnichannel shopping. Even before the pandemic, IKEA was already under pressure to adapt to online offerings from new competitors such as Made and Swoon, and whilst the seismic shift to home working in 2020 prompted a surge in demand for home office furniture, many IKEA orders were reportedly cancelled or delayed due to an inability to quickly adapt their supply chain and home delivery service. The pandemic has exposed and widened the gap between retailers that can adapt to offering their full offer remotely and digitally, and those that cannot.

Automotive has been notably slow to move online. Many pilots have come and gone having seemingly failed to ignite customer interest. BMW ran an online sales pilot in 2017 in the UK, which allowed the customer to configure the product, choose finance, and then gave a choice to continue and complete the transaction at a local dealership, or do so entirely online. This pilot was quietly dropped and at present, neither new nor used cars can be transacted on the BMW UK website. Many brands that have experimented and introduced online sales capabilities have found it far from straightforward to integrate their legacy of dealer network sales franchises and a tangle of what are now relatively ancient dealer facing IT systems for new vehicle ordering, order amendment, stock search and swap.

However, the crisis continues to force rapid change in the retail landscape and has prompted many OEMS and Dealers to innovate and accelerate plans towards making remote sales and home delivery an easier choice for retail customers, now couched within the language of contactless sales and handover.  For example, Kia Motors UK announced in May that they were ready to take remote orders and more recently, Richmond Motor Group launched their fully ‘contactless customer journey’, (including home test drive, remote ordering, and payment, through their "Secure Client Portal", and fulfilled via home delivery or their own click and collect service).

Building new customer solutions over the coming months and years should allow room for a more fundamental rethink of the customer offering and how the supply chain should be managed to support that. The uncertainties in supply and demand in the current climate continues to focus attention on how best to increase availability for customers, particularly for models in short supply such as new EVs and hybrids. At the national level, many brands have demonstrated the benefits that come from sharing new vehicle inventory across a network. Redesigning the dealer contract to an agency rather than franchise model may help supporting a fully shared inventory but an agency relationship is not essential to achieve this; one UK NSC has restricted the Dealer’s ability to order for their own stock for several years, removing the need for swap of finance or dealer approval to release the car.

The extension of ownership of new vehicles by OEMs, first to unsold new car inventory, and secondly, into the life cycle, opens up new possibilities for creating a more dynamic used car pipeline; for example, the ICDP ‘clean slate’ model offers a vision of how a combined new and used car supply system could be designed to offer new and used leasing through a combined approach to managing both supply and demand. At the same time, a wider range of flexible, no commitment leasing offers have appeared in recent years, and the market may now be ready for such offers given the impact of the pandemic on job security, employment, and incomes.

If manufacturers are going to offer more online sales and fulfilment alongside new forms of innovative commitment car use, then ordering, managing, and reselling the product will require a more integrated and responsive supply chain. Two decades ago, many OEMs developed and operated responsive new vehicle supply chains that allowed a high degree of customisation and delivered both greater product availability and stock reduction. And although capabilities and skills refined during that period were lost over the intervening years, following changes in both priorities and the cost of money, the severe disruption to global supply seen in 2020 has refocused attention on the strategic and operational value of agile and lean supply. Suppliers, OEMs, Dealers, and logistics providers have responded well to shocks of the last six months, revealing that rapid cooperation and innovation can happen, and that business can operate very differently.  Customers have also, in many sectors, shown that they can and will adapt and in doing so, willingly switch to retail and service channels that can deliver what they want. The challenge in building new vehicle supply for the future will be relearning good practice whilst embracing the possibilities for offering a better and more responsive customer experience.

For more thoughts on the opportunities and challenges in adapting the new vehicle supply chain to the new retail reality and new customer demands, please see the latest executive briefing 08/20 ‘Omnichannel supply chains call for greater supply chain integration’ available for download HERE

References

https://fortune.com/2020/07/30/amazon-q2-earnings-2020-prime-delivery-coronavirus-pandemic/

https://www.digitalcommerce360.com/article/amazon-sales/)

https://www.motortrader.com/motor-trader-news/automotive-news/kia-dealers-announce-ready-take-remote-orders-07-05-2020

https://www.richmondmotorgroup.com/covid-19/

Image source

OntarioSadie, Twitter

Ben Waller