What are the most important questions facing auto distribution?

The automotive industry, and the distribution sector specifically, faces many challenges in the near to midterm.  These are in addition to the general uncertainty we all face because of the Russian invasion of Ukraine, the knock-on effect on energy and food prices, possible economic slowdown in China, and a range of other global and local economic factors.  Within the ICDP research programme, we aim to help our members navigate these challenges and uncertainties and start our research planning process at this time of year to determine the scope of our annual research cycle starting each April.  With such a broad range of potential topics to look at, and finite resources, the question is where to focus?

This is not only a relevant question for us, but for anyone in the distribution sector.  What should you be preparing for?  Do you have the resources in place to address those needs?  Are you aware of actions by competitors, newcomers or trading partners that might create new threats or opportunities for your business?  With that broader need in mind, what should we have on our radar screen?  What are the questions that we need answers to?  I offer a few suggestions here, but I would like your input – whether you are an ICDP member or not – and hopefully start a debate that gives us all food for thought in planning for 2023 and the rest of this decade.

Although dates differ, the combination of an improving component supply position and slowing demand, means that the new car supply position is likely to ease in the next 12-18 months, subject to any factory disruptions from energy supplies.  Will manufacturers be able to control themselves by not returning to a strategy of over-supply, wrecking the recent run of record profits for manufacturers and dealers?  In order to avoid this, they need to relearn some strategies that were adopted twenty or more years ago, but have fallen into disuse.   ICDP has just published an Executive Briefing on this topic, available here.

In 2023, we are also due to see a raft of implementations of agency contracts to replace franchise contracts for new car sales – including Ford, Mercedes, Stellantis and some moves from VW brands.  Some are better-prepared than others in our view, and as the usage of agency ramps up it seems likely that the competition authorities at EU level and nationally are going to be keeping a close eye on whether any of the arrangements breach the strict requirements of agency.  Lawyers are already being consulted by dealers and their trade associations, and dealers understandably want some clarity about what the changes mean for the future of their businesses.  In some cases, months away from implementation, those answers are not available, as highlighted by the head of the Fiat dealer organisation in Germany demanding in an open letter last Friday to be released from the terms of a confidentiality agreement covering the Stellantis agency proposals.  Will agency be implemented in line with the announced timing, will it be deferred to improve readiness, or will it be implemented, but then reversed in the face of operational or legal challenges?

We have heard a lot about disruptors, particularly in the used car space, as online vendors try to replace traditional franchised and independent used car dealers as the primary commercial channel serving consumers.  As the Cazoo share price reached a new low of 29 cents on Friday for a market capitalisation of under US$220 million, how long will it survive with its now reduced UK-only focus into 2023?  Will there be a buyer, will it just fold, or will there be some remarkable turnaround now that management is focused on a single task?  Are there lessons to be learned for the broader used car business model that others should take note of?

Also last Friday, the EU reconfirmed its commitment to end the sale of ICE cars from 2035, dispelling any hopes that there might be some last-minute reprieve from regulators.  In reality, the manufacturer product plans are already well advanced, so the direction of travel was clear anyway.  With the help of favourable tax treatment from governments and a growing choice of models, BEVs are likely to represent over 15% of a shrunken European market this year and could be closer to 20% next year.  Whilst that still leaves a substantial ICE or hybrid share, and an even larger parc, there will be pockets of users and geographies where BEV penetration is much higher.  Norwegian dealers who are further down this road than other markets report a reduction of around 50% in the value of each service and in the repair frequency for BEVs compared to ICEs.  As a result, they are actively looking for new business opportunities to replace the lost business.  How realistic is this, and will there be enough new business to go round to keep all dealers viable?

I could go on and suggest a whole range of other areas that could have similarly significant effects on the industry as a whole, or specific parts of it.  But what I would really like to know is, what you think?  Would these topics make up your personal top four, given the business that you work for, the market you are in and the business outlook that you see?  Please comment, on this blog, or by direct messaging or email.  I’d like to know, and will provide some feedback in a couple weeks’ time when I’ve had a chance to review the responses.