What have 19th century canals and chip shortages got in common?

ICDP positions itself – and I hope is widely recognised by others as – the leading authority on the future of car distribution in Europe.  We focus on the likely developments over the next decade, and how this will affect all players in the sector, whether sales or aftersales, new or used, franchised or independent sector.  You might therefore reasonably wonder what a horse drawn canal barge has to do the future of the car distribution sector almost two centuries on from the golden age for canals…

It comes to mind as I have started to consider getting a new car.  My Tesla sat outside my home for much of last year, before finally going back to the lease company in November, and I have not missed having my own car for business travel in the year since.  However, we are cautiously starting to think about more face-to-face meetings, more international travel and – hopefully – our first face-to-face ICDP Members’ Meeting since January 2020.  I’ll therefore need a car more frequently, and made some tentative enquiries this morning about lead times.  I was not surprised to find that the six months offered in March 2020 has now turned into twelve months – even a Ford Fiesta in the UK is apparently on March 2022 delivery.  If I place my order today, I will actually be getting a 2023 Model Year car, which I find slightly surreal.

The salesman at the dealership told me that he now has customers who are ordering their next new car for delivery in eighteen months at the same time as they pick up their current new car.  (Note to all those responsible for defining dealership sales processes to include ‘can I take your next order please’ next to ‘I hope you will give us a 5 star rating in the customer survey’ in the approved new car handover process.)  Some of those who are lucky enough to enjoy the privileges of OEM or dealer company car schemes will be familiar with this process, particularly from times when supply was less constrained, and every new registration counted.  It was normal for them to order their next new company car at the same time as picking up the keys to the latest one.

Hopefully the chip shortages will ease through next year and some time in 2023 we will see a return to more normal lead times and some cars available in weeks rather than months.  However, even when we get to that situation, the idea that your customers always have an open order for a new car sounds very appealing.  It’s not going to work for every customer, but for brand loyalists (or dare I say dealer loyalists who risked offering their customers a broader brand range than simply the one they are currently driving), surely some would be happy to sign up to a subscription scheme that ensured they were driving the latest model of their favourite brand, and all they had to do was fine tune the specification as their order finally got matched to a build slot.

My son has just signed up to a similar scheme for the iPhone from Apple.  He pays a fixed monthly fee and each year he will be at the front of the queue for the latest release.  Over the years he has had enough iPhones (and flirted with other brands) to know that their operating system is the one that he prefers, and that each new model will bring some incremental improvement that he values.  (He consistently takes better photos on his iPhone that I do on my fancy digital SLR which is somewhat frustrating…)  There is a price premium associated with this service, but it also includes extended warranty and accidental damage coverage.

So what’s the connection to 19th century canals?  Like iPhones and cars currently, the lead time for a barge to deliver a cargo from the mine or factory to market was extended – they moved at a walking pace and crews and horses needed to rest and sleep.  However, once the system was full with barges leaving as soon as they were full, the deliveries would arrive every few hours.  If I needed a load of coal or cotton, I could always plan on having it when needed as long as I had scheduled my demand in.  The long delivery lead time was only an issue for new customers.

We therefore have perhaps the second lesson learned from the pandemic.  Firstly, balancing supply and demand generates more profit for everyone.  Secondly, that some customers might be very happy to have a rolling subscription that keeps them in the latest model, with the best emissions performance and the most advanced infotainment and driver technology, without the hassle of treating every purchase as if it was their first.