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What’s on the 2021 ‘To Do’ List?

At this time of year, many companies are into their budget processes, determining their priorities for the next fiscal year, what assumptions they make for their markets, and given that, how much they can afford to spend, and on what.  It is never an easy process, as there are always more ideas than can be funded, but this year the revenue line is more challenging to forecast than ever.  Some might reasonably say that it is unforecastable, at least for those parts of the business directly related to the new vehicle market.  We are in the privileged position of having good relationships with players of different types from different markets across the industry, and in the course of conversations you get some sense of what companies are focusing on, and what is going to end up on their ‘to do’ list for the year ahead.

On the revenue side, the clear risk is around new car sales volume, mainly because of Covid economic effects, but also on availability and mix to meet the tightening CAFE regulations for 2021, and for those exposed to the UK market, the possibility of a Brexit-disaster in respect of import duties.  Within the total volume, it is the business market that has been most affected by Covid so far, and that will surely continue into 2021 as all sectors adjust their spending plans to conserve cash, respond to reduced face to face meetings and related business travel, and for the car rental business, resize to suit a much smaller market.  There are so many unknowns in that mix, it can only be addressed by a conservative base assumption, some downside scenarios and the planning of ‘surge’ capacity to take advantage of any upturns, however brief and localised.

The other effect of revenue side risk is that more speculative investments and tolerance for loss-making ventures are both under pressure.  Mature businesses will cut back on some of their ‘blue sky’ projects, particularly in the area of mobility, affected directly by Covid, but also with a questionable business case in the best of times according to our analysis.  Younger, growth businesses will reconsider the pace of expansion, particularly in new markets where the marketing spend to create awareness is higher than for their established markets.

On the cost side of the budget, what strikes me is that I have not seen or heard of ‘survival’ type budgets being planned.  That was definitely the case during the peak months of the pandemic, and doubtless those responses will be repeated if we enter into a significant ‘second wave’ crisis, but I am old enough to have been through a few recessions, and the response this time is different.  The difference I feel is that previous recessions have suppressed economic activity for a few years, and there was an understanding going in that this would be the case.  Now, we are all hoping – personally and professionally I think – that a vaccine, ‘herd immunity’ and better treatments will result in the immediate effect of the pandemic being more short term, and that some of the job cuts and government support measures can be reversed, perhaps my mid-2021.

What I pick up in my discussions reflects this, that OEMs are looking to improve their core business, including channel development, but perhaps putting more emphasis on aftersales and used cars as areas that are less exposed in the short term to new car market disruption.  Dealer groups are willing to invest in growth at the right price, but similarly are strengthening their used car and aftersales operations, and doubling up on digital capabilities.  The independent sector – used car supermarkets, independent repairers and parts distributors – will mainly feel the second order effects of this, as the intensity of competition increases.  Service providers – including ICDP – need to reflect these changes and ensure that their services remain relevant to this refocused agenda.  If robo-taxis and flying cars were ever on someone’s agenda, they should certainly not be in 2021, but leasing and daily rental companies in the face of decline in their traditional markets may choose to compete more directly with dealers for a share of the consumer market with bundled leases and long term subscription models.

The common theme in all of this is that the automotive distribution space in 2021 is likely to see more innovation within the core areas of new and used cars and aftersales, with competition being more intense from traditional and new directions.  Being aware of, and responsive to these changes will be key, so perhaps the first items on the ‘to do’ list should reflect an agenda of “get in shape” and “stay flexible”?

Steve Young