3 Challenges Impacting the Automotive Industry in 2021
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2020 has been a year of disruption. While it’s been a tough year for everyone, the automotive industry has faced particular challenges. Manufacturing was interrupted by the closure of plants in China, and a decline in consumer spending has seen the purchasing of new cars dramatically decrease. In the UK, new car sales were down 46% in March and 97% in April.
But COVID hasn’t fundamentally changed the trajectory of automotive retail or manufacturing. The industry already sat at a crossroads, and social distancing has only accelerated changes that were already underway. Finding ways to accommodate shifts in consumer behaviour and expectations, and creating new streams of revenue is critical to success beyond 2021.
A post-COVID recovery strategy for the automotive industry should include finding long-term solutions to your existing and new challenges; not just reactive measures for short-term relief. By looking “medium-term” and then long-term, you can chart a sustainable path forward.
This article will cover the main challenges that the automotive industry faces today, specifically automotive retail, and provide strategies you can implement to protect your business.
Challenge 1: Online sales
Online channels had already become critical to car sales prior to social distancing. An estimated 80% of buyers were starting their purchasing journey online in 2018. Although the dealership remains a valuable part of the buying process, COVID restrictions have accelerated the value of creating fully digital purchasing options.
Buying a car online isn’t as simple as most e-commerce purchases. For one, cars are expensive, and are not often “returnable”. With that said, many brands do now offer “online-only” purchasing options, and will deliver a car to your house.
Offering online purchasing is one thing. But where things get even more complicated for brands is how online sales interact with traditional attribution structures. More often than not, customers don’t simply buy a car online, they engage with a multi-channel purchasing process — visiting dealerships, taking a test drive, researching online reviews, and then finally making that purchase from any number of different touchpoints.
How can you appropriately offer sales bonuses if it’s unclear who/what contributed to a sale?
Strategies to help:
To accommodate online sales, brands first need to make sure that they have a presence online. Then, they need to ensure that information can easily be shared between online and in-person channels.
The easier you make it for customers to engage with online resources and then visit a dealership, the more you will align with their expectations. You need an “omnichannel” sales process.
Long-term, rethinking the bonus structure for sales staff may be an important shift for the industry. This will allow sales representatives to be far more consultative in their relationship to customers, allowing customers to then make that final purchase online and get everything they need out of the dealership experience.
It’s important to remember that the dealership is still important to the online sales journey. In fact, the number of dealerships that the average customer visits has actually increased during this same period of time in which online channels have become so important. COVID may have stalled this, but it is unlikely to change the overall trajectory.
Challenge 2: Network contractions and remote working
Even before the pandemic, network contractions were underway. For example, Honda had plans to reduce it’s 106 dealerships in Australia due to low profitability. In the UK, Ford has the largest dealership network with over 400 showrooms, but it has plans to cut the number in half by 2025.
When COVID happened, a number of networks shut down completely, while others resorted to remote working. Managing remote employees and maintaining quality controls is a whole new challenge for automotive retail. Closing dealerships is never easy, but has been made even harder in the context of online sales and ambiguous sales attribution.
Strategies to help:
Reducing your dealership network helps to maintain profitability, but it’s no easy task. There are various data points you need to take into account, and one of them is performance. Look at the number of cars you’re selling per dealership every year, and the losses.
However, again, it’s not as straightforward as simply looking at sales totals for each dealership. A dealership might critically contribute to a sale, while that sale actually ends up being closed online, or at another dealership.
In order to effectively contract your network without damaging outcomes, you need to take a broader view. For example, look at total sales in an area, compare the distance between dealerships and looking at figures like “total visits”, not just “total sales”.
Business intelligence tools are critical for providing the insights needed to make these decisions. These same tools can also help with remote employee management. For example, integrating KPI tracking and communication tools within business intelligence software is an ongoing business intelligence trend. The right tool can not only help you make the right decision, but then communication and act on that choice.
Challenge 3: New technology and new concepts of ownership
Many car dealers have been trying to figure out how car-sharing and autonomous vehicle revolutions will impact their businesses. This challenge isn’t actually tied to the events of 2020, but it’s still a critical shift to understand and overcome in 2021.
Some experts say retail vehicle sales are likely to dip, while others are optimistic, claiming that reinventing your businesses can help uncover new opportunities and revenue streams. However, according to Mckinsey’s report, the impact of these revolutions might not be as significant as some think. Reasons include:
- Shared vehicles have high utilisation, making their replacement frequency high, and this creates business for dealerships
- Up to 67% of US customers still want to own cars and drive themselves
- 63% of US customers aren’t interested in shared-mobility rides even if they’re free
- The number of cars per household has continued to grow across the UK everywhere other than London.
In fact, COVID may have partially reversed this challenge:
However, the fact is clear: change is coming. For example, the UK’s Department for Transport (DfT) is targeting to have driverless cars on the road by 2021. There are significant opportunities for brands that understand customer reservations about change, but it does require embracing that change in the first place.
Early adopters and technology enthusiasts are at the forefront of the revolution. This means that dealerships need to restructure their businesses and exploit the opportunities of this technological wave. Even though the pandemic impacted ridesharing or carpooling arrangements, it’s not expected to phase them out completely.
Strategies to help:
As a dealership, it’s necessary to lean into change and invest time in understanding consumers’ needs and preferences. In the UK, more than half of the consumers will likely adopt fully self-driving cars made by traditional car manufacturers. So, this is a worthy consideration when reviewing your inventory.
Most importantly, you can leverage business intelligence tools to understand customer behaviour analytics. This also gives you a single view of the customer, allowing you to build compelling offers throughout the sale and ownership cycle. You need to provide a transformational experience that goes beyond technology, including providing innovative financing options and seamless drop-off/pick-up services.
Data is the key to effective decision-making
In any business, challenges are usually the order of the day. How business owners handle such challenges is what makes the difference. The automotive industry has always had challenges, particularly with environmental pressure, CO2 emissions, safety issues that lead to recalls, and vehicle weight reduction.
COVID-19 is likely to create irreversible conditions, while technology will continue to transform how businesses operate. The key to surviving in such an environment is data. Business intelligence tools provide lots of data on your customers and business operations to help you make informed decisions. You need to use predictive analytics to ensure forecasting efficiency, as well as boost your performance and operations.
Our tool, Loop, is specifically designed for this task, and it allows you to track the right metrics while providing easy access to your data. This lets you understand your customer behaviour, their buying patterns, technology preferences, and desired features. With this data, you can take the appropriate steps to ensure profitability and increase your customer base.