23 October, 2020
“To survive the crisis and emerge even stronger, aftermarket players must adapt to the next normal with dramatic changes, including those that consider the industry’s structural shifts.” McKinsey
As we adapt to the “new normal” birthed by the worldwide COVID-19 pandemic, the next iteration of the automotive industry is coming into greater focus. Cars are traveling fewer miles, meaning accidents are down. With accidents down, collision and repair centers face lost business. Reduced vehicle servicing equals less parts and consumables purchased, forcing distributors to cut orders and manufacturers to idle plants. Couple this constrained demand with leaner margins due to incentives meant to spur sales, and competition from digital-first entrants, and suddenly automotive is facing the perfect storm.
Months of social distancing and an accelerated pivot to online sales and services options brought into question the very nature of the industry’s numerous brick and mortar locations.
Months of social distancing and an accelerated pivot to online sales and service options brought into question the very nature of the industry’s numerous brick and mortar locations, forcing once fierce opponents to reluctantly consider direct sales models and end-to-end digital purchasing. Goodyear, in business for over 120 years, recognized changing headwinds and consumer preferences early, launching its “Roll” mobile tire and installation arm in early 2018 to entice today’s mobile-savvy consumers. Forbes’s went as far as to say it was a “great example of a legacy brand transforming the customer experience,” and appears to be a harbinger of things to come. They could very well be right. EY’s 2020 Mobility Consumer Index study identified “a growing trend toward personal car ownership as a result of COVID-19,” estimating that “Millennials will represent 45 percent of the nearly one-third of people without a vehicle who intend to buy one in the next six months.” If there’s one thing millennials are known for it is their affinity for the digital experience. The bad news is that demand will likely to take years to recover to pre-pandemic levels. In the meantime, organizations throughout the automotive ecosystem would be wise to take a sober look at their books to trim the fat, fully leverage digital, and emerge stronger from this crisis.
Make no mistake, the landscape has changed dramatically over the last half year.
Make no mistake, the landscape has changed dramatically over the last half year. North American light vehicle production is expected to be down almost 13 million units, though sales of used cars have benefited as consumers tighten their belts and hunt for deals. Unfortunately, lack of overall travel has caused rental fleet sales to plummet, hitting many OEMs right in their bottom line. Our last blog touched on how dealerships must leverage digital to create novel customer experiences and increase customer intimacy, but the shockwaves from the global shut down reverberate much further through the supply chain. Despite the recent promising vaccine news from Pfizer, it’s anybody’s guess when consumer behavior will stabilize – or what it will look like when it does.
Lack of revenue from our contracted market has also affected new vehicle production and technological investments for the next half a decade at a minimum. Unlike intricately timed manufacturing schedules, pandemics have no set end date. Much to the chagrin of enthusiasts everywhere, production of the hotly anticipated mid-engine 2020 Chevrolet Corvette was recently halted after a parts shortage in the supply chain. “Before the pandemic hit, Chevy had expected to build about 40,000 Corvettes in 2020.” Their revised production target now sits at about half of that number. It appears suppliers are already feeling the crunch downstream.
COVID accomplished what no prior economic shock could by exposing the Achilles heel of our industry: centralization.
Idled vehicle and parts factories have so far made due with dwindling stocks, unsure when they would be able to fire back up. Dave Gardner, general manager of sales at American Honda Motor Co., put it succinctly: “coming out of the pandemic, the way people are buying products, the way people are interacting with dealers — I think everything needed to be put on the table. Our objective here is to try to make sure we become leaner, less bureaucratic, less risk-averse and not afraid to try new things.” All told, COVID accomplished what no prior economic shock could by exposing the Achilles heel of our industry: centralization. In fairness, though, current processes weren’t hard to defeat; Demand forecasts feed into requirements planning and manufacturing of products at global OEM plants. Parts are then shipped to distribution channels across the US. These distributors often rely on order histories and vehicles in operation databases to stock parts for sale. No system is foolproof, but the way the industry has been operating fails to stem unpredictability or provide the means to quickly adjust to changing market conditions. With the number of moving parts within the automotive supply chain, and some antiquated processes thrown in to boot, a single disruption creates an unavoidable chain reaction. New vehicle launches are then delayed and investments reexamined as organizations scramble to manage the fallout.
Caught in a panic, most businesses are currently focused on mitigation by quickly deploying omnichannel commerce models, though it would be prudent to simultaneously anticipate long-term implications should the promised v-shaped recovery not materialize. Many are even considering abandoning single-sourcing and migrating to manufacturers within the US to lower the risk of supply chain disruptions in the future. It’s a good start, but they should think bigger. Suppliers and OEMs are currently sitting on a treasure trove of data, and as information from connected vehicles becomes more accessible, the tools to capitalize on this data will become increasingly valuable. As is common wisdom, timing is everything. For the automotive industry, connected digital platforms offer the solution to their present predicament by ushering in unparalleled transparency. By leveraging the enhanced traceability provided by comprehensive ecosystem connectivity, businesses can more accurately plan operations, drive efficiency, mitigate the strain of demand fluctuations, and be prepared for any disruption.
The supremacy of mobile engagement and supply chain digitization will define the victors going forward.
It is this digital platform ecosystem and integration partners that will be key to post-COVID industry recovery by providing the means to capitalize on changing consumer preferences, optimize the supply chain, and exploit digital channels and increased automation. This transformation to a decentralized, consumer-centric automotive marketplace will fundamentally alter the supply, distribution, and availability of goods. At the forefront of this evolution is SHIFTMobility’s digital automotive platform. Powered by Blockchain, distributors gain the means to stock the right products and plan logistics for instant availability at the nearest point of service. Manufacturers, in turn, gain insight into fast-moving products and can plan production schedules appropriately. Should there be any catastrophic worldwide events, production schedules and meticulously planned operations can be adjusted in real-time to limit costly disruption. Change is hard, but the time is now. Interested to see what the road forward looks like? Contact us.