How optimistic is the automobile industry looking?

I was meeting up with a friend - virtually, of course - and he asked me whether I remained bullish on the automobile industry. Given the turbulent condition of the automobile industry since last year, it was a question that was quite intriguing and I’m penning my thoughts down here.

It was obvious auto would be among the worst hit sectors in the aftermath of the pandemic. Indeed, vehicle sales world over have plunged. But there are signs that things are changing. In India, car sales rose by a whopping 29% in September, according to industry body SIAM. In the United States, third quarter numbers look encouraging, boosted by a demand for SUVs and access to cheaper credit. Europe, too, is starting to look up, as people are more likely to drive than flying. 

According to me, it’s too soon to say whether the good times are back and whether even recovery has happened. This could all be a temporary bump, driven by short-term preference for personal transportation. There might be regional reasons too - such as the Diwali festive season in India, which is normally associated with strong vehicle sales.

Let’s rewind to pre-Covid times

To gain perspective, it might be useful to rewind pre-pandemic (remember those times!). Even then, we see that the sector wasn’t exactly in the pink of health. In India, FY20 automobile sales dropped 18%, bucking a growth trend of many years. The country’s largest player, Maruti-Suzuki, cut production five times in six months, something it’s never done before. Singapore’s auto sector started 2020 quite badly as well, and American sales have been on a downward trend for years. So clearly, Covid-19 alone is not to blame. 

This bearish outlook could be for a number of reasons: Moving towards shared or gig mobility, market saturation, high running costs, to name a few. Ironically, the pandemic might actually give the sector a fillip in the medium-term, so I think it’s in the industry’s best interests to take this moment to reassess, take advantage of a few headwinds and develop innovative solutions.

For example, the pandemic has impacted the mindset of the masses, reflected in the preference for personal mobility. BCG estimates that 40-60% of respondents in key markets (US, Europe, China) would prefer having their own vehicles - something that augurs well for the industry. 

What we need to leverage on

Pandemic notwithstanding, there were already some trends happening and we should pay attention to them. Fundamental to some of these changes is that the customer of tomorrow will be different. 

For one, digitization is happening, and this has been accelerated by Covid-19. Younger customers are more likely to research, book and maybe even buy online. They are likely to demand convenience over features. A global Accenture study showed that 74% of younger customers are willing to pay for digital-led, “invisible” services, while a Deloitte study showed they are willing to dispense with bells & whistles like infotainment systems. This is a wake-up call for OEMs - those providing great digital-led service (before, during and after purchase) are the ones most likely to succeed. We are seeing signs of this happening as some auto brands in India are digitizing entire processes such as test ride bookings.

Secondly, there is a growing preference for electric vehicles, even in India where the infrastructure is not fully developed, and even among Generation Y. Perhaps it’s the increased awareness of pollution, or the globally-acclaimed status of Tesla. There’s no doubt that this is where the future lies.

Third, consumer requirements might change, especially as WFH becomes a more standard part of our lives. Earlier this year, India’s largest manufacturer, Maruti-Suzuki, made waves by becoming the first in the country to offer a subscription service for as low as ?18000 per month. Given how today’s youngsters are comfortable renting rather than owning (homes, furniture, electronics) this is a natural extension and positions the company well to cater to this demographic. Solutions like this will eat into outright purchase, perhaps even at the luxury end (if GM’s Book By Cadillac is anything to go by)

Lastly, and possibly most actionable, service will be paramount. An OEM should consider that a relationship starts rather than ends when purchase happens. Quality after-sales service and post-purchase engagement builds loyalty, brand preference, recommendations and perhaps even revenue. For example, 21North’s solutions enables OEMs to make after-sales service incredibly easy for the customer, who won’t need to step out of their home or take time off work to find a workshop. Our fleet of professionally trained Ambassadors will pick up and drop the vehicle, while the OEM app (powered by 21North) provides location and estimate. 

So… Am I optimistic?

Coming back to my friend’s question from where I started this article - am I optimistic about the automobile industry? I am, but with caveats. I believe there needs to be an understanding of the new customer and their changing requirements, and solutions built to address these. Those who make this shift - through product, features, positioning, business model, and communication - will thrive and be a part of this innovation-driven aftermarket revolution.

I would love to hear your thoughts on this, as well. Do comment below.