New car sales – inevitable disruption in the EU.

My wife owns a Hyundai SUV. This is her 2nd Hyundai and the car itself is amazing and we have been very satisfied with it so far.

But not so much with the after the sales (ATS) services. The whole approach of the importer and dealership is outdated. Starting with the way how to order the service, how digitalized is their ATS chain, how little added value the people involved add to it, how transparent the process and the invoice are, how customer-focused and agile they are and how expensive these services are. Or – we are very often questioning the value even if we have low expectations, the experience is very often even worse.

My thinking is not rare at all and is supported by multiple surveys. Let me just add a link to a survey conducted by Repair Trust:

• 86% of car repair customers stated prices were too high or outrageous
• 78% of the customers suspect they were paying too much for car repair
• 70% of the customers were concerned about being overcharged
• 40% of the customers were certain they had been overcharged

So the above is clearly a good illustration of how a good product value (modern car) can be significantly decreased by the activities of a national importer and its local dealership networks approach. And I want to state upfront that this is not only valid for Hyundai but for the majority of the car brands operating across the EU market.

Why is it so?

The little sense of urgency was supported by the good old times of automotive importers and dealers. The years 2018 & 2019 and earlier brought record sales and revenues for most of them. But these results were running on some kind of debt - financial debt and especially debt of the importers and dealership towards the customer′s experience and value. As they would have had the approach: "If you don′t buy/repair from my dealership - someone else will anyway". So even they thought to be focusing on customer satisfaction, in reality much bigger attention was on managing the almost automatic growth and deliver the sales KPI′s.

This era is gone.

Current difficult times will challenge the car industry′s thinking and approach as well as many other industries too. ?Has the 4-year leasing of my current car just finished? I will wait to buy a new car, the current is still OK“ – customers tend to think more and more like this. And the same goes for private car owners - the changes imposed by EU regulations in terms of emission limits put immense pressure on car manufacturers, shifting their focus more on the CO2/NOx emission decrease rather than on serving the customer and reflecting their needs. That is why they had to cut costs wherever it was possible and personally I have to admit - the new cars are not better than the 3-4-year-old ones. Especially due to the quickly prevalent but questionable digitalization of car interiors.

And what about the importers and car dealers? In China, the change of many of the business models had changed after SARS and MERS virus 5 years ago and resulted in a shift to online. Including automotive. The times, when the buyers expected shining showrooms are going to be over. As it was with the consumer electronics sales or banks: there are the digital challengers that proved, that traditional brick&mortar palaces were of less and less customer value.

So what change is inevitable?

Car distribution will change in favor of:

1.      Direct sales (fewer middlemen)

2.      Online first approach.

3.      Customer value increase.

 TODAY:

 The car sales and after-sales chain look (in a simplified version) like this:

Sales & Service: Manufacturer -> national importer -> dealer -> dealership sales -> OWNER -> dealership aftersales/service.

1. DIRECT SALES TOMORROW:

The sales and ATS will try to avoid any middlemen, which adds the least value in the chain. This will also be based on different ownership models, since if we just share, borrow or subscribe to the cars, the dynamics of the interaction with the dealer will be different as well. In Version 1 dealerships/showrooms will be replaced by contractors running showrooms and multi-brand services, managed by importers. In Version 2 even the importer might be eliminated from the chain with dedicated geo teams covering a set of countries and providing the needed services. This change would obviously bring some challenges, but with the right mental approach, they can be overcome, since they are in favor of the customer. The new process may look like this:

TOMORROW DIRECT SALES V1 (with no or just a little dealership involvement):

Sales: Manufacturer-> importer -> sales online + direct showroom in cities -> OWNER

Service: ...OWNER -> contracted (multi)brand services.

AFTER TOMORROW DIRECT SALES AND DISTRIBUTION V2 (with no or just little importer involvement):

Sales: Manufacturer -> sales online+ direct showroom + test drive in cities -> OWNER

Service: ...OWNER -> regional (multi)brand service hub -> local service/repair centers/shops

2. ONLINE FIRST:

The Online First focus will be essential to make the changes happen. What does it mean? More and more steps in the car purchase customer journey are happening online:

• Online search.
• Online reviews (preferably independent).
• Online help (even if first as a call with a specialist).
• Online payment.
• Online delivery.

Physical contact (haptic) will remain important, but keeping dealerships in almost every little town is just not economically possible. They will concentrate in cities instead. Also due to the fact, that car manufacturers have on average 10+ models (Mercedes even 40+), and that doesn′t fit into the current small-size dealerships. And to make them bigger is costly or impossible due to floor space constraints.

3. IMPROVED VALUE:

What will it bring for customers?

• Better value for money because of the elimination of at least one layer of middlemen.
• Bigger flexibility.
• Less anxiety and worry.
• More transparency.
• Manufacturers/Importers will need to try harder since the competition will be more intense.

For car manufacturers:

• Keep or even increase the margin.

What will be the business impact 3 years from, now?

• I would forecast the decrease in car sales in the next 3 years vs 2019 on average by 30%. The final drop will depend also on the European Commission′s push to lowering the emissions and imposing penalty fees respectively.
• Consolidation of dealerships and a decrease in its volume by about 20-30%.
• While Car manufacturers can still keep their margin at the record level of the year 2019, or even increase by a few percentage points by eliminating the middlemen with the least value for the customer.

Bottom line

Not only car manufacturing but also car distribution and service is bound for disruption. Since most of the car dealership owners and importer leaders have been in the business for many many years, there will be big hesitation and resistance. But Tesla and the Chinese producers (Lynk&Co) have an advantage in this progressive thinking and in pilots. Europeans are more conservative, however, the current and future economical context is and will be against them. The sooner they will embrace the change, the higher the chances to survive will be.

The same as it was with CDs vs online streaming, and I have experienced similar changes while at Microsoft. Microsoft had a partner first approach with on-premise software. Then cloud solutions had been launched and middlemen, online first resulting in better customer experience were the business values to focus on.

This thinking was not meant to be a complaint rather an inspiration for everyone to be active in car importer or dealership business. The inertia in this business is big, however, the current situation suggests every chain involved to think about how to increase its added value for the customer to be more satisfied and loyal.

What is your take on this? Do you agree?