Under the headline "The car industry is changing rapidly – are you keeping up?" we brought, in the last edition of our newsletter, the first article in a series in which we focus on the challenges that the industry is facing. In this article, we take a closer look at the possible scenarios that will arise for car manufacturers and car dealers.
The three main drivers, in the changes that we will see, are as mentioned in the previous article - environment, technology and consumer behavior. On the environmental aspect, the future lack of resources on fossil fuels and the demands of the political system to reduce CO2 emissions further have led to that gasoline and diesel are no longer considered as fuel for cars in the future.
However, not all carmakers agree with the politicians in this case. While Volvo has announced that they have stopped developing combustion engines, Daimler is beating the drum for diesel technology to definitely have a future. Daimler's belief in diesel technology must be seen in the light of the latest technological breakthroughs that has been by Daimler itself, but also Bosch. Another interesting innovation is the development of 5-stroke petrol engines – i.a. Ilmor - which also sets brand new standards.
Nevertheless, the above-mentioned development has pushed the car manufacturers into a technological race that is extremely challenging for several reasons. Firstly, the car manufacturers must develop or utilize technology that is radically different than the one their used to. Secondly, several brand new players have joined the game - the best known is probably Tesla - and many more are on the way. And thirdly, it is not only new technology for propulsion, but at the same time very complex and demanding IT knowledge, which is a necessity for electric cars, self-driving technology, car sharing solutions and connectivity. According to Thomas Furcher and Philipp Lühr from the consulting firm McKinsey, who, after a thorough analysis of the car market in Europe, earlier this year prepared the report "A long term vision for the European Automotive Industry", car manufacturers will introduce approximately 340 new electric cars over the next three years . Many see opportunities and potential in the automotive industry, which the following figures from McKinsey's consultants substantiate. The number of newly established technology companies in the field has sevenfold. 93% of the funds invested come from companies outside the industry - e.g. Google and Intel. The number of patent applications in the field has increased by 50%.
According to McKinsey's analyzes, it is not only in the technological field that carmakers are being challenged - so do they on consumer behavior - that are radically changing.
- Over 80% of consumers perform online research prior to purchase
- 47% have already chosen a car make and model based on their online research before visiting a dealer
- In China and America, connectivity (the online services provided in the car) is today attributed to almost as much or greater value as the car brand - both in the luxury and standard class cars
Zero Moment of Truth (ZMOT) is the new, extra "step" in customers' buying decision process. ZMOT is about customers seeking information and evaluations as well as having an online dialogue as part of their purchasing decision
In recent years we have already seen how most car manufacturers have reduced the dealer network and have focused on the establishment of a few large flagship stores. Car manufacturers will try to adapt to the new consumer behavioral trends, which in the long term means that consumers will probably be able to place an order directly with the car manufacturer. Car purchases are increasingly going digital – just look at how Tesla’s are sold.
Tesla flagship store
With the above in mind, it is obvious to ask the question: Is there any need for car dealers in the future? According to McKinsey's report, the answer is yes, but car dealers will have to adapt their business model to the new market conditions and make the business far more digital. The role of car dealers is going to change from being a source of cars to becoming an advisor to the customer. According to McKinsey, consumers prioritize as follows:
So, car dealers aren't just going to sell cars - they're going to sell solutions to meet transportation needs. At the same time, it is important to understand that consumers have very different needs regarding the buying experience itself. If you want to be able to serve all types of customers, you should be able to offer a buying experience that addresses the following five main categories:
The fight to "own the customer" has already started, and if you as a carmaker or car dealer want to be a part of the future, new and innovative approaches are required. Only the foresighted and adaptable will stand a chance - and the market for car sales, as we know it today, will in many ways change significantly. Stay tuned if you like to know our thoughts on what is going to happen at the wholesale and workshop level.