An Economical outlook: What happened to the Automotive Industry
Over the past 3 years, the automotive industry has been facing a huge decline in sales, with figures ranging from 20 to 25% decline in demand year over year .. While the majority of automotive professional relate this to the global economic downturn, the automotive industry, in specific, is facing a much wider challenge .. Here are four dynamics every automotive leader needs to be aware of, and work to find solutions around them:
1. Manufacturers’ Negligence
Economy is not rocket science .. it is based on the equation of supply and demand .. If the demand decreases then the supply needs to go down in order to balance the retail price value and also avoid over supply .. That’s a basic rule that economists know, and play very well in order to ensure their economy is live and competitive..
Another option, when the demand decreases, is to work on increasing demand through introducing new technology, new uses, increase value of ownership ..etc, and this is a game of marketing that economists depend on while thinking about changing supply levels ..
Now let’s reflect on those two areas: Have manufacturers decreased supply? Have they introduced a game-changing technology? Have they created new uses / market segments? .. Little has been done in this area for sure .. What has been significant over the past years, is car dealers extending the warranty of their vehicles from 3 years (manufacturer’s warranty) to 5 years .. As much as this seems to be good news to customers, it is bad news to the industry, as this increased the life cycle of car ownership by the first owner and reduced the overall market efficiency.
2. Transportation market changes
The past years witnessed a massive change in transportation industry, with the introduction of freelance taxis, like Uber and Careem, as well several other self-drive solutions, like u-drive, e-drive, i-drive and other self-rented per-hour used cars.
Those solutions changed the transportation game big time .. They have simply:
- Reduced the cost of transportation for non-frequent movers.
- Increased convenience, no parking hunt, no traffic fines, no fuel ques ..etc
- Increased options, from economy cars to luxury ones, according to your need ..
When we reflect this fact over the Middle East markets .. how many car dealers have started their own transportation solution? How many have created lines of business to cope up with the new game rules? Extremely limited indeed!
3. Infrastructure competitiveness
The global competitiveness index shows that governments have been competing annually on the quality of their infrastructure, with consistent growth of expenditure in this sector in order to support the economy. This means that roads are getting better, but also public transportation is getting better every day. Metros, underground, buses, boats, planes ..etc, and this all will affect the automotive industry in two ways:
- Increase the alternatives of transport to citizens, with more reliable estimated times of arrivals (due to dedicated lanes / stronger control systems ..etc).
- Encourage citizens to reduce pollution, reduce expenses of transportation through sharing larger travel means like buses / trains.
How many car dealers have collaborated with the government? How many have capitalized on the public transport solutions? How many manufacturers have started producing public transport lines?
4. Global economical challenges
With the shift in economical dynamics, customers today are more careful on how to spend their money. For example, on one dimension, there is a clear trend in increasing the dependence on artificial intelligence and replacing humans with machines .. There is also a trend to institute immigration and work-visas across the world .. This will all create caution and alert across car buyers, since they will tend to keep their cars for longer and avoid spending their money in a depreciating asset.
While this is happening, it was expected from car dealers to sign deals with banks for proper financing deals, buy back guarantees as well as serious reduction of car costs from the manufacturer and the dealer in the same time. The normal 5-10% discount will not create a difference and the stocks will lose value over time..
With several dealers today still sitting with stocks from 2017, and even some with 2016, the automotive industry need the help of economists rather than finance people.. I have seen major financial attempts to reduce cost, and try to up-sell, with extremely limited attempts from the economical perspective .. Trying to sell the old way while offering 5-10% discount is not at all a game changer .. Automotive need to engage employees, engage customers, change their face, change the game rule and be ready to trash old rules .. Get economists and engagement experts on board .. Listen, debate, change, and get ready for further turbulence over the coming years ..
The game has started .. are you ready?
Written by:
Engagement Expert, International Speaker & Pragmatic researcher
