The automotive industry is experiencing an unprecedented period of transformation and upheaval.  There’s no denying that we’ve never had to deal with so many diverse and competing challenges at the same time. It’s just as well that we’re a resilient and innovative industry.

Yet, unlike so many of the challenges we’ve faced in the past, this time, we can’t just stick it out until the storm passes. There will be no ‘going back to normal.’ We’re now busy determining exactly what that new normal will be in a world where EVs, autonomous vehicles, connectivity, robotics, mobility, blockchain and AI are true ‘here and now,’ rapidly re-shaping and re-inventing traditional business and operating models.

Fortunately, every challenge brings great opportunity, which is just as well when you look at some of the key trends, themes and industry dynamics currently in play: 

Social and Political factors

• The significant international impact of COVID during 2020/2021
• Political and social pressure to reduce particulate emissions and nitrous oxides, including the launch of multiple clean air zones (CAZ) across UK cities
• The legacy of the emissions controversy, combined with the government’s altered stance on diesel vehicles, has massively impacted on vehicle sales and on manufacturers who have invested billions in diesel technology
• Recent European Union rules heavily penalising OEMs if average CO2 emissions rise above 95g per kilometre
• The destabilising effect of Brexit
• The challenges of highly cyclical sales within the Chinese market – significant peaks & troughs in new vehicle volumes

Innovation

• The rapid transition to electric vehicles and alternative powertrains with significant volume increases in BEV and HEV, a rapid rise in the number of new models available and multiple related considerations including battery supply issues, electricity grid capacity and the challenges in rapidly implementing a comprehensive national vehicle charging network
• Autonomous vehicles and mobility services both requiring massive investment and OEM alliances and cooperation to spread the cost and standardise technologies
• Disruption and innovation across the industry with new EV OEMs and brands such as Tesla, Rivian, Lucid, Polestar, Lynk & Co, Nio, etc. challenging the traditional industry players
• Rapid innovation in CaaS/Subscription, Multi-Modal Mobility/Micromobility as the key elements of the transition from ownership to usership models
• The question of bricks and mortar v digital continues, and the future role and nature of dealerships is still to be determined in the face of automotive’s ever-increasing online presence, including increasing customer demands for omnichannel optionality
• The rapid rise of OEM agency models replacing traditional dealer franchise arrangements with EVs, a significant catalyst for this change

Economic and Structural Factors

• OEM Mergers — a continuing consolidation driven by the need for massive investment in new technologies and electrification and the opportunities for synergies and economics of scale
• The 2020/2021 global chip shortage — an ongoing crisis in which the demand for integrated circuits (“chips”) is greater than the supply, affecting multiple industries, and which has led to major shortages and queues amongst consumers for cars, graphics cards, video game consoles, and other products that require semiconductors

What’s happening in the UK automotive industry?

In the UK, we’re going through an almost perfect storm of disruption and change. Over the last few years, we’ve seen:

• The coronavirus pandemic pushed UK car sales in 2020 down to the lowest level since 1992, the biggest annual slump since the second world war despite surging sales of EVs. Sales fell by 29% during the year to about 1.63m
• The UK Government takes a major step towards net-zero with the announcement of the end of the sale of new petrol and diesel cars by 2030
• Steep declines in petrol and diesel cars sales with increasing sales of battery-electric cars nearly trebling during 2020 to just under 110,000 vehicles, accounting for about 6.6% of overall sales. Adding plug-in hybrid electric cars meant the market share of plug-in cars rose above 10% for the first time
• Multiple companies in discussion with the UK government regarding the building of so-called gigafactories for the production of batteries for EVs
• FCA regulatory focus on Motor Finance, including dealer commissions and disclosure requirements
• The need to reduce ‘cost to serve’ while providing a competitive customer experience, requiring investment in robotics, automation and AI
• The rise of wider subscription and ‘pay per use’ models replacing more traditional ownership, including manufacturers and their finance partners focusing on servitisation, mobility and micromobility
• Increasing next-generation digital and mobility demands across the public, retail and corporate landscape – e.g. rise of multi-modal MaaS solutions to support urban traveller demands

The UK automotive industry is right to be concerned about future sales, changing finance models and increasing customer expectations. And this is why every organisation needs to be sure that they are investing in the right technologies and business models; cutting expenditure in areas where commercial benefit is shrinking, and prioritising their strategies to deliver not only the best ROI but also the most sustainable and future-proof version of their brand that they can possibly achieve.

Our honest opinion and what to do about it

It’s time to stop such mistakes from being repeated.

We don’t deny that future solutions may be complex, but that doesn’t mean you should break down current and future challenges and deal with them via a piecemeal approach. Instead, a holistic ‘360 degrees’ perspective is critical.

Three things to look for when bringing in external resource to devise, support and deliver strategies for change:

If we’ve piqued your interest, feel free to read over some of our services to see how we might be able to help you weather the storm.

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