Deloitte: Road to recovery for automotive post COVID-19
Nearly half of US consumers are planning to keep their current vehicle following COVID-19, according to research from Deloitte Insights. But what does this mean for the global automotive industry?
As the pandemic is influencing the way people think about mobility from car ownership to public transport, Deloitte has produced an insightful report, How the pandemic is changing the future of automotive, which calls on stakeholders to join forces and get the global automotive engine running smoothly again.
Deloitte has highlighted five-step-plan manufacturers could follow on their road to recovery. This includes:
- Collaborate with dealer networks
- Agile in response
- Protect critical investments
- Focus on assets
- Collaborate on innovation
According to industry forecasters, global new vehicle sales is set to total more than 70 million units in 2020 - a downgrade of 18.5 million light vehicles from January’s estimates. “To put that in context, the drop in global demand this year alone is roughly equivalent to light vehicle sales expectations in the United Kingdom, Japan, and the United States combined,” comments Deloitte.
May auto sales figures were encouraging, but a Deloitte’s study found that nearly half of US consumers (47%) are now planning to keep their current vehicle longer than they originally expected. This level is echoed in other markets including China (65%), South Korea (63%), and Japan (48%).
“It also represents a challenge for manufacturers looking to kick-start new vehicle sales and casts a shadow over expectations for the shape of the demand curve moving forward. A full demand recovery may take years.
“An immediate, V-shaped recovery is looking increasingly far-fetched, as various government assistance initiatives start to dissipate in the coming months, leaving consumers to face the full reality of a diminished financial capacity,” said the report.
Deloitte’s five-point recovery plan in detail:
1. Collaborate with dealer networks
Increase collaboration with dealer networks to accelerate the adoption of digital tools designed to create frictionless engagement with customers.
“Even though the jury may still be out as to whether consumers will migrate en masse to buying cars fully online, there are still many areas where integrated digital tools can have a transformational impact on the vehicle purchase process and overall brand engagement,” comment Deloitte.
“At the same time, manufacturers can accelerate the deployment of digital tools back through the supply chain to maximise transparency and to detect potentially crippling issues early on.”
Establishing digital supply networks and deploying artificial intelligence can enable smarter planning decisions and improve overall agility through a deeper and broader understanding of the system, the report recommends.
2. Agile in response
Maintain the manufacturing discipline gained through the last upcycle, focusing on producing vehicles that consumers want to buy.
“Companies that are trying to restart assembly operations under a pre-pandemic strategy may need to be much more agile in order to respond to shifts in the vehicle mix caused by a growing consumer affordability issue,” says Deloitte.
3. Protect critical investments
Deploy technology transformation tools to identify and prioritise further cost-cutting opportunities while protecting critical investments that can yield significant forward benefits (powertrain electrification and smart factory).
“Cost cutting in a downturn is certainly not revolutionary but knowing which investments in innovation to protect given longer-term macro trends can be a critical success factor for automotive companies moving forward,” said the report.
4. Focus on assets
Isolate areas of the business that represent a cash drain and make the hard decisions required to rehabilitate, sunset or divest underperforming assets.
“Continuing to prop up unprofitable assets will be increasingly difficult moving forward, particularly manufacturing operations that struggle to meet a minimum capacity-utilisation threshold.”
5. Collaborate on innovation
Ramp up the exploration of strategic partnerships to maintain a focus on innovation while sharing investments and minimising risk.
“Traditional notions of competitive exclusivity between original equipment manufacturers (OEMs) may be giving way to the realities of emerging market conditions. Finding ways to collaborate on innovation may become a strategic imperative for automotive companies,” said Deloitte.
How could consumers re-engage with the automotive industry?
Living through various levels of lockdown consumers have ramped their use of digital tools to consume goods and services – which could extend to buying vehicles.
Deloitte’s study suggests that most consumers are not looking to buy their next vehicle online, other than in India (71%) and China (45%). Interest in an online purchase process is limited to one in four consumers or fewer in other markets around the world.
“The reason for this may be a long-standing acknowledgment that certain aspects of the vehicle sales process, such as the test drive, remain difficult to digitise,” says Deloitte.”
Are consumers changing the way they view mobility?
Deloitte statistics reveal physical distancing means vehicle ownership is becoming valuable to people with 79% of consumers in France, 74% in the United States, 69% in the United Kingdom.
A total of 56% of people surveyed in the US indicated they are planning to limit their use of public transit over the next three months due to hygiene reasons. A similar sentiment prevails in Italy (63%), Spain (60%), Australia (53%), and Japan (48%).
Translating this consumer sentiment into sales may prove challenging due to the cost. Deloitte points out that financial institutions will play a pivotal role in determining whether consumers will be able to maintain access to credit and stay in the market.