Global car market to break through 100 million in sales by 2020

29 August 2017 Consultancy.uk

The Global Automotive Outlook 2017 has predicted that the global automotive industry is set to reach 114 million in worldwide sales annually by 2024. While immediate figures may encourage industry players however, new trends including the electrification of the automotive industry could leave them out in the cold should they fail to adapt, with the market share taken by Electronic Vehicles (EVs) having grown by 168% over the past two years. The UK auto market particularly has seen a 2.2% drop in automotive sales when the first seven months of 2016 and 2017 are compared, as consumers draw back from spending on combustion engine vehicles due to the government’s proposed 2040 ban of the sale of such vehicles.

According to analysis conducted by AlixPartners, the next 7 years in the automotive industry will be characterised by global growth of 2.8 % per annum, ultimately reaching the figure of 114 million units in 2024. Regionally, North America and Europe are predicted to have the lowest rates of growth at 0.1% and 1.7% respectively, while Asia and South America are predicted to grow at significantly higher rates. The Greater China region, which consists of China, Hong Kong and Taiwan, registers the highest rate of predicted growth at 5.2%, followed closely by South Asia at 4.5% and South America at 4.3%. However, the figure for South Asia might be boosted by the fact that the report includes Australia and New Zealand within the same bracket, despite geographically falling within the broader region of Oceania.

Global bar graph with region-wise percentages

The low average growth figures for the North American region have in no small part been caused by the negative rate of growth of -0.1% predicted for the USA. The report attributes this to a cyclical peak reached in the US market last year, rather than the political and societal turmoil which the nation has been thrown into since the end of 2016. A cyclical peak, in market terms, refers to point in a market progression when spending and production are at their highest, after which both begin to contract. Meanwhile, the rest of North America’s automotive market is predicted to grow at a steady 1%.

The US auto industry is a major player in the country’s economy, with automakers and their suppliers currently responsible for 3% of America's GDP. No other manufacturing sector generates as many American jobs, suggesting a period of contraction may have dire consequences for the US economy in the long-term. The Donald Trump administration has talked for some time of increasing tariffs to boost the domestic auto market and put consumers off investing in imported vehicles – however the likely effect of tariffs would see the domestic market stung by inflated prices for parts and maintenance, costing manufacturers between $21.6 billion and $23.8 billion, which in turn would increase prices for consumers who would invest less, meaning companies would see lower profit margins which they would likely aim to recuperate by cutting jobs and wages, according to a Roland Berger report.

US and North America Figures

The Netherlands, Germany and the UK are three of five countries best prepared for industrial change in the auto sector, according to a recent analysis of the global industry. However, in Europe as a whole, the Western market is expected to stagnate at -0.1%. AlixPartners predict this is to be countered by a high rate of growth in Eastern European nations (7.3%) though, while Southern and Central Europe are set to achieve relatively average rates of growth at 1.9% and 2.9% respectively.

One of the primary reasons for the sizeable growth rate in the East is the recovery of the Russian market from the Ukraine crisis, which has prompted a boost in public aid for the automotive industry. Political considerations have meanwhile most likely caused stagnation in Western Europe, with the uncertainty and mistrust resulting from Brexit hindering trade in the UK especially, as well as across the rest of the EU.

Europe region-wise figures

Meanwhile in South America, the region is forecast to witness an above par growth rate, despite continued constitutional crises in a number of players including Venezuela, aided by the stabilisation of the Brazilian economy. Markets have been keen to capitalise on the deposing of President Dilma Rousseff following allegations of corruption. Although the incumbent President Michel Temer faces domestic criticism, with his administration labelled a “coup government” by opposition parties, having been in office for a year without winning an election, corporations have treated his term in office as a major opportunity, following his pledge for a sustained period of major privatisation. Temer himself currently faces charges of corruption after a court decision at the end of June 2017.

The region may also see sustained growth thanks to the growing economic strength of growing economies in the region. In a PwC whitepaper from earlier this year, it was suggested G7 nations could be surpassed by rapidly expanding economies such as Colombia by 2030. Colombia’s broader economy has enjoyed positive growth over the past seven years, although it has tapered off to around 2.5% in 2016, on the back of macroeconomic conditions. Its 10 largest neighbours, however, have seen an average contraction of -1.3% in 2016.

Electrification

Despite the encouraging predictions for sales in the industry, there is also the potential for major disruption due to the advance of environmental crises and corporate and governmental responses to them. Alongside the growth trends in the conventional automotive industry, the AlixPartners analysis noted a major trend in the relatively new Electric Vehicle (EV) industry, highlighting that the EV share of the overall market has exponentially grown by 168 % over the past two years. At the current rate, the share of EV vehicles in the overall automotive sales of Europe is expected to surpass 40% by 2030.

Combined with the hybrid vehicle category, this figure rises to an imposing 65%. The gravitation towards hybrid and EVs has gained traction amongst manufacturers, with Volvo announcing a complete shift to hybrid/EVs in the next two years. Both the French and British governments have made a decision to ban Internal Combustion Engines (conventional vehicles) entirely by 2040 as Europe works to meet various climate goals while improving air quality, demonstrating that there is political backing for the transition as well, even though the move will majorly impact the profitability of petrol, diesel and the domestic auto market in the short-term.

2030 EV and PHEV figures

While from an environmental perspective, the new measures seem common sense, should manufacturers fail to treat them seriously, major players in the industry could be left out in the cold, while sales could subsequently suffer. According to recent figures from the Society of Motor Manufacturers, the UK's new car market is already shrinking due to this, with new car registrations down 9.3% in the month of July 2017. The month saw 161,997 new cars registered in the UK, down from 178,523 compared to July 2016. The total registrations for the year meanwhile reached 1,563,808, representing a 2.2% fall from the first seven months of last year. Diesel sales have meanwhile taken the biggest fall of 20.1% for the month of July in which the government’s proposed ban of petrol and diesel vehicle sales, while falling 11% for the year in total.

Commenting on the findings of the report, Andrew Bergbaum, a Managing Director in the automotive arm of AlixPartners, said, “The end of the internal combustion engine is now a reality, with Volvo’s announcement that all new models would be electric or hybrid within two years and the French government’s decision to ban ICEs from 2040. Both these developments come on the back of a very strong year for OEMs. However, whilst a number have been able to make considerable efficiency savings which have helped fund short-term Capex and R&D, this is not a sustainable position over the longer-term without fundamental changes to production and the amount of investment required is going to continue to increase. Efficiency savings are only putting off the inevitable consolidation that will need to happen.”

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Four ways digitalisation is transforming car brands and dealers

16 April 2019 Consultancy.uk

From changing expectations from the customer to new stakeholders entering the industry, the digital transformation of global automotive industry means it is facing the wholesale transformation of its business model. In a new white paper, global consulting partnership Cordence Worldwide has highlighted four major digital trends that are transforming the relationships between car brands and dealers with consumers.

With digital transformation drives booming across the industrial spectrum, automotive groups are no different in having commenced large digital transformation programmes to improve productivity, efficiency, and ultimately profitability. Falling sales figures mean the automotive sector is facing an increasingly difficult road ahead, something which means companies in the market are even more hard pressed to find new ways to improve their bottom lines.

While it offers major opportunities, the industry’s move to digitalise is not without complications. It has triggered a series of major internal changes, which have presented automotive entities with the challenge of becoming a “customer-oriented” industry. A new report from Cordence Worldwide – a global management consulting partnership present in more than 20 countries – has explored how automotive companies are navigating the rapidly changing nature of digital business.

New business models

The level of change likely to be wrought on the automotive industry by digitalisation is hard to overstate. Automation could well lead to significant reductions in the number of accidents, higher vehicle utilisation and lower pollution levels, while leading to a $2.1 trillion change in traditional revenues, with up to $4.3 trillion in new revenue openings arising by 2030.

As a result of this colossal opportunity, it is easy to see why almost all automotive groups now have digital departments, with generally strong communication within the digital transformation and the customer approach. The changes to society which this may have are potentially distracting automotive firms from the change it is leading to in its own companies though, according to Cordence’s paper.

The automotive market is dead, long live the mobility market

Because of this, the sector’s business model is set to transform over the coming decades. With digitalisation speeding up the appearance of concepts such as car-sharing, a subscription package model will likely become more palatable. At the same time, car and ride-sharing models will cater to the sustainability criteria of millennials, who will rapidly become one of the automotive market’s leading consumer demographics in the coming years.

Antoine Glutron – a Managing Consultant with Cordence member Oresys, and the report’s author – said of the situation, “These ‘old school industries’ are now working on creating new opportunities, but in so-doing are facing challenges and threats: new jobs, new technologies, new ecosystem of partners, necessary reorganisation, different relationship with customers, and even new businesses. The customer approach topic is in fact a real challenge for car companies as it implies changing their business model and adjusting their mind-set to address the customer 4.0: from product-centric to customer-centric, from car manufacturer to service provider.”

Digital customer experience

In the hyper-competitive age of the internet, even top companies face an uphill challenge when it comes to holding onto customers through brand loyalty. Digital disruption has resulted in changes to consumer behaviour, which is forcing a range of marketing strategists to reconsider their old, possibly out-dated strategies. As modern customers wield an increasingly impressive array of digital tools and online databases, they and are now able to quickly and conveniently compare prices, check availability and read product reviews.

The automotive sector is no exception to this trend, according to the study. In order to adapt to the needs of the so-called ‘customer 4.0’, car companies will increasingly need to change their business model and move away from product-centric companies to customer-centric ones, from car manufacturers to service providers.

Glutron explained, “As an automotive company, you can no longer expect customer loyalty simply with good products; you must conquer and re-conquer a customer that “consumes” your service. The offer now has to be global, digital and personalised. Your offer has to be adapted to this customer’s needs at any given moment. A key issue related to data control is to build customer loyalty by creating a customer experience 'tailored' throughout the cycle of use of the 'car product': purchase, driving, maintenance and trade-in of the vehicle.”

One way in which the sector may be able to benefit from this desire for a tailored experience is via connectivity. Consumers are generally positive about new connective features for automobiles, and many are even willing to pay upfront for infotainment, emergency and maintenance services. Chinese consumers, where the connected car market is set to hit $216 billion, are already particularly interested in paying a little more for navigation and diagnostic features in their future new car. This can also enable automotive companies to exploit a rich vein of customer data, enabling them to rapidly tailor their offerings to consumer behaviour.

New automotive segments

Digital transformation has also brought with it the rise of completely new application areas. As mentioned earlier, the most well-known example is the autonomous or self-driving car, where the last steps forward were not taken by major automotive groups but by technology companies such as Tesla. While this may have given such firms the edge in the market briefly, a number of keystone automotive names will soon be set to take the plunge into the market themselves, leveraging their car manufacturing prowess and huge production capacities to their advantage.

Before companies rush to invest in this market, however, it is worth their while to remember that the readiness and uptake for such vehicles differs greatly geographically. For example, following a study published in 2018, 92% of Chinese would be ready to buy an autonomous car, compared with only around 35% of drivers in France, Germany and US. Meanwhile, the infrastructure of different nations will also be significantly less accommodating of the new technology.

Use digital for steering thr activity

Elsewhere, Cordence’s analysis has suggested that hooking the cars of tomorrow into the Internet of Things is also likely to see a rapid change in the business model for car maintenance, providing real-time diagnostics for problems. This presents chances for partnerships to improve the connectivity of cars, especially with tech companies; for example, PSA partnered with IBM for a global agreement on services in their vehicle. Meanwhile, data could also be sold to other parties with an interest in this data, such as the government, which could use it to manage traffic levels, or ensure that only adequately maintained vehicles take to the road.

Glutron added, “With the increase in the amount of client data and connected opportunities, the recommendation is to set up data-centric approaches. The value is now in the customer data. The general prerequisites are to rework the data model and the Enterprise Architecture and generally build up a data lake including data from all sources (internal and external, structured and unstructured).”

From automotive to mobility

Relating further to the idea of connectivity, the report claimed that automotive firms must now adjust their models in line with the provision of end-to-end mobility, rather than treating the sale of a car as an end point in their relationship with the customer. In order to realise this transformation, transformations are likely to become more and more important.

A network of partner companies means automotive firms can provide a global mobility experience. As the vehicle is increasingly connected to its environment, new partners can also be cities, governments, and other service providers within the global mobility services industry in which the car brands want to take part.

According to the study, the target is clear. Companies must look to a holistic transport service, offering to move customers from A to B in a unique and pleasant way – otherwise they might as well take public transport. At the same time, they should extend the services reachable “on-board” (especially the enhancement of the connectivity between the car and smartphones or other connected devices), and reach high standards in terms of user experience (online sales, online payment, customised experience during and after the use of the car).

Concluding the report, Glutron stated, “These mobility market transformations could be considered a threat for the car manufacturers. Quite the opposite: if they take up the challenge and review their business model so that they become the service provider – communicating no longer to a driver but to a ‘mobility customer’ – they can then take advantage of their expertise and their position as a historical player. The most convenient means of transport are cars, and building a car is highly-skilled work.”