UK car sales fall by 7% through 2018

15 January 2019

The UK has endured a 7% fall in car sales throughout 2018, new figures have revealed. While Brexit is predictably being cited as a cause of this, however, a number of factors are at play in the UK and across many of Europe’s leading economies, as a number teeter on the brink of recession ahead of a turbulent 2019.

Even with so little time left before the Brexit process comes to a head, the final effects of Britain’s withdrawal from the EU on the UK economy remain hard to divine. The process has been complex, cumbersome and for a range of industries, costly. One estimate by Bain & Company puts the cost of the leaving for the automotive industry at a £2 billion loss in profits. With the potential for the UK leaving without an agreement seemingly growing by the day, the hit the industry is in line to take could rise further, though.

According to a recent study by Deloitte, a possible No Deal scenario would almost certainly lead to stringent tariffs being levelled on trade with the UK, while a resulting crash in the value of the British pound would compound this, making British companies less able to purchase imports. The impact of a No Deal scenario coming to fruition has a much farther reach than the white cliffs of Dover, however. These sales slumps would then impact the supply chain indirectly, lowering revenues for German suppliers, which they would probably seek to recoup via job cuts. The knock-on effect could endanger up to 14,000 of the 42,500 jobs in Germany’s car industry.

West European annual car sales (million units)

Indeed, further down the supply chain, automotive retailers are already feeling the pinch. Comparing December 2018 with the same month in the previous years, West European car registrations fell by 8.5% year-on-year, according to data released by automotive focused market intelligence services provider LMC Automotive. Full-year registrations across Western Europe were down 0.7% on the previous year, with a total of 14.2 million units sold. The news represents the first annual decline since 2013, when three years of slowing global economic growth had impacted sales.

According to LMC Automotive’s figures, sales are likely to rebound in 2019, however only by roughly the same number they fell by in 2018. However, considering the West European automotive market had booked strong growth of 24% between 2013 and 2017, this is far from a robust response. This is particularly worrying, as LMC Automotive also admitted that the possible 2019 recovery was based on the assumption a No Deal Brexit was avoided – otherwise Western European sales could fall again in 2019.

Speaking to the press about the results, LMC analyst Jonathon Poskitt warned that they might reflect the region's economic situation as a whole, stating, "The latest economic data is not very reassuring… We have seen a slowdown in the major economies of the region in the latter part of 2018 and it threatens a loss of momentum in 2019. Global economic developments have not helped but there are also a number of region-specific risks – Brexit is one of course, but on-going difficulties for some Eurozone economies could put additional strains on the region's financial system."

Europe on brink

While Brexit woes unquestionably retain top-billing in the UK, then, other factors are also at play in the continent’s second largest automotive market. Britain saw sales decline by 6.8% year-on-year, or more than 173,000 purchases, by the end of 2018. This makes the UK the joint poorest performer in Western Europe, alongside Norway and Sweden – with both Scandinavian nations having seen a large fall in GDP growth in the last year.

With regards to the drop in sales in Britain, consumer industries and the retail sector across the UK saw disappointing results throughout the last year, to say the least, resulting in a number of high-profile administrations. It would not be out of the question to expect that the potent blend of spiralling debts, climbing business rates, and crippling costs related to a weakened pound triggered by Brexit which led to this have subsequently also hit the automotive sector.

Uncertainty impacts on falling UK car sales

According to the Society of Motor Manufacturers and Traders, this represents the second year of decline for UK automotive sales in a row. According to that study, sales peaked in 2016 – the year of the Brexit referendum – at 2.7 million units, before falling to 2.5 million in 2017. The rounded figure of 2.4 million in 2019 suggests that with notable uncertainty ahead in 2019, the downward trend may well be set to continue for the UK.

Elsewhere, while France saw a total increase in sales for the year of 3%, 2018 closed with a disappointing 14.5% year-on-year fall in December, as the country continued to be rocked by the ‘gilet jaunes’ demonstrations in Paris. As Germany continues to negotiate a difficult period, as political instability and fears of a recession sparked by poor production stalk the nation, the German auto-market saw a contraction of 0.2% in 2018 as a whole. Italy also saw a 3.1% full-year decline, as the Mediterranean nation likewise finds itself on the brink of recession, with GDP currently shrinking for first time in four years.

At the other end of the scale, though, Greece saw the highest level of growth in automotive sales in 2018. The nation – which finally saw eight crisis-filled years of austerity forced by its Eurozone bailout come to an end – saw sales spike by 18.5%. Spain similarly saw a jump of around 7%, in line with the Netherlands, which, according to a report by Roland Berger, is the world’s best placed country to survive automotive disruption. With Brexit likely to hit the Dutch market hard thanks to its close proximity, many in the Netherlands will hope its continued automotive sales are a sign of this being accurate.  

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Four ways digitalisation is transforming car brands and dealers

16 April 2019

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.”