Chances and Challenges
Germany’s motor market is saturated. Although the domestic car fleet has been ageing for years, the downward trend in new vehicle sales is likely to accelerate rather than slow down due to demographic change and stagnant, if not declining real wages. Demand for new cars is expected to level down to under three million units per year from once 3.3 million. The ratio between private and corporate buyers will continue to shift towards the latter, who have always been in a better position to bargain for high discounts.
Authorized service centres have been losing customers to independent repair shops, especially among owners of older vehicles. As many dealers and automotive service providers are no longer profitable, the German market is on the verge of another round of consolidation, which will see the rise of regional or nationwide multibrand dealerships. To defend their market shares, manufacturers will need to redefine their business relations with those dealer chains.
Real or supposed demand for constant technical innovation will keep the industry’s product designers busy. Manufactures feel pressed to come up with new models in ever shorter intervals. Sales of current versions plummet as soon as the delivery dates of their successors have been announced. Differentiation through niche models and derivatives results in an abundance of options which consumers find hard to keep track of. To draw the attention of increasingly fragmented target groups toward their ever more specialized vehicles, manufacturers resort to innovative advertising devices, bundled offers and sometimes costly tactical measures.
A promising way out of this vicious circle is closer cooperation between dealers on the one hand, and manufacturers’ sales, distribution and advertising departments on the other, with the intent to identify or generate demand as early as possible. Car makers also need to try harder to strengthen their customers’ brand loyalty and reduce churn rates. Some target groups, for example small and medium-sized firms, are still being neglected in both manufacturers’ and dealers’ sales strategies. Another challenge to be dealt with is the industry’s expanding leasing business, which leaves captive banks with a growing fleet of used vehicles waiting for secondary commercialization. We see substantial earnings potential in leveraging those assets.
Many car makers have been pinning their hopes on sustained economic growth in China, India and emerging markets such as Russia and the Far East. There are, however, numerous local needs to be addressed which bestsellers or phased-out models from Europe or the United States are unable to satisfy. Given constraints such as foreign exchange risks, tariffs, soaring commodity prices, insufficient road and dealer networks, and a majority of consumers demanding vehicles that cost less than 10,000 dollars, production is unlikely to be profitable outside target countries – which, in turn, requires investments into uncertain returns.
Most transnational car groups have undergone far-reaching rationalization measures in recent years. The few that have not done so yet will soon follow. Many groups were able to streamline their business processes, boosting their operating margins and enhancing the flexibility of their workforces. End-to-end process orientation, however, has yet to take root among departments and divisions. Outsourcing will enable further economies, provided that manufacturers maintain a high level of understanding of externalized tasks, as well as their ability to appraise results.
While streamlining their operations, companies began to view IT merely as an expenditure. Departments were spun off, budgets cut, subsidiaries sold. But without technical systems up and running day in, day out, few vehicles would ever leave the assembly line. Notwithstanding, manufacturers should bear in mind that automation is not an end in itself, but a means of providing reliable, flexible, cost-effective, integrated support to core business processes.
Many automotive companies need to catch up on that. Throughout the industry, legacy systems have been outgrown by business requirements, and will have to be replaced by more powerful applications. For maximum returns on IT investments, we recommend modular, process-oriented solutions.
Consileon helps car makers, suppliers and dealers tackle revenue, cost and information technology challenges including
- CRM strategy
- marketing campaigns
- analytic issues such as market segmentation and reporting
- process reengineering
- outsourcing
- IT strategy and project management
- IT blueprints and implementation.
You need to understand your client’s goals to deliver first-class, future-proof results.
Stephan Miess
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