steve young
TRANSCRIPT
The Future of Automotive Distribution in an Uncertain World
Steve Young, May 11th, 2012
ICDP 2009-‐2011 2
ICDP – aiming to transform distribution A “not-for-profit” research and advisory body Manufacturer, dealer and supplier members Research all aspects of car distribution Working with members to find opportunities for strategic
and major operational improvements Today, focussed mainly on Europe, but looking to expand
into the major growth markets
ICDP 2009-‐2011 3
The Future of Automotive Distribution in an Uncertain World
Pressures are building on current auto distribution model
Structural actions are required on scale and scope
But the big challenges will be in people and organisation
Together, these will change the shape of future dealers
ICDP 2009-‐2011 4
Production focus has shifted Eastwards, Europe increasingly marginalised
Global overcapacity remains US recovery stronger than Europe China production volumes hit 30
million by 2020 – Double 2010 levels – Approaching 50% of total
global production
Exports to mature markets inevitable for some brands – Raising supply chain challenges
2020
Source: CAAM
ICDP 2009-‐2011 5
BRIC market growth continues, but market destabilising factors are now global
Chinese market to hit 20 million units by 2020 – Double 2010 levels – 70% of customers will still be first-
time buyers
But in China as elsewhere, the destabilising factors have become universal – Currency fluctuation – Road and urban use policies – Taxation regimes – Changing consumer habits
2020
Source: McKinsey
ICDP 2009-‐2011 6
Product competition is fiercer than ever …
Value, mainstream, and premium products present in most market niches
European trend to smaller (and lighter) vehicles becomes increasingly global
Connectivity and ‘infotainment’ are key sales features
Safety a growing consumer preference in emerging markets
2020
ICDP 2009-‐2011 7
… And there is huge powertrain diversity by brand and region
Premium brands expected to offer the most choice – Petrol, diesel, LPG, CNG, mild
hybrids, PHEVs, EVs, transmissions – Internal combustion engines still
dominate, particularly small, turbocharged petrol
PHEV/EV take-up still varies according to level of government support – Although price gap to conventional
cars has narrowed – And Li-Ion battery efficiency has
doubled
2020
ICDP 2009-‐2011 8
A ‘perfect storm’ in the aftermarket?
In mature markets, the parc continues to age – Sustaining independent repairers
Static service intervals for young cars, fewer wearing items on EVs, reliability trends stronger
Average annual distance travelled still falling in mature markets
Franchised networks unable to raise prices to compensate for falling demand – Service absorption falls to 45%,
from 85% in 1998 (UK)
Major challenge to network coverage
2020
Source: ICDP
53
67
56
13
36 40
8
48 43
54
42
12
32 37
7
41
0
10
20
30
40
50
60
70 Total number of maintenance and service operations, millions
2009 2020
- 19%
- 19%
- 25%
- 9%
-10% - 8%
- 10% - 15%
ICDP 2009-‐2011 9
Growing urban populations reduce journey distances and demand for car ownership
84% of Europeans will live in cities by 2050 Source: European Commission
Cities currently house 50% of the world’s population, and generate 80% of its CO2 emissions. 80% will live in cities by 2030 Source: University of Colorado
A doubling of development density => 33% reduction in vehicle miles travelled Source: University of Colorado
By 2015, 40% of the world will live in cities >1 million inhabitants, and 17% in mega-cities >5 million inhabitants Source: Accenture
2020
ICDP 2009-‐2011 10
Road-use demand management now the norm in congested areas worldwide
Road pricing and congestion charging largely automated by telematics – Consumers accept to pay a
price for a predictable journey time
The case for remote speed control and automated ‘convoying’ is growing – Widespread trials underway
Purchase restrictions more politically sensitive – But increasingly linked
to parking availability
Stockholm
London
Singapore
2020 The pioneers included …
ICDP 2009-‐2011 11
Alternatives to ownership are now mainstream
Car-sharing schemes a natural choice for many urban residents – Each car replacing 12-20
private cars …
Commercial pioneers driven out by manufacturer-rental company alliances
Public authority-backed mass transit schemes in a selection of global cities
Source: Frost & Sullivan
2020 Car-sharing hits 20 million users as the BRIC markets join in
ICDP 2009-‐2011 12
Environmental and transport policy closely aligned in many world regions
EU committed to – 20% greenhouse gas
emissions reduction by 2020 – 20% of renewables in energy
mix – 95 g/km CO2 for new cars – 50% reduction in petrol/diesel
cars in city centres by 2030 – complete ban by 2050
– More high-speed rail
2020
ICDP 2009-‐2011 13
Everything is connected to everything … Effectively, all new car buyers are online
Nearly 70% of the world’s population are online – Strongest growth 2010-2020:
Middle East, Africa, then Asia-Pacific, Latin America
– 50% of global users in Asia Pacific region
– 75% of EU population online
Near-universal mobile phone access
And billions of other connected devices too … – The ‘Internet of things’
includes cars …
2020
Source: Euromonitor
ICDP 2009-‐2011 14
The Future of Automotive Distribution in an Uncertain World
Pressures are building on current auto distribution model
Structural actions are required on scale and scope
But the big challenges will be in people and organisation
Together, these will change the shape of future dealers
ICDP 2009-‐2011 15
Scale and scope must change at network and dealer outlet level
Structural Change
Fewer dealer visits implies
fewer dealers
Market coverage
requires new low-cost formats
More outlet differentiation
to address different needs
Greater use of market
area concepts
More multibrand
sales outlets
Reduced property
investment per brand and per dealer
Fewer service bays per brand,
more multibrand workshops
More centralised and shared
functions in a digital world
ICDP 2009-‐2011 16
Sales networks must become both leaner and more integrated
Fewer visits enables longer drive times and fewer sales outlets...
...but increasingly diverse customer needs cannot be met by a single format
Different ownership and management structures enable better results despite complexity
Source: ICDP 2011
Main dealer
Sub- dealer
Authorised repairer
Satellite outlet
Sales agent
Traditional single tier network
• ROCE 8% • ROS 3.2%
Hub & satellite, territory-based
network
• ROCE 12% • ROS 4.8%
ICDP 2009-‐2011 17
Network investments in sales and service must reduce to remain viable
Increasing online activity will put new and used car pricing under pressure
Independent repairers will force repair and maintenance pricing down
But the value of auto retailing sites will fall as network rationalisation reduces demand
Source: ICDP
ICDP 2009-‐2011 18
Online channels need to be integrated into existing networks
Strategic choices – Product offer the same or different? – Pricing and margins, fees? – Role of dealers? – Management of customer contact? – Product and supply system
characteristics?
Tactical and legacy – Dealer contract impact? – Changes to network targets and
rewards for direct sales? – Support for current network cost of
change?
ICDP 2012-‐2013 19
The opportunities in used cars are also being driven by the effects of the internet
Growth in online channels
Transition from trading to retailing and growing scale benefits
Broader, richer data
Interest
Pricing
Availability
Time to sell
New behaviours and products
Distance selling
Customer assurance
Data decision tools
Source: ICDP
ICDP 2012-‐2013 20
Parts needs to be planned at a market level – dealers may or may not participate
Source: ICDP
Parts as an independent strategic business unit
Service levels up
Pricing
Speed
Availability
One stop
Dedicated infrastructure
Centralised inventory
Delivery fleet
Customer support
Wholesale focus
ICDP 2012-‐2013 21
Changing behaviours and needs require customer contacts to be handled centrally
Giving customers a single point of contact for all their needs
Changed needs
Single customer record
Not location specific
Extended hours
Increased online activity
New structure and systems
Shared contact centre
Integrated processes
Integrated systems
Source: ICDP
ICDP 2009-‐2011 22
The Future of Automotive Distribution in an Uncertain World
Pressures are building on current auto distribution model
Structural actions are required on scale and scope
But the big challenges will be in people and organisation
Together, these will change the shape of future dealers
ICDP 2012-‐2013 23
We suggested there are three dealer organisational models with a transition underway
Employer Entrepreneurial
Empowered
Succession issues – founder no longer active
Increasing scale – more difficult to provide equity involvement
Introduction of standardised processes and systems
Increasing centralisation and specialisation reducing freedoms
Trend from experience-driven to data-driven decisions
Focus on consistency of brand experience
Source: ICDP
ICDP 2009-‐2011 24
Variety of displayed vehicles
Information evaluation
Time
Key
Hygiene
Contributory
Relative importance for the deal
Outside appearance
Inside appearance and vehicle display
Initial contact with sales staff
Customer management by sales staff
Product competence of sales staff
Test drive
Doing the deal
Light and roomy
Engage but not hassle …
Personal interaction is valued more highly by customers than physical factors
Source: ICDP
Selection of dealers/models
Dealer contacts Doing the deal
Adapt to customer needs
Touch it and test it Touch it and test it
ICDP 2009-‐2011 25
Customer experience has three elements
Source: ICDP, Andrew McMillan, Charteris plc, formerly with John Lewis Partnership
But we tend to focus on only two
Did I get the product or service I wanted?
Did I get it when I wanted it?
Was the quality what I expected?
Product or Service
How easy are you to do business with?
Did I know what was going on?
Did you keep me informed?
Process
How did it feel? Was I valued as a
person? Was I treated with
respect? Do I want to go back?
Engagement
ICDP 2009-‐2011 26
Engagement with the customer drives the quality of the customer experience
Source: ICDP 2011, EU4 and Poland, n=1994
How did your recent experience of a car dealership compare with other recent customer experiences?
35% 33%
67% 88% 94%
Not at all Somewhat inattentive
Neither Somewhat attentive
Very attentive
0%
20%
40%
60%
80%
100%
Worse Average Above average
Influence of salesperson attentiveness on quality of customer experience
ICDP 2012-‐2013 27
Good dealer staff create satisfied, loyal customers and improved business performance
Source: ICDP analysis of Institute of Customer Service January 2011 data by brand and dealer survey data
0,0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1,0
Correlation with CSI
R2
Average of 15 brands
ICDP 2012-‐2013 28
This requires a focus on how customers feel rather than solely on product and process
Source: ICDPA; Gremler & Gwinner, 2000; Kingshott & Pecotich, 2007
Service orientation: dealership/salesperson ...
... makes an effort to understand my personal needs
... do not pressure me in any way
... show genuine interest in engaging with me
... let me interact with them in my preferred way
... share useful information with me
... work together seamlessly in serving me
Customer performance measures
Satisfaction: I chose the right dealership
Trust: Is an organisation that I have great confidence in
Word-of-Mouth: I recommend this dealership when asked
Commitment: I identify strongly with this dealership
Value: This dealership offers good value
Repurchase: I will continue to use this dealership
Doing 16% better here ... ... improves this by 39% ...
Culture and rewards
... by changing these!
ICDP 2009-‐2011 29
The Future of Automotive Distribution in an Uncertain World
Pressures are building on current auto distribution model
Structural actions are required on scale and scope
But the big challenges will be in people and organisation
Together, these will change the shape of future dealers
ICDP 2012-‐2013 30
Manufacturers working with dealers, not around them
Manufacturer Dealer
Fleet sales as agents
Internet sales as agents
Telematics response
Online support
Contact Management
Parts wholesaling
Repair & Maintenance
Many integrated (not interfaced) processes, with shared data, e.g. customer records, inventory
More use of agency contracts rather than franchise
Closer alignment of goals and targets, e.g. focus on retails
Transfer of some responsibilities and costs from dealer to manufacturer
The end of the traditional wholesaling model?
Source: ICDP
ICDP 2012-‐2013 31
A more complex world – multiple formats, bricks and clicks, no cash cows
Disinvest from some traditional sites, reinvest in others
Specialisation of sales and aftersales activities by site – not all sites doing all things
Transfer of online enquiries to physical outlets and back, seamless fulfilment of online orders and bookings through physical facilities
Management of more complex area networks will require new management skills and processes
Each business activity financially viable in its own right
ICDP 2012-‐2013 32
More retailing, less trading
Generating and motivating demand rather than buying the sale, i.e. refocus campaigns and incentives
Measuring sales and profit per unit of floorspace (investment efficiency)
Improved systems support and decision tools to make data-driven decisions rather than trading on intuition, hunches or experience
Stronger process focus, management by the numbers
ICDP 2012-‐2013 33
Relationships, not transactions
Measure real customer satisfaction
Customer lifetime value rather than profit per unit
Retention, rather than conquest
Focus on revenue and profit streams, loyalty and advocacy, rather than margins and deals
Implies change of metrics and rewards, integration of sales, aftersales and F&I
Different staff profile – relationship builders, not dealmakers or ‘closers’
ICDP 2012-‐2013 34
People as an asset, not a consumable
Introduce appropriate HR policies for recruitment, assessment, reward, promotion, training, etc.
Understand and define desired people profiles for all customer-facing and managerial roles
Assess current staff against desired profiles and develop individual action plans with appropriate support
Monitor, hire and fire for attitude Team-players, not soloists
ICDP 2012-‐2013 35
Customers Private + Fleet
Together, these changes will transform the structure and style of future networks
Repair and Maintenance Network
Area Retail Network Manufacturer
Parts Distribution Service Providers
A true network, supporting individual customer needs in the most cost effective
way possible
Colours represent different brands
ICDP 2012-‐2013 36
But it takes two to tango!
Manufacturers
Enable disinvestment/reinvestment in new formats and sites by dealers
Support shared infrastructure investment, predominantly IT
Apply standards for tomorrow’s network, not today’s
Dealers
Recognise the end of property as the ‘pension fund’ and adapt now
Accept ‘risk’ (= commitment) of investing in people
Hire/fire/develop staff to meet more complex needs of a digital world
The Future of Automotive Distribution in an Uncertain World
Steve Young, May 11th, 2012