The automotive industry is at a tipping point
The days in which established OEMs have independently set the tone in the automotive industry are over. Four megatrends are revolutionizing the business: electrification, autonomous driving, connectivity and the sharing economy. Every single one of these trends is powerful, but their combination is profoundly disruptive.
The game is changing. Inspired by their experiences in other industries and the rise of new technologies, customers are seeking a new, modernized automotive sales journey. Especially young customers are increasingly dissatisfied with the way cars are currently being sold.
New disruptors such as Byton, NIO, and Carwow have responded to the changing market environment, offering futuristic vehicle designs at affordable prices. Most importantly, however, their transformation of the customer’s journey of buying a car into a simple and convenient experience is posing a tremendous challenge to OEMs.
This is forcing legacy OEMs to reimagine their sales strategy and retail network to meet future customer demands and maintain their competitive advantage.
Traditional automotive sales models are at risk
The traditional automotive sales model relies on independent dealers which occupy a central role in pricing, marketing and sales. By purchasing vehicles from the OEM and reselling them to the end customers, they generate the bulk of OEMs’ new car sales revenues.
For OEMs, the traditional sales model has three identifiable weaknesses:
Online and direct sales as the future?
To provide an improved online experience for their customers, several OEMs have started to experiment with online sales and launched their own online stores. However, adoption of these online stories is slow and the customer experience they offer is inadequate.
For this reason, some OEMs have started to copy the direct sales model of new disruptors. This means that OEMs orchestrate all distribution channels and sell directly to the customer, whereas dealers transform into agents who receive a premium-based compensation.
While this seems simple, it represents the largest transition alongside the introduction of electric and autonomous vehicles. To get it right, OEMs need to strive for excellence in three areas:
Time to move
Given the tremendous disruption ahead, transforming the sales model is only the first step of the journey towards a completely new era for the automotive industry.
Advancements in electrification and autonomous technologies require enormous investments. Given that 30 percent of the local list price are currently consumed by costs of retail, optimizing the sales model can stem some of these investments.
With ridesharing and other shared mobility concepts booming due to decreasing costs, car ownership is becoming less and less important. Here, direct customer access is important for OEMs to master their transformation from retailer to mobility provider.
If OEMs do not act fast, they risk losing 30 percent of revenue to new competitors by 2035. Pivoting to a new, innovative sales model can shield OEMs from impending digital disruptions and prepare them for the challenges of the future.
Overall, OEMs are in a good starting position. But it’s time to move now. Are you ready?