The document discusses the future of automotive distribution in an uncertain world. It notes that pressures are building on the current distribution model and structural changes are needed in scale and scope. However, the biggest challenges will be in changing people and organizations. These changes will transform the shape of future car dealerships.

1. The Future of Automotive
Distribution in an Uncertain World
Steve Young, May 11th, 2012

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
2
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
3
ICDP
2009-­‐2011

4. Production focus has shifted Eastwards,
Europe increasingly marginalised
2020
 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
Source: CAAM
4
ICDP
2009-­‐2011

5. BRIC market growth continues, but market
destabilising factors are now global
 Chinese market to hit 2020
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
Source: McKinsey
5
ICDP
2009-­‐2011

6. Product competition is fiercer than ever …
 Value, mainstream, and premium 2020
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
6
ICDP
2009-­‐2011

7. … And there is huge powertrain diversity
by brand and region
2020
 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
7
ICDP
2009-­‐2011

8. A ‘perfect storm’ in the aftermarket?
 In mature markets, the parc 2020
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 70
Total number of maintenance and service operations, millions
 Franchised networks unable to 60 67 - 25%
raise prices to compensate for 50 56
53 54 - 8%
-10% 48
40
falling demand
43 42 41
40
- 19% 37
30 36
32
– Service absorption falls to 45%, 20 - 19% - 9%
- 10%
- 15%
from 85% in 1998 (UK) 10 13 12
8 7
0
 Major challenge to network
coverage
2009 2020
Source: ICDP
8
ICDP
2009-­‐2011

9. Growing urban populations reduce journey
distances and demand for car ownership
2020
Cities currently house 50% of the 84% of Europeans will
world’s population, and generate live in cities by 2050
80% of its CO2 emissions. 80% Source: European Commission
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
9
ICDP
2009-­‐2011

10. Road-use demand management now
the norm in congested areas worldwide
2020
 Road pricing and congestion The pioneers included …
charging largely automated by
London
telematics
– Consumers accept to pay a
price for a predictable journey
time Stockholm
 The case for remote speed
control and automated Singapore
‘convoying’ is growing
– Widespread trials underway
 Purchase restrictions
more politically sensitive
– But increasingly linked
to parking availability
10
ICDP
2009-­‐2011

11. Alternatives to ownership are now mainstream
Car-sharing hits 20 million users 2020
 Car-sharing schemes a as the BRIC markets join in
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
11
ICDP
2009-­‐2011

12. Environmental and transport policy closely
aligned in many world regions
2020
 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
12
ICDP
2009-­‐2011

13. Everything is connected to everything …
Effectively, all new car buyers are online
2020
 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 …
Source: Euromonitor
13
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
14
ICDP
2009-­‐2011

15. Scale and scope must change at network and
dealer outlet level
Fewer dealer
More visits implies Market
centralised fewer coverage
and shared dealers requires new
functions in a low-cost
digital world formats
Fewer
More outlet
service bays
per brand, Structural differentiation
to address
more
multibrand Change different
needs
workshops
Reduced
property Greater use
investment of market
per brand More area
and per multibrand concepts
dealer sales outlets
15
ICDP
2009-­‐2011

16. Sales networks must become both leaner and
more integrated
 Fewer visits enables Sub-
dealer
Satellite
outlet
longer drive times and Main
fewer sales outlets...
dealer
...but increasingly
Authorised
 Sales
agent
repairer
diverse customer needs
cannot be met by a
single format Traditional single • ROCE 8%
tier network • ROS 3.2%
 Different ownership and
management structures
enable better results Hub & satellite,
• ROCE 12%
territory-based
despite complexity network
• ROS 4.8%
Source: ICDP 2011
16
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
17
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?
18
ICDP
2009-­‐2011

19. The opportunities in used cars are also being
driven by the effects of the internet
Growth in online Broader, richer New behaviours and
channels data products
Availability Distance selling
Pricing
Customer assurance
Interest
Data decision tools
Time to sell
Transition from trading to retailing and growing scale benefits
Source: ICDP
19
ICDP
2012-­‐2013

20. Parts needs to be planned at a market level –
dealers may or may not participate
Service levels Dedicated
Wholesale focus
up infrastructure
Availability Centralised
inventory
Speed
Delivery fleet
Pricing
One stop Customer support
Parts as an independent strategic business unit
Source: ICDP
20
ICDP
2012-­‐2013

21. Changing behaviours and needs require
customer contacts to be handled centrally
Increased online New structure and
Changed needs
activity systems
Shared contact
Extended hours
centre
Not location Integrated
specific processes
Single customer
Integrated systems
record
Giving customers a single point of contact for all their needs
Source: ICDP
21
ICDP
2012-­‐2013

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
22
ICDP
2009-­‐2011

23. We suggested there are three dealer
organisational models with a transition underway
Empowered
Employer Entrepreneurial
 Increasing centralisation and  Succession issues – founder no
specialisation reducing freedoms longer active
 Trend from experience-driven to  Increasing scale – more difficult
data-driven decisions to provide equity involvement
 Focus on consistency of brand  Introduction of standardised
experience processes and systems
Source: ICDP
23
ICDP
2012-­‐2013

24. Personal interaction is valued more highly by
customers than physical factors
Information Selection of dealers/models
evaluation Dealer contacts Doing the deal
Relative importance
for the deal Time
Doing the deal
Adapt to
Key customer needs Customer management by sales staff
Initial contact with sales staff
Engage but Product competence of sales staff
not hassle …
Contributory Test drive
Touch it and test it
Variety of displayed vehicles
Inside appearance and vehicle display
Hygiene
Source: ICDP Outside appearance Light and roomy
24
ICDP
2009-­‐2011

25. Customer experience has three elements
Product or Service Process Engagement
 Did I get the product  How easy are you to  How did it feel?
or service I wanted? do business with?  Was I valued as a
 Did I get it when I  Did I know what was person?
wanted it? going on?  Was I treated with
 Was the quality what I  Did you keep me respect?
expected? informed?  Do I want to go back?
But we tend to focus on only two
Source: ICDP, Andrew McMillan, Charteris plc, formerly with John Lewis Partnership
25
ICDP
2009-­‐2011

26. Engagement with the customer drives the
quality of the customer experience
Influence of salesperson attentiveness  Howdid your recent
on quality of customer experience experience of a car
100% dealership compare
with other recent
80% 35% 33% customer
experiences?
67%
60% 88% 94%
40%
20%
0%
Not at all Somewhat Neither Somewhat Very
inattentive attentive attentive
Worse Average Above average
Source: ICDP 2011, EU4 and Poland, n=1994
26
ICDP
2009-­‐2011

27. Good dealer staff create satisfied, loyal
customers and improved business performance
Correlation with CSI
1,0
0,9 Average of 15 brands
0,8
0,7
0,6
R2 0,5
0,4
0,3
0,2
0,1
0,0
Source: ICDP analysis of Institute of Customer Service January 2011 data by brand and dealer survey data
27
ICDP
2012-­‐2013

28. This requires a focus on how customers feel
rather than solely on product and process
Service orientation: Customer performance Culture and
dealership/salesperson ... measures rewards
... makes an effort to understand Satisfaction: I chose the right
my personal needs dealership
... do not pressure me in any Trust: Is an organisation that I
way have great confidence in
... show genuine interest in Word-of-Mouth: I recommend
engaging with me this dealership when asked
... let me interact with them in Commitment: I identify strongly
my preferred way with this dealership
... share useful information with Value: This dealership offers
me good value
... work together seamlessly in Repurchase: I will continue to
serving me use this dealership
... by changing
Doing 16% better here ... ... improves this by 39% ...
these!
Source: ICDPA; Gremler & Gwinner, 2000; Kingshott & Pecotich, 2007
28
ICDP
2012-­‐2013

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
29
ICDP
2009-­‐2011

30. Manufacturers working with dealers,
not around them
Manufacturer Dealer
 Many integrated (not interfaced)
processes, with shared data, e.g.
Online support customer records, inventory
 More use of agency contracts
Internet sales as agents rather than franchise
 Closeralignment of goals and
Fleet sales as agents
targets, e.g. focus on retails
 Transfer
of some responsibilities
Contact Management
and costs from dealer to
manufacturer
Telematics response
 Theend of the traditional
Repair & Maintenance wholesaling model?
Parts wholesaling
Source: ICDP
30
ICDP
2012-­‐2013

31. A more complex world – multiple formats,
bricks and clicks, no cash cows
 Disinvestfrom some traditional
sites, reinvest in others
 Specialisationof 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
31
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
32
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’
33
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
34
ICDP
2012-­‐2013

35. Together, these changes will transform the
structure and style of future networks
Area Retail Network Manufacturer
A true network, supporting
individual customer needs
in the most cost effective
way possible
Customers
Private + Fleet
Service Providers Parts Distribution
Colours represent different brands
Repair and Maintenance Network
35
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
36
ICDP
2012-­‐2013

37. The Future of Automotive
Distribution in an Uncertain World
Steve Young, May 11th, 2012