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  • 1. The Future of AutomotiveDistribution 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 markets2   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 dealers3   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 challengesSource: CAAM4   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 habitsSource: McKinsey5   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 markets6   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 doubled7   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 2020Source: ICDP8   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: Accenture9   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 availability10   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 citiesSource: Frost & Sullivan11   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 rail12   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: Euromonitor13   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 dealers14   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 outlets15   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 201116   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 demandSource: ICDP17   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 benefitsSource: ICDP19   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 unitSource: ICDP20   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 needsSource: ICDP21   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 dealers22   ICDP  2009-­‐2011  
  • 23. We suggested there are three dealerorganisational 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 systemsSource: ICDP23   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 HygieneSource: ICDP Outside appearance Light and roomy24   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 twoSource: ICDP, Andrew McMillan, Charteris plc, formerly with John Lewis Partnership25   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 averageSource: ICDP 2011, EU4 and Poland, n=199426   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 0,0Source: ICDP analysis of Institute of Customer Service January 2011 data by brand and dealer survey data27   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, 200728   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 dealers29   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 wholesalingSource: ICDP30   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 right31   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 numbers32   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 soloists34   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 Network35   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 world36   ICDP  2012-­‐2013  
  • 37. The Future of AutomotiveDistribution in an Uncertain World Steve Young, May 11th, 2012