The retail automotive industry has a future, but it must be prepared to adapt to changing trends and customer demands, keynote speaker, Martin Benders, told a full house at the AADA National Dealer Convention.
Mr Benders, Managing Director of Mazda Australia, was also critical of what he perceived to be politically-motivated inquiries into automotive retailing and servicing by ASIC and the ACCC, as well as the proposed introduction of lemon laws by various governments.
“There is no doubt that consumer-focused regulators are on a crusade to address perceived deficiencies in customer service, and the automotive sector is one at the top of their list,” he said.
“We’ve also had the Productivity Commission report, the ministerial review of the Motor Vehicle Standards Act and the recent announcement of a whole government review of vehicle emissions.
“In principle, it’s hard to argue that we should not defend the legitimate rights of consumers in buying or servicing an expensive asset like a motor car. But is such a bullish effort on the part of the regulators really deserved by our industry? We asked our research people to find out.”
What Mazda’s independent researchers learnt was that consumers rated buying a new car the number one most satisfying retail experience followed, at number two, by having their car serviced at a franchise dealer. These rankings were repeated for both product and provider, ahead of other consumer experiences such as flying, staying at hotels, shopping at supermarkets, buying a phone, a computer, music or clothing, selling a house or going to a restaurant.
“Given the relatively high financial investment and complexity of our product, I would think that was an outstanding result and a great reflection of the overall professionalism in the industry,” Mr Benders said.
“It doesn’t mean that there isn’t room for improvement, but it’s hardly the perceived low status implied in many statements coming from the regulators.”
Mr Benders addressed a number of other issues facing the industry, including the number one current concern according to a KPMG Global Automotive Executive Survey: connectivity, digitalisation and data. Others included powertrain technologies and emission reduction; autonomous driving and safety technologies; consumer purchase and sharing, and market mix, production capacity and platform strategies.
“The pace of change generally appears to be accelerating. As an industry, we will need to adapt or face potential decline in customers and car owners. However, I do believe that the huge emotional and financial investment that owners make in their cars and the key role they play in their daily lives may remain critical to how we protect our business,” he said.
“Unless new technologies like battery-electric vehicles are subsidised for the moment, consumers don’t yet appear to perceive them as an acceptable alternative to the internal combustion engine. But this is an area of competition between the manufacturers. I have to say if full electrification did come to pass, it would also have a huge impact not only on how cars are purchased and used, but also on the service/maintenance business.”
Mr Benders said he regarded autonomous driver technology as “one of the most over-hyped innovations in the industry”.
“Now don’t get me wrong, the technology components are very real. It’s the full autonomous driving bit that I believe is a little bit more into the future than the imaginations of many are predicting,” he said.
However, car-sharing, car-pooling and renting options were starting to blur the lines of ownership and giving information and communications technology (ICT) companies an avenue into the automotive business.
“This is another area where ICT companies actually see that they can get closer to the modern automotive consumer. As you’ve seen by recent numerous partnership announcements, there are manufacturers getting interested in this space. Toyota has a tie-up with Uber, Volkswagen with Get, GM with Lift, BMW with Scoop, and even Apple have invested a billion dollars into the Chinese ride-sharing service, Didi Chuxing, which itself has just bought out Uber in China,” he said.
“My observation is that the auto companies buying into these companies is probably more to do with staying abreast of change in consumer preferences and linking into the communication efficiencies on offer, at least for a start.”
Mr Benders said the remaining issues for OEMs revolved around the underpinning platform technology and production capacity in this rapidly-changing environment.
“There’s only one thing I can guarantee out of all this: the signs are there for significant fragmentation in product, ways to market and consumer solutions – something that always seems to happen when ICT companies stick their nose into another industry,” he said.
“It’s pretty easy to speculate or imagine how digitalisation might change one aspect of a car, but I think we sometimes fail to come to grips with just how much the industry is ripe for disruption to its value chain. Not only upstream in manufacturing, purchasing, and distribution, but also downstream at retail.”
Luckily, the significant investment required in cars should give the industry a little bit of time to work on these issues.
“The ICT companies appear to be approaching automotive from the same perspective as they used to develop computers, tablets, smartphones,” Mr Benders said. “As disposable, low-value quick turnover goods, and they do appear to under-estimate somewhat the complexity in automotive.”
Nonetheless it was up to the auto industry to modernise the consumer experience or get left behind.
“Perhaps, just perhaps, many aspects of the product, sale transaction and ownership experience have not moved with the times,” Mr Benders said.
“The rate of change in communications, connectivity and retail processes through mobile devices is moving at a much faster pace than it’s evolving in our cars and also our way to market.
“The issue with this model is who is going own those cars, manage their use and pay for their maintenance? But certainly it is a way that customers can be taken away from our traditional model.”
Mr Benders said most dealers probably perceived Uber as a threat to the taxi industry and not to personal car ownership, “but it’s not really too difficult to see an extension in that direction”.
Uber is “nothing much more than an app that provides an easy and seamless way to transact for your transport needs. What have they done? They’ve circumvented – possibly – regulation, they’ve outsourced the car ownership to numerous individuals and they maintain control of the customer interaction,” he said.
“In Australia we have many inner city apartment buildings providing parking real estate for occasional private use rental by tenants who are happy to use public transport for day-to-day needs. There is no doubt that these types of operators will fragment ownership or car use models and possibly result in a reduction in cars sold. But key to their success is providing consumers with an easy way to transact for a solution to their immediate personal transport needs.”
The industry would prefer to evolve in the direction of continued private ownership with additional safety technologies such as blind spot monitoring, auto emergency braking and lane keep assist– all key ingredients in autonomous driving vehicles.
“The robot solution of progressing to full autonomous driving is easy to imagine, but I would argue much harder to successfully implement in the real world. You just have to look at recent examples of Tesla autopilot cars to understand the complexity of situations that autonomous cars will have to deal with in the real world,” he said.
“Robots, by definition, are not that good in a variable environment situation. Even the actual driving functions themselves are quite easily programmable. Mazda, as an automotive company, continues to focus on a human driver with technological assistance rather than a robot driver with human assistance.
“I would argue that even if we had the perfect execution of an autonomous car today, the time it would take us to wean human drivers out of their cars and off the road would take 10, 15, maybe even 20 years. That’s before we begin to worry about pedestrians, cyclists, stray animals, obstacles, and reliable, mapping, traffic and road infrastructure.”
However, one by-product of the move to digitalisation is the increased communication between car systems and transport infrastructure, producing yet more data that can potentially provide for a better customer outcome.
Merging the two could mean the emergence of a new paradigm where the business of automotive retailing was selling kilometres rather than cars. However, Mr Benders believed the need to plan trips in advance, as is currently the case with ride-sharing, was not a better solution than the current model of car ownership.
“However, there will no doubt be many interim solutions which may deliver some hybrid of ownership, self-driving, leading to more industry fragmentation,” he said.
“So it is important to understand how customers will perceive such a future and how ICT auto companies might deliver a variety of new solutions.”
While consumers worry about connectivity, battery life and access to information, from an industry perspective there is a bigger risk in the incursion of ICT companies.
“What parts of the current value chain in automotive can be taken over by another model that provides the consumer with a one-point solution?” Mr Benders mused.
“Because such a model can bypass entrenched behaviours and processes, and potentially own the customer. If successful, such a model could basically remove current industry players from customer contact and see them lose that relationship and future purchase opportunities.”
He gave the example of the Amazon Dash Button, available in the US and recently launched in the UK. Its function is to re-order online, direct from the supermarket, basic consumer items that are annoying when they run out, such as laundry detergent, coffee capsules and toilet paper. There is no competition from alternative brands, “and while the brand name may have been present at some point, the owner of the consumer today is Amazon”.
“Now again, motor cars are not quite in that same vein. The high investment does provide some barrier. But how old are our sales processes in the showroom? In the business manager’s office and in our service departments?
“At the macro level we have many changes coming at us, driven by connectivity, digitalisation and hunger for ICT companies to find new ways to capture and own the consumer relationship through ease of transaction. As an industry, we already have access to most of what we need,; we just have to get better at utilising this to retain that customer relationship.”
Mr Benders said he was confident the automotive industry had the capability to rise to the challenge, but it would require all involved to embrace change.