What Will the Post-Pandemic Auto World Look Like?
The good, bad, and ugly for an auto industry that will never be the same again.
The auto industry, like the rest of the economy, was plunged into sudden recession when the world essentially shut down in the attempt to stop the spread of a deadly virus. This was not like the downturn in 2008-'09 that was about 18 months in the making. Coronavirus threw down the hammer in mere weeks.
Some changes have been immediate and practical; others are mind shifts that will reverberate through the industry for years to come, until the next tumultuous event forces another major zigzag.
Smaller Picture
The first impact after the coronavirus began to take hold globally is that automakers stopped making vehicles and dealerships were forced to close their showrooms. Service departments remained open because they were deemed an essential service for those still venturing outside their homes as cities, then states, provinces, and counties, and finally whole countries told residents to shelter at home.
Almost overnight the industry had to conduct business differently. Vehicle development continued, with designers, engineers, and all their colleagues, working out of home offices. Meetings were conducted by video; product unveils were livestreamed with digital walkarounds. Car sales went digital.
Longer View
"What happens on the other side of this pandemic? How are people going to react to this, coming out the other end?" asks Julian Thomson, design director for Jaguar and a man who has spent most of his career thinking about the future in automotive advanced design studios.
What is becoming clear is that it will not return to business as usual when an all-clear is given. "We're never going back to the way we were," says Sandy Schwartz, CEO of Cox Automotive. His sentiment is being echoed throughout the industry.
Ford won't overlook the opportunity the crisis poses to make changes to accelerate launches and work to reduce fixed costs and warranty costs, says Jim Farley, Ford's chief operating officer. The goal is to run profitably at a lower production and sales level.
Fiat Chrysler Automobiles was forced into experimentation with a traditional workforce working remotely and sales switching to online. "I've been very pleasantly shocked and surprised at just how well employees around the world embraced working remotely," FCA CEO Mike Manley said. "We've been forced to rethink our entire business model. These are unprecedented times, and we've learned a huge amount already."
Manley says FCA has remained productive while still giving to communities. He said some new practices will continue and will have a residual effect on the business. "I think we can return stronger."
Dealerships Changed Forever
Dealers were among the first to adapt. They already possess digital tools and use them to varying degrees. Closing showrooms forced even the reluctant ones to adopt online sales, virtual vehicle walkarounds, digital signatures, and home delivery of new vehicles.
"Everyone's reevaluating everything they've done," says Ernie Garcia, chairman and CEO of Carvana, an online used car retailer. Many years of progress have been jammed into a few months, he notes.
And many consumers like it. Buyers like visiting a dealership to see, touch, and test drive a new car, but they complain about hours of paperwork to complete the transaction. They've tasted this new, more efficient way, and they don't want to go back.
Buyers want to go deeper into the process without touching anything, Schwartz says. There are about 33 signatures required in a vehicle purchase, and there is technology to electronically conduct all but about three of them before there needs to be any human interaction, and that's what people want today, he says.
"People want new and more efficient ways to do things," says Garcia. The current situation is pushing people to Carvana's business model—a web-based, contactless buyer and seller of used cars that can approve financing and trade-ins in minutes and delivers the vehicle to the customer when the sale is complete.
Experiment And Conquer Fear
Although a company such as Carvana may have a leg up, the pandemic has levelled the field for traditional businesses. It allows small groups to operate the same as larger ones, Schwartz says. This is the time to try things, evaluate everything, double down on technology, and focus on every tool to sell a car.
Pundits say dealers can't just put their current practices online. This is the time to permanently change how they conduct business.
Many buyers have had an aversion to buying a vehicle online without seeing or driving it. There were fears it would not be delivered, or live up to its billing, and they would not be able to return it. But fear of the virus means online purchasing is seen as the safer alternative.
Fear of the virus is pushing other behavioral shifts, as well, Garcia says. He is seeing a growing preference for personal transportation in many cities, and growing demand for suitable vehicles.
Ride Sharing And Electric Vehicles
Ride sharing is different today than it was 60 or 90 days ago, says Doug Ekizian, managing director of PwC Consumer Finance Group. Data shows people who used it are getting back into dealerships.
"I'm not going to get into an Uber or Lyft for a while," Schwartz said. It is this current attitude that forced General Motors to close its Maven ride sharing service, but GM CEO Mary Barra says the company remains fully committed to Cruise, the self-driving startup it acquired, and is preparing to build the Cruise Origin six-passenger robo-taxi at the GM plant in Detroit-Hamtramck.
Other automakers including Daimler and Ford have also gotten into the ride sharing space and all are working on autonomous vehicles.
Ekizian thinks autonomous vehicles will be pushed out to 2030 or beyond. The prediction had been for AVs to be on roads in significant numbers by 2025. Ford chief operating officer Jim Farley disagrees. He thinks the pandemic could promote more interest in autonomous vehicles in the future.
Peter Rawlinson, CEO and CTO of electric car maker Lucid Motors, sees an avenue for turning adversity into opportunity. "When we come through this, the world will need sustainable mobility more than ever," he said. "For instance, if pandemics are going to be part of the new landscape, we need biodiversity—which is what global warming is eroding—to develop new remedies. I really believe that we are connected to something that can change the world for the better."
Car Auctions
Even supplying the industry with used cars will change. Cox owns Manheim Inc., which is the world's largest wholesale auto auctioneer based on trade volume and also holds public and government auctions. Schwartz says Manheim used to sell about 10 percent of its cars digitally, but most were sold "in the lane," where buyers physically inspected the goods. Last year, sales were about 50/50 in the lane versus digital. With the advent of coronavirus, they abruptly became 100 percent digital.
It has been a difficult change, but the new way of doing business is safer, quicker, and better for everybody, Schwartz says. And it's not ending anytime soon. Manheim will not hold physical auctions for the rest of the year. Social distancing is impossible in the lanes. The fallout is that the process needs some improvements. When cars come off lease they must be cleaned; they also need more detailed condition reports and absolutely accurate descriptions so people know exactly what they are buying online.
Consumer expectations have heightened, Schwartz says. He points to food delivery in the time of coronavirus. In the past, consumers accepted waiting for a food order that was not ready at the designated time and was then tossed carelessly in a bag brimming with contents ready to spill out. That changed with curbside pickup and social distancing. We now expect our food on time—almost to the minute—and properly packaged. Similarly, with car-buying, online efficiencies will be expected to continue.
Ready To Spend More
As Jaguar's Thomson mused, consumers might be gearing up to spend more on their next car than they were planning to before confinement began in March.
Data from the online car marketplace BuyaCar.co.uk reveals that the average price of cars being reserved for purchase when lockdown is eased has shot up to a record level. Average prices paid on BuyaCar fell to a three-year low in April, but in May reservations shot up again. Analysts at BuyaCar think in addition to pent-up demand there is a stronger consumer appetite to buy a better car than originally planned. The sense was that essential car buyers who bought during the height of the crisis sought the most affordable car they could get, in many cases costing less than their original intention. Those able to wait will spend more. The data suggests there will be a surge in spending when the market begins to recover and has a busy restart.
Car As Respite
People want to spend time in their cars. They miss their cars and driving. Škoda UK commissioned a survey at the end of April and found a potential 1.2 million U.K. drivers working from home are retreating to their cars to have some time alone during lockdown; 13 percent are considering using their car as an office space; nearly two thirds of U.K. motorists miss driving their cars, people are washing their car more frequently, and 13 percent are dreaming about their post-lockdown road trip, according to a survey of 2,000 drivers. People are retreating to their massaging seats to sit back, crank up the volume, and sing along; pull out the tablet and binge watch; or take a nap.
Not All Good
It's not all sunshine and rainbows. though. The instant recession has resulted in record unemployment and has hurt bottom lines across the economy. Retooling an economy takes time. Many think the economic curve will be a W with a second outbreak and dip projected, said Ekizian of PwC. "Consumers are keeping their money in their pocket in case there is a furlough down the line or another outbreak."
The immediate shakeout will be dramatic, and some businesses, especially independent companies—and that includes dealerships—won't make it. Big companies, like automakers, could take years to make up for lost sales, and in the interim they will be forced to make some hard decisions in prioritizing which product programs get capital and which upgrades must be delayed. Usually the first programs to be dropped are the cool, low-volume cars.
FCA's Manley agrees. "It's been a horrible period for everybody, but good things come out of this."
SOURCE: MOTORTREND