Adapting to changing market dynamics

The last Insight Report was released in November 2020; an interesting period in which much of Europe, among other regions, was heading back into regional or national lockdowns. While the autumn months had brought a brief respite from the global pandemic, with consumer confidence returning and economies reopening around the world, the winter told a different story. Indeed, tough conditions remained in place for some markets over the festive period and well into 2021. There has now been 18 months of impact on global health from the pandemic, with more to come.

For the automotive sector, the impact has been stark, with around 5m fewer vehicles produced in Europe during 2020, down -23%. World vehicle production dropped by around 16%, according to ACEA’s Automobile Industry Pocket Guide. Almost a quarter of all cars are made in Europe, while 18% of commercial vehicles are manufactured in the continent. Europe also accounts for around a fifth (21.1%) of global vehicle sales, but there was a -20.6% drop in European new car registrations between 2019 and 2020.

Recent World Health Organisation reports suggest weekly global COVID-19 cases and deaths are continuing to decline. However, the cumulative number of confirmed cases and deaths as at 21 September 2021 was in the region of 228m and 4.6m, respectively. Some countries are still not fully open, and many governments are hinting there could be further restrictions to come over winter. In contrast, some legislators are now taking the decision that COVID-19 is likely to become endemic in the population: the point at which that is considered acceptable around the world is a matter of debate.

While COVID-19 has perhaps had the biggest impact on global economies over the past 18 months, it is just one of many trends with which the automotive sector has had to contend. In the UK, this includes increased logistics costs, reduced staff numbers, and headlines focused on a lack of HGV drivers, fuel shortages, and fears that food and drink won’t make it across the Channel. Much of this has been influenced by Brexit and, with COVID-19 diverting UK and European attention, it may be another year yet before a more comprehensive assessment can be made.

Globally, the push towards decarbonising transport has seen a rapid acceleration in electric vehicles, and the associated costs for manufacturers. The vehicle mix has shifted significantly and speeding up new energy vehicle adoption is both essential and inevitable. Alongside a change in the vehicles themselves, digital retail and agency models are transforming the way in which they are bought and sold. Mobility and finance solutions are opening up new opportunities for subscription and short-term rental, rather than ownership.

But industry growth relies on vehicles being available. Semiconductor chip shortages; issues with rubber, metals, and raw materials; and blockages in the supply chain have all impacted new vehicle production. This has had a knock-on effect in the used market, where what used to be a depreciating asset is now going in the opposite direction, especially for in-demand commercial vehicles. There is unlikely to be a rebalance in full stock availability until at least 2023.

Within this chapter, experts from Cox Automotive and Grant Thornton explore the potential impact of these trends on the short, medium, and long-term outlook for the automotive sector. Last year, the Insight Report compared the pandemic with the previous global financial crash of 2007/8. It took seven years for volumes to recover from that moment in history. Through carefully comparing, contrasting, and combining various potential scenarios, the forecasts for this year highlight several possible outcomes for the market. The focus is on the UK, but there are parallels across the world.

Unlike previous years, where the Insight Report presented a best-case, mid-case, and worst-case scenario, the intention this year is to spotlight several possibilities. However, there are pros and cons to each situation and the sector will need to get used to working and planning through uncertainty. While automotive businesses could perhaps have set their stall on the mid-case scenario in previous years, the recommendation for all organisations in the automotive sector is to invest in comprehensive and dynamic strategic planning.

There are no easy answers on the road to 2030; however, organisations and leaders that are able to deploy a growth mindset and see opportunity among the challenge are those which are most likely to still be here when the Insight Report is launched in 10 years’ time. Across all stages of the vehicle lifecycle, there is likely to be short-term pain as the way things are done is transformed; but the outlook for global automotive is one of a leaner, stronger, and more efficient technology-led business model.