The automotive industry’s inflection point: A consumer’s view of an industry in accelerated transition

The automotive industry and its value chain have been hit the hardest during the ongoing pandemic.

The industry was looking at significant disruptions even before this pandemic in the form of connected cars, electrification, autonomous driving, and ride sharing. These changes were happening in the mid- to the long-term time frame. The pandemic, however, brought about operational disruptions at manufacturing facilities as well as dealerships.

In addition, consumer usage has changed, bringing another dimension to this conundrum. Many of these changes are positive and forward-looking, like the growth of online channels, partnerships between OEMs and enhanced software integration.

As the world learn to live with this pandemic, the picture is improving, with dealerships getting busier. The supply chain disruption does dampen the outlook, but clearly, the demand from a customer standpoint is very much there.

Up until the pandemic struck, there existed a school of thought in the broader mobility business — that the personal ownership of cars was on the wane. The biggest beneficiary of this was supposed to be the car-sharing business.

However, the pandemic and social distancing have changed this thinking dramatically. A whopping 87% of customers in the key Asian markets mentioned that they will soon be in the market for a new car. Of these, an average of 24% expected their vehicle purchase to happen within the next six months. Similarly, in Europe, 70% of customers will be in the market for a new vehicle, with about 15% being in the next 6 months.

As economies return to some semblance of normalcy, OEMs, dealers and the larger value chain need to understand what the ‘new normal’ will look like. To help address such questions, we surveyed customers in 10 key automotive markets to understand their behaviour around purchase modes, servicing and preference towards new energy vehicles.

Physical to 'phygital' automotive purchase

The push for digitisation across all categories has made the automotive retail network look at their customer touch points with the view of further technology integration. In what traditionally was a very brick-and-mortar business model, consumer demand for ‘contactless’ buying has pushed OEMs and dealers to look at integrating technology into their day-to-day business.

The verdict is yet to be out on the extent to which customers would embrace digitisation for such a high value product. In India, an overwhelming majority of 60% customers mention that they would very likely purchase through a digital dealer set-up. However, in other Asian countries like Thailand and China, this enthusiasm is muted at about 35% on average. Interestingly, South Korea, which has one of the best digital infrastructures, stands at only 12%.

A similar trend is seen across Europe, where only about 14% of the customers cited a high likelihood of using a digital dealer set-up.

On deeper probing, customers do prefer a brick-and-mortar establishment. This preference for a physical establishment increases as the customer traverses the purchase journey, with 60% citing clear preference for a physical establishment to undertake final commercial dealings across key automotive markets around the world.

The critical question to address here are the reasons for this divergence in preference. While e-commerce as a business has grown exponentially, why are customers hesitant to go the full mile on a complete online automotive purchase?

The answer lies in the cohesion or the current lack of it between online and offline processes during vehicle purchases.

“Essentially customers are thinking on two levels, firstly the readiness of the dealer to seamlessly transition from one mode to another, secondly, the robustness of the technology integration to handle high value purchases,” says Anil Antony, global head of Automotive at NielsenIQ.

As the pandemic continues to disrupt our lives, a seamless transition from online to offline supported by a strong technology backbone is likely to make customers strike a balance between the two modes of purchase. At the end of the day, all the customer cares about is “whether dealerships are able to anticipate their desire, and accordingly work towards fulfilling it,” adds Antony.

After-sales service: The road ahead

The pandemic has been a once-in-a-lifetime disruption. The sudden drop in vehicle usage due to restrictions, and less congested roads leading to fewer collisions, have had a significant impact on the after-sales business for the automotive industry.

Having said that, the automotive after-sales business has always been the most resilient during all previous crises. When economic or supply constraints delay purchases, maintenance of the current vehicles become vital. We do see this in our data.

95% of car owners surveyed across the 10 key automotive markets say that they have had an after-sales interaction, with 77% mentioning that this interaction happened in the last six months. While that augurs well for the business, there are certain challenges too.

In Asia, 53% of customers mention that the OEM-authorised workshops are most preferred for their service interaction. However, Thai customers offer a completely divergent view, with 54% citing the independent network to be their most preferred channel. In Europe, preference for the OEM-led channels are only at 37%, with a strong preference for independent channels.

What causes this?  Optimised cost benefits, proximity, and trust are the three key reasons why customers choose the independent channels. On the other hand, higher cost outlay (45%), fear of unnecessary repairs/work (27%) and locational inconvenience (31%) are cited as reasons to avoid the OEM-led channels. Moving forward, authorised workshops will need to be further professionalised to cope with the increased complexity of customer behavior as well as vehicles. Removing hurdles related to scheduling, proactive communication, and transparent pricing will be the key to retaining customers overlaid with strong integration of digital technologies across the customer’s service life cycle.

The rush towards electrification

The fact that EV’s are here is an understatement. Most of the global OEMs have announced their long-term EV plans and are moving forward towards implementation of the same. The road is filled with uncertainty given the quantum of investments required, but most importantly, the key question is the consumer acceptance of mass market EVs. Customers around the key automotive markets however remain bullish on their intention to consider new energy vehicles.

34% of customers in the key Asian markets mentioned that they would like to consider a new energy vehicle (hybrids and battery-run) for their next purchase. South Korea and China lead this with 49% and 45% of customers citing this respectively, while Thailand follows at 33% with India at 27%.

Europe shows a higher intention with 44% of customers citing this as their intended fuel type for their next purchase. Italy, UK, and Germany are the markets which lead this inclination.

However, this intention is not without apprehension. Range anxiety and infrastructural challenges are cited at 78% and 66% respectively by customers as the key barriers to adoption of EVs from the Asian markets. A similar response comes in from European customers too.

“There are simply too many unknown variables from a customer point of view on new energy vehicles, '' says Manenatta Jirasevijinda, head Nielsen Automotive, South-East Asia, Pacific. “Anything the stakeholders like OEMs, dealers, can do, like experiential promotions, proactive communications, consumer education etc., are likely to ease and drive final purchase considerations.” she concludes.

The other expectation from the OEMs lies in the area of after-sales service for EVs. 73% of customers in the Asian markets and 70% in European markets cited the need for enhancements in post purchase support. Intending and current owners of cars have a general perception of the time and costs associated with maintenance of an ICE vehicle. However, clear guidelines or materials do not exist in many markets as far as EV’s are concerned. This highlights the need for customer education not only in terms of EV performance, but also EV maintenance.

While the above trends are seen across markets, there are still many differences between markets. Each of them will have its own set of nuances and challenges. In summary, the key to a successful EV portfolio will lie in a differentiated positioning of the OEM brand, near perfection in the omni-channel sales approach, reskilling on sales and after-sales teams.

To conclude, the automotive ecosystem is undergoing a fundamental shift in business models, and keeping customers engaged on these changes will be key. For the next few years, we expect the current fluidity to continue, and business processes to be volatile. Agile processes, customer segmentation and experience management will emerge as the key drivers of success. At the end of the day, it will be about anticipating customer’s desires and fulfilling them.

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About the author: Kaustav Roy is a Director of Consumer Insights (NielsenIQ- Automotive) leading the NielsenIQ and J.D. Power Alliance globally. This alliance is working to publish multiple studies on automotive customer experience in the key Asian markets. He can be reached at [email protected]

**The Global Auto Syndicated study 2021 is a survey completed by n=10,961 consumers across 10 markets, including China (N=1548), Germany (N=1010), India (N= 1500), Russia (N=822), Thailand (N=1003), South Korea (N=1010), United Kingdom (N=1036), UAE (N= 1001), USA (N=1000), Italy (N=1031). Fieldwork for all countries was completed online. The study aims to provide the broader mobility businesses a view of the market landscape, key trends, and the level of openness to the changes happening within the automotive landscape.