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Succeeding in turbulent times

Auto sector: Succeeding in turbulent times

Succeeding in turbulent times

Dieter Becker | Partner,

Key facts:

  • The corona crisis will lead to fundamental changes in demand and will lead to a much deeper systematic recession. Don’t lay off your sales team and focus on intensified customer relationship management and digital demand management.
  • Companies with strong liquidity are able to make use of the opportunities lying ahead in new partnerships including the detection of M&A targets in a consolidated world – in each crisis there is also a chance to be reborn.
  • Post-corona mobility will look different to yesterday’s travel behavior: It is a unique chance to switch to measuring usage behavior by application (mobility for families, business travel, individuals in cities, …).
  • CO2 targets will be put on the test bench and E-mobility is only able to survive in certain applications like cities or in a wider spread only with high subsidies by government.

Bolster sales

In my opinion, many manufacturers focus too much on the supply side effects. At the same time, I view the uncertainty in demand as the biggest risk as we witness unprecedented surges in unemployment rates. Therefore, car companies should keep in contact with customers to foresee cash concerns from the customer side. Actions to be taken:

  1. Don't lay off your sales team
  2. Prepare offerings for your customers to help them save money.
  3. Increase sales activities with intensified customer relationship management.
  4. Start transforming the sales cycle with defined customer touchpoints into more online sales by adjusting retail organizations now. E-Communication levels have to be sped-up and online sales trainings intensified in preparing for more intense digital channel management.
  5. Additionally, think of new classifications for “good old” customers and “good new” customers, due to different impacted industries through COVID-19 and the second recession wave following.

Liquidity is king

Getting transparency about cost and cash is vital with sales running low. It is not about cutting costs as much as possible, but rather about understanding your cash burn rates to identify potential cost cuttings line by line.

Companies with strong balance sheets who are still doing okay should now define growth opportunities. This includes detecting M&A targets, adapting purchase prices for collaborations and joint ventures, understanding debt levels and residual value developments at leasing, financing, subscription, digital agencies and retail companies. Today “weak” markets should be intensively analyzed for growth opportunities. In addition to new business partners, companies can also use the chance to kickstart plans to transform the relationship with existing business partners. Especially the existing dealer network may see increased disruption by the potential trends towards home working and digital consumption / purchases, if budgets allow.

Beside strong immediate financial support need for dealers, this may be an opportunity for automotive companies to address challenges and redefine working relationship with dealers: shift from a dealer focused sales channel to online / mobile focused sales channel supported by pure plant organized service organizations based on service contracts.

Lock down times in production should be also seen as a chance to improve processes, introduce new quality metrics, software updates or line efficiency improvements or even to introduce flexible production capacities and shut down plants permanently. Also, the need for further IT architecture improvements has become obvious to most of us. Thus, securing liquidity is not only necessary to stay afloat but to position yourself for the world ahead.

Expect fundamental demand changes

Post-corona mobility will look different to yesterday’s travel behavior and will lead in certain applications to less transportation. Health concerns could lead to a lasting demand shift away from public transportation which offers new opportunities to sharing models.

It is a unique chance to switch to measuring usage behavior by application: family application with nearly no change, but just delaying purchase decisions or entering community models. The share of individuals feeling responsible for communities is increasing. This could help in growing community models sharing cars and transportation – “from me to we”. Business traveler application with higher demand for connectivity solutions, mainly interested in software release levels but less mileage and performance and finally people living in cities with less need for a car of their own.

CO2 targets will be put on the test bench, revival of technologies like Diesel even reaching certain CO2 levels will be seen at the same time, as total cost of ownership is ruling all reduced fleet investment decisions. E-mobility is only able to survive in certain applications like cities or in a wider spread only with high subsidies by government, but whether this money will be still available after the second recession wave coming, can be doubted.

The sudden shift towards home working will have lasting effects on commuting. Current trend of increasing home working may persist partly in the future, which will likely speed up rate of digital consumption.

Summary

The market will be differentiated between many companies in deep crisis restructuring mode at supplier or dealer level and strong balance sheet companies that are able to move forward together with new partners into the new normal, especially those with a strong local production footprint in China, supported by strong government subsidies targeting a new positioning in global competition.

There is only one chance, a new definition from competition, to industry wide “competition” models to secure supply chains standing together (e.g. building “bad banks”) and in adapting to a much lower different demand structure around the globe with digital demand management and service factories.