I do not want to trivialise the personal challenges that people with substance abuse problems and their families face, nor do I want to suggest that the management of our car manufacturers are prone to this condition, but I do genuinely see some similarities within a critical part of our business, and perhaps also similar challenges in terms of kicking the habit.
I’m referring to how new vehicle supply (NVS) is managed, and the fact that this influences so much of our collective behaviour within the industry.
The topic was the foundation on which ICDP was built, and has been a continuous thread through our research for over three decades.
I devoted a large part of my time to the topic over a decade when I was in consultancy, probably meeting and working with many of the same individuals that ICDP was dealing with over that period.
Collectively, the industry did progress, and we had a number of ‘best practice’ examples who did a much better job of getting the right car to the right customer at the right time as the mantra went.
However, today we have actually gone backwards with Toyota (credit given where credit is due) arguably being the last man standing in having a distinctive approach to managing new vehicle supply, albeit within the more easily managed environment of limited product complexity.
Others have abandoned leading edge processes and technology, and disbanded the teams who used to sit between manufacturing and sales to manage the balancing act and who kept the NVS best practice flag flying.
This is despite the recent reminder during the post-pandemic chip shortages that producing one car less than demand is much more profitable for manufacturers and dealers than producing thousands in excess of demand.
How many times did we hear statements along the lines of ‘lessons have been learned’ and ‘we will never revert to the bad old ways’?
‘Push’ has again become endemic across the industry with just a handful who perhaps have been able to maintain a position of always having a queue of keen customers across the product range.
Even specialist brands like Ferrari and Porsche have been guilty on certain product lines that don’t hit the spot with the customers.
Want a GT3? Have a Taycan! However, what I now hear is that the pressures have become extreme across the industry, not only to push BEVs into the retail market, but in general to meet the manufacturers’ addiction to volume.
Like the addict chasing a hit, the more you go down this line, the more you need.
Pushing unwanted product into the market requires more use of ‘distress’ channels like daily rental, faster turn of demonstrator and courtesy cars, and more pack deals that require pre-registration by dealers.
All of these flood the market with young used cars, typically on the dealer balance sheets, that are highly attractive to retail new car buyers. (ICDP consumer research shows that 41% of new car buyers also look at used alternatives).
The discounts used to drive these volumes in turn drive down the residual values, making it more expensive for the manufacturers to offer competitive monthly lease costs on new stock. This cycle drives around half the total cost of distribution.
I am not naïve enough to assume that a single manufacturer can go cold turkey in a highly competitive market.
Brand perceptions and residual value models do not change overnight, and capacity installed by manufacturers and their suppliers has all been cost justified based on some volume ambition that may have been over-ambitious.
Dropping that ambition will create an impairment charge on the balance sheet and trigger claims from suppliers. That however does not mean that doing nothing is the right decision.
This is not only about the cost impact of discounting and high inventories. Stock that is forced into the market will tend to have a weaker mix than natural demand would create, so all the effort that goes into the development of desirable, high margin options is wasted whilst the market is flooded with plain vanilla lookalikes (or more likely in the car world, silver with the mid-grade trim).
Any attempt to move to omni-channel is constrained by the fact that the market stock has all been dispersed to dealers, so a customer looking for a particular specification will be forced into a particular channel by who is holding that stock.
Any attempts to improve price discipline and focus on the customer experience will fall on deaf ears as dealers look to shift the cars that are on their balance sheet and about to become interest-bearing.
Coming back to the addiction analogy, getting off the stock push drug cannot be done by someone just doing the equivalent of shouting ‘get yourself together, sort your life out!’
The treatment will take time, it will need continuous support (bring back the NVS experts, re-evaluate KPIs), it might need some external expertise to design the treatment plan (ICDP obviously, there might be others available), early successes need to be recognised and celebrated (elimination of overage stock), and it will probably not be a linear journey, free of setbacks.
In the end however, the most important factor in rehabilitation is the commitment of the patient themselves – in our automotive world, personified in the CEO and top management of each manufacturer.
ICDP is currently conducting research on current practices in this area. If you are able to share anecdotal stories or data with us on a confidential basis, please get in touch!
