Apple has been forced to delay the launch of their latest iPhone because there is a global shortage of silicon chips - the most basic building block for any modern electronic device. Delays to new phones and computers might be the expected outcome from a crisis in supplying chips, but what about cars?
The average modern car contains up to 1,400 chips and auto companies are suffering along with the technology brands. Both Ford and GM have announced huge earnings reductions for 2021 because of the chip shortage. Globally, the chip shortage may cost the auto industry over $110 billion this year. IBM says that it might take over two years to see production catch up with demand.
Unless you are a very close observer of the auto industry, the global impact of a chip shortage in Asia may come as a surprise. But the auto manufacturers are facing a perfect storm at present. Customer expectations are shifting, the pandemic has changed how many people use public transport, and younger demographics are asking if they even need a car in the first place.
In addition to the chip shortage, I believe there are a few more key challenges facing the auto brands in 2021:
- Customer Experience Management outsourcing in EMEA: The COVID-19 pandemic is expected to result in a 3-4% market contraction in 2020, driven by the severe impact on energy & utilities, travel & hospitality, and manufacturing sectors (including automotive), which experience high CXM adoption in Europe. (Everest Group, 2020)
- The automotive industry must embrace a digital-first customer experience strategy: Customers who have adapted to online shopping and buying are not likely to abandon this behaviour even after the pandemic. A recent McKinsey article published in October showed an average increase of 13% in the use of digital channels for car buying in Europe, with 70% of respondents in a particular region planning to continue to engage online even after the pandemic. (ZDNet, 2021)
- Building great customer experiences: Historically, the automotive world has been very product-focused rather than focused on the customer and their experience. Indeed, 80% of executives still believe that the product is the core focus for automotive retailers and continues to be the driving force behind retail strategies. In a future mobility world, with greater transparency, accessibility and options for the customer, this cannot continue. Traditionally, customers bought their vehicle from an OEM partner dealer. In a world where we move from ownership to access, and customers increasingly become fleets, the fight for the customer interface is up for grabs. In KPMG’s Global Automotive Executive Survey, 49% of executives and 42% of customers believed that OEMs will win the race for the customer relationship by 2025. (KPMG, 2020)
- The OEM bypass: An increasingly environmentally conscious and practical consumer base prefers to either own an electric vehicle or use shared mobility platforms. Major cities in Europe are already tweaking their infrastructure to facilitate modern forms of mobility. The direct fallout from this scenario is that OEMs and after-sales service providers are losing their interaction with customers. According to BearingPoint, these trends could be potentially devastating. (Consultancy.EU, 2020)
Covid-19 has been a challenge. Many manufacturing plants were closed and car purchases fell off a cliff, however some changes in consumer behaviour may lead to future opportunities - such as more people working from home and fewer people using public transport. The independence of a personal vehicle may be important once again.
The changing customer experience is also a major change from a decade ago. Customers are increasingly exploring services such as Cazoo, allowing them to compare vehicles and arrange finance or a subscription all from a single site. The days where a customer would ask for a test drive and could be convinced to make a purchase through the efforts of a persuasive sales executive are numbered.
Let me know your thoughts on the challenges facing the modern auto industry. Managing customer expectations will be critical for success in the 2020s, but where do you think these companies need to focus?
CC Photo by Jon Koop