Key drivers for change and the need for significant cost savings and efficiency gains in the automotive industry’

What are the trends and alternative mobility solutions transforming the automotive industry? And how are customer expectations influencing global markets in this digital era? To find out, listen to MSX experts discuss these topics and more in our latest podcast 

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[00:00:09]Anne Havekost: [00:00:09] In 2018 and 2019, we already saw the automotive industry hit by a decline in economic activity, especially in the BRIC countries. Rising pressure has been caused by the entrance of new and digital competitors and dramatic changes to consumer preferences and behavior. In The first half of 2020, sales plummeted to historic lows due to the COVID pandemic.
[00:00:34] This has accelerated the automotive industry's need to reinvent itself even further. Now, recovery seems to be happening at a faster rate than originally expected with forecasts predicting an 8% year-on-year rise in sales in 2021, and even exceeding pre-19 sales levels already by 2023. This is of course good news for the [00:01:00] industry, yet some OEMs seem better positioned to take advantage of the upward trend than others.
[00:01:06] Here today with me to discuss major trends and provide an outlook of even more changes to come, four of MSX's most senior Global Account Executives, Shawn Coyle, Xavier Vandame, Dirk Bott and Eric Menoret. A warm welcome to you and everyone watching. My name is Anne Havekost. Thank you for joining us.
[00:01:26] Gentlemen, let's start right with the discussion. Where do you see the most far-reaching changes currently happening in the automotive industry? Is it to the business model, the products or the services? Shawn, would you give us an insight into what is happening in the US, please?
[00:01:44] Shawn Coyle: [00:01:44] Thank you, Anne. Yeah, certainly. You know, what we're seeing in the US is unprecedented change right now. When you think about most other commercial transactions - banking, home purchase - those industries went digital years ago and car buying demand really stayed in a low tech, [00:02:00] aggravating, slow process. And really, manufacturers and dealers have been constantly getting questions about where the industry is headed. Certainly with the pandemic, there was shift towards digitization, but really what happened is it forced OEs and dealers to quickly transform their business and take it online.
[00:02:16]Dealers had little choice but to invest in new software and technology, to have a purchase experience, both for service and sales, on the online process, being able to browse inventory, apply for credit, they had virtual test drives to showcase in vehicle technology. And I think whatever happened as well is now customers can do a whole transaction without setting foot into a dealership.
[00:02:39]You think about all those contactless options and being able to do things remote, what else is coming? I think, and you'll hear from my colleagues about different business models, but we have digital-only auto sellers. Tesla and Carvana and CarMax have introduced alternative models to vehicle purchase and obviously contactless sales and services is here to stay.
[00:02:59] And [00:03:00] then when you think about the technology of the vehicle, electric vehicles are certainly a hot topic at the moment, particularly here in the US. But autonomous isn't going away either and OEs are needing help in defining sort of what that strategy is going to look like. Right now, a lot of the vehicles already have some of that autonomous technology with lane keeping assistance and they slow down automatically if a vehicle in front suddenly comes to a stop. And so all these changes are only fueling more demands from consumers. And I think that the dealers in OEs right now have to really focus on that engaging customer experience and being able to take everything online and interact with consumers in an area that they want to play in. And when you think about the data off the vehicle, that's coming next. 96% of vehicles in 2030 will have built in technology. And really now the car can indicate what's new, when it's time to come in for service versus the traditional model of having the maintenance intervals set. 
[00:03:56] So now with all the technology off the vehicle and the car [00:04:00] indicating when a service is needed, I think this digitization in the model, the technology within the vehicle and the alternative powertrains that are coming, this will only accelerate the need for change in the market.
[00:04:10]Anne Havekost: [00:04:10] Thank you, Shawn. 
[00:04:11] Xavier, is digitalization also the game changer in Asia Pacific? Or are other changes shaking the region? 
[00:04:17]Xavier Vandame: [00:04:17] First of all, Asia Pacific is a fast and fragmented region from a maturity point of view and a distribution point of view. Yes, digitalization is definitely, like in the rest of the world, very important in Asia Pacific. Digitalizing the customer journey is a priority for all OEMs. In the region, some markets have really embraced it and other markets are quite behind. A fundamental element, I think, that a lot of OEMs are working on, is how do we successfully manage the customer online to offline transition?
[00:04:48]There's another important element, which is how do OEM support their dealers to fully adopt the new digital tools they are introducing? The other day I was talking to the president of a premium [00:05:00] brand, and today he's concerned. His dealers are getting bombarded with the OEMs digital tools and the need to support them. So, this is in a lot of OEMs minds.
[00:05:12] Another important challenge I see in the region is the retail distribution model. This is something in the region where we had a lot of OEMs trialing the agency model. Some are already quite advanced and really now looking at the lessons learned , what is working, what can be improved. Some are launching, and some are really thinking about it because they believe it's the future. And why it's the future? Because they believe that it's going to provide a more customer centric approach, and also it's going to reduce some distribution costs. Another element that Shawn mentioned was EVs. I think we are probably lagging behind when it comes to the introduction of EVs. 
[00:05:55] Anne Havekost: [00:05:55] Thank you very much. Very interesting insights. Let's stay on this [00:06:00] topic, the agency model. What is the maturity level here in Europe?
[00:06:04] Dirk Bott: [00:06:04] Thank you, Anne. Yeah, the agency model in Europe you could say has just started, or have started, but I think perhaps to make first, a step back. What is important? I see here as three dimensions which all must work together perfectly, it must build together the sustainable and profitable OEM solution. This is really key.
[00:06:27] The three dimensions are structured cost reduction, fulfilling the high customer demands - we are thinking of the customer online journey - and the optimization of selling the complexity of mobility.   And also the aspect of connectivity, with even more force, alters the current retail set-up, because of stability of the OEM to connect directly with the customer.
[00:06:53] So, this change in retail is a must, and probably the regulations in Europe will, in [00:07:00] certain areas, slow down the speed of change in comparison with some Asian markets, as Xavier has mentioned. But, for sure it will come. And of course there are some markets in Europe, and some brands in Europe we are also working with who are more ahead of the others which have installed the first parametres of this agency model, which have focused perhaps more on structured costs reduction,  some others also have focused more on the customer demands, which I said earlier. But overall, the agency model has started and we would go later more in detail. 
[00:07:43]Anne Havekost: [00:07:43] Thank you, Dirk. So, you just mentioned another important industry driver, mobility solutions, which actually adds to the complexity right now.
[00:07:52]Eric, would you give us deeper insights into the latest developments in this area? 
[00:07:57]Eric Menorte: [00:07:57] Hello to all. Mobility [00:08:00] as a service is obviously one of the topic of the changes of the new conception area that we are facing. If you, if we look back 12 months, we can see that this initiative has been slowing down due to COVID as actually a lot of customers experimented the need to have full time disposal of mobility. When the lockdowns in Europe, for example, where released, we saw everywhere, a huge boom on used car purchase for the customers. Nevertheless, it's a ongoing trend, major trend, that will come back. Although I do believe that it will not be the only one solution. It will mainly apply to customers, living in urban areas, and that do not wish to dispose too much of their wages into owning a car.
[00:08:57]By the way, another thing to [00:09:00] notice is that it's, so far, it's very much seen as a younger generation, consumption profile. I do believe that a lot more other generations, such as seniors for example, that see their monthly pensions being reduced, could be of interest of buying mobility as a service. 
[00:09:23] The next question is there are tons of initiatives, from new OEMs, or big dealer groups, or renting companies, even a finance and insurance institution, I'll get into it, public authorities, and everybody is trying to find his way, testing solutions which so far are not reaching their economic and profitable targets . So, my view is that it's still an experimentation, but it is not yet [00:10:00] clear who will be leading this, but for sure is a trend, and I don't see so far, offers either free covering the customer needs and allowing commerce or the actors, being profitable. 
[00:10:17]Anne Havekost: [00:10:17] Thank you very much for this deep dive, Eric. So yes, with new solutions and products still positioning themselves and being in a test phase right now in the market, profitability goals are certainly a very important focus right now for OEMs.
[00:10:32]Let's go back to you, Shawn. You mentioned earlier that EV is the hot topic in the US, or one of the hot topics in the US right now. What do you think is needed to make the product attractive for a broader customer range? 
[00:10:47]Shawn Coyle: [00:10:47] There's all this talk and announcements from the OEs of their shifting their product lineup to electric. Cadillac has announced that the full lineup will be electric by 2030. Audi has announced that the US lineup [00:11:00] will be 30% electrified by 2025. Ford made an announcement that they're investing 29 billion in EVs by 2025. So, the OEs are committing to this model. And what the dealers are starting to look at right now is they're looking at these OE commitments, but really asking for help.
[00:11:16]If you look at this trend, there's a couple of different things that they have to address. They have to address how to engage with customers when they're not coming back on a regular maintenance interval - so how do they make sure that the customer stays loyal to the brand and to the dealership? And also that future service model. You mentioned profitability, and when you look at the vehicles coming back for service, the internal combustion engines, they come back on a regular basis, they have a tried and true maintenance that has to get done and so dealers are taking a look at that future service model and saying, we need help. And that's something that MSX is doing right now is trying to fill in the gaps between what are best practices to take care of the EV model, and how do we drive profitability back to our dealers?
[00:11:58] As far as consumers, [00:12:00] EVs are starting to get on the shopping list. Costs right now are still pretty high. Currently, EVs make up less than 2% of all US new vehicle sales. Interest is certainly peaking, but when you look at consumer reports, many consumers really only want to pay a small premium for an electric vehicle and the cost of the battery and the technology still makes it really unattractive without government subsidies. 
[00:12:25] And, I think in addition to what's happening too, is that fear of range and anxiety, and the charging infrastructure absolutely needs to change and improve. If you look at folks that are buying vehicles, certainly majority of day-to-day driving can be handled on a home charged base area. But when you look at they're going on long trips, you really need to pre-plan because charging an electric vehicles certainly takes a lot longer than filling up a gas tank. And, what you're seeing right now is to help address those concerns, OEs are really pushing for federal initiatives to increase the charging stations. But I think certainly [00:13:00] from a pricing standpoint, more needs to be done to address the peace of mind of consumers. 
[00:13:05]Anne Havekost: [00:13:05] Thank you very much. So, in Europe, we see that consumer acceptance of electric vehicles is a little bit higher and more and more OEMs are increasing their EV offerings. Some are even launching their very own EV brands to sell directly to customers.
[00:13:21] Eric, how do you think these changes will impact the retail side of the business? Do you think it would affect the role of the dealer in the future? 
[00:13:28] Eric Menorte: [00:13:28] Yeah, absolutely. It will probably impact a lot the overall distribution value chain, but a major OEM recently, that was Stellantis by the way, recently claimed that their, let's say, mid-term objective looking at 2024, will be only to implement the agency model up to 10 to 15% maximum of the volume being put on the market. And that was following an experimentation that [00:14:00] is now going on nine months in at least three markets in Europe.
[00:14:06] So, as a consequence, the need for an OEM to keep on having a proper distribution network will remain, that's one thing. The other thing is that due to the massive investments that the OEM are confronted with on EV technology, connected vehicles and so on, they will have to find ways to make distribution less expensive.
[00:14:37] Eric Menoret: [00:14:37] And those OEMs are also announcing today that they are claiming for their distribution network to cost less. So it will mean that probably they will go further into viable margins being awarded to the distribution network that probably they are going to reduce their presentation, for example, [00:15:00] and they we will probably, also, invite concentration into distribution network. 
[00:15:08] On the other side, because they still need this profit, there will be also, which is called tiny toys somewhere, they will be also more demanding in dealership being loyal on parts purchase into the OEMs because they will need those profitability while the total consumption of parts due to EVs will be reducing.
[00:15:32] That then brings us to look at the dealer side. Dealers' profitability is at risk, OEM support provided to dealers will be reducing,  that will normally drive , and we already see that, drive to concentration, meaning more and more huge multi regional cross borders, multi brand, dealer groups, in or der them to add the [00:16:00] s phisant  surface to phase their investment, to optimize their supply, and so EV, at the end, is one of the elements of the transformation, but not the only one. 
[00:16:15] Anne Havekost: [00:16:15] Thank you very much. So, OEMs have been facing heavy investments to bring new EV models to the market, and are looking for ways to keep their spendings at bay with new ways of distribution. 
[00:16:26] Xavier, in several markets throughout Asia Pacific, the direct sales model is already up and running for some OEMs, and we've heard some changes that means to running the operations for retail networks from Eric.
[00:16:39] Could you give us further insights into this and maybe highlight what retailers in Europe could learn from this experience? How they can turn this into a profitable business model? 
[00:16:51]Xavier Vandame: [00:16:51] Yes. You're correct, Anne, as I said before, a lot of the OEMs, many OEMs, have been trialing the agency model in the region. Toyota led [00:17:00] the way back in 2018 in New Zealand. Mercedes Benz also followed that path in South Africa in 2018, BMW in 2020 in South Africa. As we speak, Honda is launching this model, distribution model, in Australia and Mercedes Benz in Australia, again, working on the model. And we do know that there's other OEMs that are really looking into it in various other markets.
[00:17:27]What we've found, or what we've learned, one of the key learning is the planning. The more planning, the better to ensure that the OEM and the dealers are aligned on the vision. They also, from an organization point of view, they're aligned. And the last, but not least it's a, they're, they align with the success parameters. So that that's one thing that we've learned.
[00:17:51]Something else that we've learned is the impact of fixed price. Basically, fixed pricing has very good benefits. Dealers are less competing [00:18:00] against each other. And also with that transparency of pricing, it's very appreciated by the consumers. They spend less time shopping around, going from one dealer to another within the same brand to see if they get a better deal. So, basically that's from a consumer point of view as a really positive experience or impact on CSI. 
[00:18:21] And then the dealers, they're shifting from a discount race to really giving the client a better  purchasing experience. And also, there's more emphasis on the product. So now that you put away that competition on pricing, they really need to now concentrate on the product.
[00:18:43] It's important as well to prepare the sales team. There's a shift in the way, they're selling, and as I said before, really focusing on the product, so that there's more emphasis on what are all the benefits and what am I saying? What is the value proposition? So I think that's important. And a [00:19:00] lot of the OEMs they understood that. 
[00:19:02] When you look at the new players, EV or not EV, nowadays, they're not going to be setting up dealer networks. They're going to be selling more and more online, and then looking at delivering the vehicles through different channels, selected channels, and servicing the vehicles through select the channels. So the traditional OEMs, they really need to adapt. And I really believe that for many OEMs, the agency model is the first step towards the online selling model. When you look in China, I'll give you a few example, they started three years ago, they moved away from the traditional 4S dealers. What they did is they set a few showrooms in the main cities, then also the communication, the customer engagement, is mainly done via social media platforms. And when it comes to servicing, they've got partners, those partners either are fully dedicated to Nio, they are investors, or they are [00:20:00] all makes. And that has been working well. 
[00:20:02] You've got other examples, Chaopeng, Weima or Lichiang, they've got a hybrid model. They've got their showrooms, and then either they've got some dealers that have either a showroom, a sales site or service center. So, this is what weve seen in the region.
[00:20:18]If I want to conclude on this model, I think what is very important is to circle back in what Dirk said, we need a sustainable model and a sustainable model needs to work for the OEM and needs to work for the dealers. That model needs to make sure that the dealers are profitable. If they're not profitable, potentially they're gonna walk away and in that interim time, the OEMs will be left with no dealers to deliver the vehicles and eventually finalize the transaction. So I think that planning and talking to your network, and making sure that it's introduced in the best way and a win-win for both.
[00:20:56]Anne Havekost: [00:20:56] Thank you very much. I think we've had a good deep dive [00:21:00] into what the agency model means for the dealer network. Customer- centricity is certainly becoming even more important. Dirk, could you give us some further insights maybe on what this transformation to an agency model actually means for the OEMs?
[00:21:15]Dirk Bott: [00:21:15] Overall, we really can say all OEMs around the globe are faced with these challenges. But the focus is different and the maturity level of the retail network, for course, is also different. But to say it is still easier for the sales team to sell the combustion engine because they are used to communicate the benefits. Whereby, by EV, they are faced with customer doubts and perceptions, not always based on facts, but this is the opinion of course of the customers.
[00:21:48] Also, the used car value is easier to calculate for the sales team, because most often, the OEM have not supported the network with business cases and augmentations [00:22:00] supporting the EV used car business. In the area of after sales, the pressure towards profitability needs a new way of offering. And even the facility infrastructure of the retail network, of the dealer, as such, need to get adjusted to the new situation. This means on one hand investments, less profitability, and here you can see there is a need to think over new business models, new offerings, and new ways.
[00:22:33] In Europe, these areas are our main focus, which remains a mindset of the sales team. Delivering augmentations, using the new digital tools and on the area of aftersales, it's mainly to give them options to get more profitable. It always depends, of course, from the retail network, as I said also earlier,  and we always have to have in mind to optimize the three [00:23:00] mentioned dimensions. A structured cost reduction, customer online journey, and the reduction of complexity. Because these all work hand in hand. And these changes we support for different OEMs to develop, some are really by the foundation to develop it before, to install it, for some others we are piloting the new retail concepts in some markets. In Europe, in comparison to what you have heard earlier in Asia, it is, in Europe, still more punctual. Sometimes there's new retail concepts, and with EVs, in connection related only to certain car lines. In Asia, is often a whole country or a whole region. And what MSX support with the OEMs is to go from the traditional way today to a pure agency model. And this, in the area of sales or aftersales, is where we focus on seeing the whole retail network. 
[00:23:59] We also have [00:24:00] to consider, at one point, MSX is working with traditional OEMs and what is a traditional OEM in this context? Someone who has a network as you know it today - dealers aftersales, some independent repairers they're working with. But newcomers, we're also working with them together which don't have a retail network. Of course, they are really starting and are really disrupting us for the traditional OEMs because they can work from a white blank piece of paper, which is an advantage on one hand, of course also a challenge when it comes to after sales network, as such. And here we are supporting both sides, the disruptors, or the ones which starting more or less directly with the direct sales channel, and of course the traditional OEMs.
[00:24:53] For one thing is clear, this change of retail, it will not come, it really has started. [00:25:00] And this, we see really by the different markets as well as in Europe. 
[00:25:04] Anne Havekost: [00:25:04] So, increased focused on vehicle electrification has been accelerated by global political agendas with the aim to minimize triggers and impact of climate change.
[00:25:14] This has created some pressure on OEMs and on dealer networks. On the one hand, OEMs have to make heavy investments, increasing EV penetration, which certainly means increasing the EV product portfolio, leading to heavy investments in R and D and factor redesign on the OEM side. On the other hand, we see dealers suffering from cost cuts in the distribution model and decreasing service revenue.
[00:25:42] And last but not least, what adds to all of this is that the great majority of Customer are still hesitant to go electric due to range anxiety and insufficient public and private investments and charging infrastructure. We've already touched a little bit on the [00:26:00] digitalisation of the retailer, maybe more from a retailer perspective, let's now change to the customer perspective.
[00:26:06]Leading brands in some industries had already provided a fully online end to end retail experience before the COVID pandemic hit, while others quickly followed in their footsteps. Shawn, where do you see OEMs and their retail network in terms of digital retail maturity? And how well does the retail experience they provide actually match customer needs?
[00:26:31] Shawn Coyle: [00:26:31] Yeah, that's a great question, Anne. As we talked about earlier, the business was forced to go online and what my colleagues have already referenced is a transformation. And, when you see the customer shifting their journey from 80% of the shopping done digitally, certainly you have those OEs and progressive dealers that you referenced that have had that experience already. But it's really that mindset needs to change with how to provide a great digital retail experience. And what it actually [00:27:00] allows dealers to do is connect with consumers much earlier in the sales funnel, if they have that engaging online presence. Customers can shop, they can reserve a vehicle for a test drive, they can complete paperwork online. So tools such as live chat have really been enhanced to, again, provide that great connection. But when you think about the offline, and Dirk mentioned a seamless transition from online to offline, offline is still obviously critical to the car buying journey,  test drives are still the number one factor in purchase decisions. And really now you have leads coming in from multiple digital sources, and how do you make sure that all those leads are being followed up on? 
[00:27:38] The next shift from a digitized end-to-end experiences is also on the finance service. How do you sell extended warranties online? How do you sell in-vehicle subscription services? And, will we start to do extended range purchases, etc.? From the model, certainly sales has always been at the forefront. You could certainly spec out vehicles and order vehicles, reserve vehicles, [00:28:00] but really digital tools in after sales have really been accelerated over the last few months and, really, if dealers want to exceed in this market, besides ability to pick up a vehicle for service or drop off a vehicle after the purchase, they need to offer mobile service, online service booking, upsell approval. So how do we keep customers informed of what's going on with the vehicle while it's in service? And also remote payment options. When you think about also the aftermarket, this is not just a transformation and shift for dealers and OEs, the aftermarket is fully embracing these digitized trends.
[00:28:37]They have many different options for service - curbside service, contact free service, even some aftermarket companies allow you to stay in the vehicle when it's hoisted on a lift, so you remain in the vehicle during the service. And so, you also have new companies such as Repair Smith and Your Mechanic where they actually schedule the repair and come to your driveway.
[00:28:57] And so it's really more important now than ever, if [00:29:00] dealers and OEs want to retain these customers, they have to shift that model and they have to offer digitize solutions to allow customers to engage in the space and area that they're comfortable with. And really, with that mindset, and we've heard it from my colleagues already, is the fact that everything has to happen at the dealership, that mindset has to change because you're already seeing it. You've got Tesla changing the game - very few dealerships, 90% of the time the vehicle is picked up for service, they never go to the workshop. And then obviously over the air updates are done for the majority of repairs. 
[00:29:34] Xavier mentioned transparency, and that's what customers want. Many years ago, even when you were searching for a new vehicle, it was like pulling teeth to get a quote from a dealer on a lease or a finance purchase. It was always, "come to the dealership and we'll take you through our process and then we'll get you that price." You know, then other companies and competitors came in like TrueCar where they offered pricing transparency.
[00:29:57] So now, obviously, in this shift and [00:30:00] transformation through a digitized experience, now you can get that price and feel comfortable with that price. But now what you have to look at is transparency and services. If I'm booking a service appointment online, the expectation is still that if I book a 10 o'clock appointment, my vehicle is in the workshop at 10 o'clock. That's not always the case.
[00:30:19] And so dealers, through this process for sales and service, need to constantly bring that transparency to the forefront for consumers. And you know, there's obviously some gaps and if you want to be successful, you really have to think about, what's changing. And not only that digitized experience that may also change the model of staffing - do you have fewer sales consultants? And do you shift more to product specialists and technology specialists? I think you'll certainly see, for dealers to really meet those customer demands, they need to increase in business development centers and remote specialists to be able to answer questions and deal with consumers in a timely basis.
[00:31:00] [00:30:59] And all of these changes are occurring. I think that the customer demands more constantly increase. And the goal is always going to shift, but these changes won't stop. 
[00:31:09] Anne Havekost: [00:31:09] So we can say that dealers struggle with the transitioning to a more digitally oriented customer journey, especially in the service area, but there've been some major leaps happening in the US as you just mentioned Shawn. So where do we stand with this in Asia Pacific? 
[00:31:25] Xavier Vandame: [00:31:25] Look, I think we are probably a little bit behind except China. China is always ahead when it comes to new technology and new processes or new models. But if I look at Asia Pacific none of the OEMs today have an end to end customer journey that's digital. 
[00:31:43] We recently did what we call a digital readiness assessment. So what we did is we've got a thorough and comprehensive approach or tool or methodology to assess the OEM's digital customer journey. So we looked at all the OEMs, at what journey [00:32:00] they offer and also compared against customer expectations. And it was interesting because we found that obviously none had an end-to-end - there was some missing or some gaps but also when we presented the results to the clients often they were not surprised, either they were working on those gaps or it's something that they felt, oh, wow I probably need to work on it against the competition. One element that always comes up, and we were talking before about the online to offline transition, how you make that successful and an element that is always missing is basically during that journey is the ability to have a human interaction with the OEM.
[00:32:45] Let's say, I'm going through that journey. And I'm not ready yet to visit a dealership, but I would like to talk to someone. I would like to ask some questions. For the best in the class they had a chat bot, which is not quite a human [00:33:00] intervention. But for most of them you cannot talk to someone and, talking to someone remotely is important when you're not ready to visit a dealership because you want to ask questions. You want a tailored product presentation. You want to talk to someone that can answer your questions about particular features in the model. You cannot find everything on the internet, even though more and more of the websites have more and more information about all the models. You would like to talk to someone.
[00:33:31]I've got an example. Shawn mentioned the test drive. It is important to visit a dealership for test drives. When you look at China, again, many of the EV brands, you don't need to visit a dealership to have a test drive. What you can do is you can register online, you will have a QR code, and then you go to a specialized or dedicated facility. It's not a dealer where you can pick up your vehicle and then have a test drive. So these are some of the [00:34:00] activities or the situation in Asia Pacific. 
[00:34:04] Anne Havekost: [00:34:04] Thank you.  Eric, you also mentioned earlier the fact that becoming lean, becoming more profitable, more cost efficient, is a priority on everyone's agenda.
[00:34:14] However, so we had just mentioned that dealers are struggling with this transition to a more online oriented customer journey, especially with the online and offline integration. So my question is how do we bring these two together? How can dealers become more successful at implementing new technology that actually enables them to reach a higher operational performance?
[00:34:36]Eric Menorte: [00:34:36] Yeah. Thank you for the question. The funny thing in this is that somewhere dealer groups were bought to experiment digital sales, digital customer journey management, because they were forced through the rundowns that applied in each of the countries in Europe for the Covid, again. So now they really [00:35:00] can say, and can feel, what does it mean to keep on being able to be actively selling cars in a fully digital environment?
[00:35:12] I share with you one feedback from a major dealer group that I talked with in France. We decided before the rundown in March, I called and asked her to implement a digital product presentation with potential leads, customers. And so they've got a call center where they issue some customer requests. They were qualifying those requests driving to make a product presentation and a customer interview from their dealer showroom, right? And they went through more than 1,500 digital presentations with their customers. At the very end there where able  to sell five [00:36:00] cars, fully digital and at the very end, most of the sales consultants where really questioning the efficiency of those digital product presentations or interviews. And the outcome of these particular dealers, but through a lot more numbers of dealers was that full digital sales, In the traditional customer journey, which is, I want to buy a car, is not proven to be efficient and that there will still be a need of  what I call a 'phygital' customer journey, which is the mix of lots of things digitally, but there is still a need for physical interaction. Exactly as what we were mentioning, to test drive the car to have a physical one-to-one negotiation with a sales consultant and what I call making the papers.
[00:36:58]And that is really [00:37:00] in the core, so far, of a dealer mandate. We could look at full digital alternative  players and so on, but the dealer by essence is there to interact with the customer. So if we look at this, what are the lessons learn the lessons we could learn out of it in terms of challenges for the distribution ahead. Obviously being able, and there is a lot to say being able to manage tens, thousands, millions of signals coming from the customers, leads, coming from the customers and being able to do it on time professionally and with a mix of digital and physical interaction. The second one, I think, what should be my next sales force?
[00:37:49]Can I transform as a dealer my traditional sales consultant sales force? Training and education should be enough, changing the behavior and the [00:38:00] mindset. Can I implement it or do I need to go to disruption and finding new sales rules and the one I got traditionally? And the third one that maybe we did not touch upon so far is everything which is CRM, DMS, IT, Legacy system integration, which is a field of complexity, which is enormous.  And which is something that I will not say dealers are discovering now, but there is need to to cope with. A huge dealer group is by,  essence multi brand is still obliged to run with different CRM systems, which are the ones of the OEMs.
[00:38:45]Very often they need to have two to three DMSs. They are publishing their offers on their own website, but on a vast number of other advertising websites and so on. And they are eceiving datas from everywhere [00:39:00] and that is really one of their main concerns.  And I'm agreeing to end being back on what I said before. All those lessons learnt, are certainly also pushing for more conc entration into dealer networks because the field of play is so complex that the bigger you are, probably, the most easy it is to face investment and the challenges. 
[00:39:26] Anne Havekost: [00:39:26] Thank you, Eric. So what we're seeing across regions is one of the pain points being definitely the increase in complexity but what we're also seeing is a difference in customer expectations dependent on the region. There's still a long way to go, to get full acceptance of a digital customer journey by the end customer here in Europe. As well the OS customer might already expect a fully digital journey as mentioned.
[00:39:52] Dirk, from an OEM standpoint, what do you think has to happen to facilitate a comprehensive digital transformation? [00:40:00] And do you see any differences in the way premium and volume brands are approaching this challenge? 
[00:40:06]Dirk Bott: [00:40:06] Thank you for the question. And I would like to split this answer perhaps in two areas. First, I would like to say something to the digital solution and also afterwards , to the difference of volume or premium brands. I would like to mention that digital solution today is also a buzzword because overall in every service MSX offering to the OEM, we always include digital solutions.
[00:40:31] So I think here we would be meaning the digital transformation, which is making the change we are talking about. I see here, two areas. One is a training with digital solutions and the usage of digital solution to support the customer journey.
[00:40:47] I would start with the training.
[00:40:50] MSX saved millions in one country for one customer where we transferred his traditional training approach in a [00:41:00] digital one. We moved a split from 70% traditional and 30% digital into 20% traditional and 80% digital approach, where we used VBT, VCT, microlearning, 2D, and 3D animation, automated reality, and other technology.
[00:41:21] A whole product launch could be done digitally. So you can see now here it could be commercial, it could be technical training, but this transformation, this is really done in a lot of countries by a lot of brands today. So this is really nothing. If someone has not started, I think he will have real problems in the future.
[00:41:41]And MSX has done this for several OEMs. If one considers a centralization of what is central training areas and the coverage  of several countries, the saving for an OEM was enormous because this several million was only for one country for one customer. And of course we had done it on a central level and then [00:42:00] localized it for different markets.
[00:42:02] It was a big step where we are more, at the end, there are more things digitalized.
[00:42:09]So other digital solution, as I mentioned earlier, is more the usage. It's related to the online customer's journey. It's a huge opportunity for the OEM, but of course, of the current setup, also a big challenge. Yes. We support several OEMs to integrate digital solutions to fit the customer expectation.  The biggest task for us is to build it into the OEM ecosystem without increasing the complexity, to keep it simple for the OEM, the retail network and the customer. This is really as a task. To integrate it into the ecosystem. To change the retail network mindset to ensure it is managed and planned is often the bigger challenge as the integration of the digital element.
[00:42:56]To integrate the digital element could be also sometimes very easy, but [00:43:00] important is that the retail network wants to change the mindset and also use it. And for other OEMs, we do not even integrate this online sales tool to optimize the retail network. MSX developing, and executing it to change their own OEM online sales and after sales positioning, and the direct line to the customer.
[00:43:19] So it is not done only for the retail network. It is more done for the OEM because he would like to have it at the later stage for a direct link to the customer.
[00:43:28] Coming to the next part of your question then. This was, are there differences between luxury, premium and volume brands? I would say, we support all, including, as I said, the earlier disruptors.
[00:43:44]And the disruptors will have entered this year or last year and more will come in the next years as you know. And the main difference is always the complexity and scalability, especially by the disruptors. Because the complexity is [00:44:00] much lower and such scalability is much more important because they're missing the offline network, which is for them again, a challenge, but also an opportunity. But overall, we see no difference in the quality or premium-ness of the online approach. This is also obvious because the customer always expects  the high, seamless approach.
[00:44:27] And of course, it's all OEMs try to deliver. And they also have to deliver this, independently if it's a volume or premium brand. The difference lies on the maturity level of the network. As well as the legal, regional terms. And of course the OEM DNA. Here, the difference depends on the market and on the OEM. 
[00:44:53] We have experienced that the launch of single ticketed solutions from chat bot virtual [00:45:00] showrooms, booking system, et cetera, up to the launch of a platform,  is always the biggest challenge to integrate in a system of software.
[00:45:10] So it could be one digital solution. It could the whole platform, the whole customer journey, which started getting more and more. Why does it get more? And what would this effect? We are talking about the new retail agency model and at a certain point for different car lines or in different markets, when would like to take it over, this customer journey.
[00:45:32] Of course, they need a platform which can manage all of this. Well prepared and aligned with the main stakeholders we see more and more OEMs which implement a whole process instead of digital solutions, and to do this is a huge challenge, but even a bigger opportunity, nobody should neglect because it is the future.
[00:45:57] Anne Havekost: [00:45:57] Thank you very much. [00:46:00] Shawn, although there are some individual big dealer groups,  most digitalization efforts are implemented by the OEMs at a global level, as Dirk just mentioned. How important do you feel is local market knowledge there, or how important are our localization efforts in these initiatives?
[00:46:19]Shawn Coyle: [00:46:19] It's a great question. And really the local market knowledge is extremely important. We've been talking for the past bit about the digitized tools and the individualized sales and service experience, and really the same individual experience applies to the regions.
[00:46:35]You've heard from my colleagues, each region is unique. The OEs are certainly becoming more global. They obviously want to try to leverage economies of scale and roll out these global initiatives. However, as you've heard from my colleagues here, each market is certainly unique from where it is at, from a maturity and really technology standpoint.
[00:46:54] And I think that's where MSX sets itself apart because we understand the nuances and we [00:47:00] understand where each of the markets are within that digitization transformation. And, at MSX, we often use the term glocal where we can standardize a program or a rollout, 80% of the process could be the same, but you really need to account for that 20% of the regional customization for market differences. Because while someone at a global OE might say, this is what we want to do, some of those tools and the technology may not exist or be ready yet in the respect of a respective market. And one example is the work that we're doing with electric vehicles. We can leverage that head start being taken with electric vehicles being done in Europe and bring that knowledge and bandwidth to the United States to really help and engage those markets.
[00:47:47] So I think, again, OEs will constantly be looking for a global solution. Some of the providers that they're partnering with might not be local in every country. And that's where we can come [00:48:00] into play to help identify what's the best case and use of introducing these tools to the consumer.
[00:48:06] Anne Havekost: [00:48:06] Thank you. So yes, training is definitely one example where adaptations to local market conditions, culture and customer behavior are of utmost importance. And we've already heard from Dirk how cost-effective training setups have successfully helped OEMs and NSCs save a lot of money. So let's move on to the last topic of today's session.
[00:48:33]Pressure is very high and furthermore increasing with the entrance of new players that have been disrupting the industry. So the incumbents seem to react to this with even more mergers and acquisitions. Most recently we saw FCA and PSA forming Stellantis. What can we expect the business landscape to look like in the next five years, [00:49:00] fragmented or consolidated?
[00:49:02] And what other trends do you see emerging? And Shawn, let's stay with you. 
[00:49:06]Shawn Coyle: [00:49:06] Certainly this is a very exciting time in the automotive industry. There's tremendous change being brought about by digitization and technology. And really I equate this time as very much like the early days of automotive manufacturing when you had a lot of OEs or a lot of companies and startups trying to manufacture vehicles and, looking at it, some stayed many failed, but I think that's where we are right now.
[00:49:30]What's driving, I think, these partnerships is the technical development with regard to future technologies, electric, autonomous, connected cars. It's a huge investment. Anne you mentioned the merger of FCA and PSA to form Stellantis. Now you have, Ford and VW collaborating to drive down development costs of electric and allow for broader distribution for electric vehicles and commercial vehicles. Toyota and Subaru have partnered together to improve [00:50:00] their manufacturing and production in CASE, which is connected, autonomous, shared and electric era.
[00:50:06] And really the philosophy is they can partner together to make even better cars beyond what they could do on their own. I think, again, with this technology and these costs and investment, I think the partnerships will increase. The other thing these partnerships allow the OEs to do is they increase scale and global presence.
[00:50:25]One OE might get access to a new market. Another one might get access to products or services that they don't provide. And so I think while they're exploring these partnerships, there's still uncertainty of what this is going to look like going forward. As I mentioned earlier, some of these partnerships will fail. Others will succeed. And we're seeing that now, where certain investment s didn't pan out. Others have continued to thrive. Besides the OEs and these traditional incumbents, you also have new players that are changing the game and then you also have potentially players yet to be determined that might be entering [00:51:00] into the automotive space.
[00:51:01]I think Tesla changed the game, both from a manufacturer and distribution model. There's new electric companies popping up and you even have software companies, such as Google that are in the market, really fueling that autonomous vehicle change. And I think there's going to be both fragmentation as well as consolidation.
[00:51:18]One of the things of these new companies that are popping up is are they going to want to stay in the long run and be a manufacturer like a Tesla, or are they simply looking at technology and being able to sell that technology to an incumbent. 
[00:51:34] I think that the retail model, you've heard from my colleagues, I think that's also gonna change. We talked about potentially the structure of their model of sales consultants, product specialists, the digitization transformation, but even from a standpoint of, are we going to move forward in the next five years to a subscription model where you might have a monthly payment for a sports car, but you get access to a pickup truck on the weekends to do landscaping and that type of [00:52:00] stuff?
[00:52:00]Also, the model distribution, are we going to see dealerships consolidate, more of those partnerships? So again, I think in the long run, I definitely see more consolidation to fuel those investment costs.  
[00:52:14] Anne Havekost: [00:52:14] Thank you very much, Shawn.
[00:52:15] Eric, what is your take on the future scenario? 
[00:52:20]Eric Menorte: [00:52:20] No doubt that the competitive landscape is going to push for more collaboration, merger and acquisition. It's not only because of the new commerce coming in the market. It's also because the need from the OEMs to finance new enormous investments in particular to meet the CO2 objectives. So to give up vehicles is enormous and increasing the electric vehicle . There is also another risk coming, which is a diminution, or reduction, of the margin on parts. So all of this pushes certainly for a more [00:53:00] M and A type of approach.
[00:53:01] Last but not least that needs to be quite competitive because it will have to be affordable by the  customers. I know that similar to the OEMs, already told it, suppliers and dealers are goin g also to concentrate further. An  interesting thing is that  this process is also easing the introduction on the newcomers on the market, because the dealers are willing to diversify their risk and to invite more and more brands to be distributed.
[00:53:36]If you look at one in Europe, which is MG. It has been quite easy for them to come on the market and to contract dealers to distribute their products. I was looking at this against let's say 10, 15 years ago., where  newcomers in particular from Korea were coming into Europe and it was a lot more painful or difficult for them to [00:54:00] set up a distribution network.
[00:54:01]Last, but not least, and this is already happening, what we also see in terms of M and A cooperation and collaboration,  is OEMs align  with big energy companies and also to technology providers which makes sense because the energy companies need to find ways to compensate the further reduction of oil to the mobility and technology provider, because they can bring  probably firstly technologies, which are required, f om the OEMs.
[00:54:33] And as I said, we saw an example, for example, Stellantis  and Total who are building those giant battery factories in Europe at a pace which is accelerating a lot. We've got also GM and LG Chem in North America and more recently Renault with Dassault System who  is a software company, [00:55:00] a Atos who is an IT service provider.[00:55:00]
[00:55:05] They found those on data management, for example, or ST Electronics.  So yes MNA collaboration and cooperation are coming and increasing with which is quite new OEMs aligning more and more with not only OEMs, but peripheral business that are also need the optimization.
[00:55:28] Anne Havekost: [00:55:28] Thank you, Eric. Would you like to add a response Dirk?
[00:55:31]Dirk Bott: [00:55:31] Thank you Anne. For sure. And this is also our discussion  with all  OEM and OEMs are disruptors have confirmed. We could see in five years for sure another picture. As I said earlier, of course it depends on the market and on the region. 
[00:55:48] The role of the retail network has changed. The way of selling has changed. Abo, omni-channel, agent models, online, but the most [00:56:00] important thing is that this change has started and the ones who are not preparing or even implementing these changes today will be out tomorrow. 
[00:56:12]Today, more and more. we're not talking about planning. We are executing and that's also very important. 
[00:56:21]Anne Havekost: [00:56:21] So let's wrap up for today on your outlook Xavier please. 
[00:56:28] Xavier Vandame: [00:56:28] Look, I think to add something that we haven't said is what I'm finding in this region in Asia Pacific is that the OEMs are more and more versatile when it comes to where they want to be present, the geographic footpaths and the way they want to be represented.
[00:56:47]We've seen recently Nissan decided to in Indonesia to become to sell vehicles for distributor, rather than that a national sales company. We've seen General Motors deciding [00:57:00] to leave India such a big market. So what we find is that they're probably going to be more reactive when it comes to assessing, is it worse to be in the market?
[00:57:10] Is it, are we profitable and financially viable? And some of the regional, some of the markets in Asia Pacific show that and I think at the conclusion, we talked about online sales. We talked about EVs. We talked about the distribution model. We talked about connected vehicles. We didn't talk about the change of regulation.
[00:57:29] There's a lot of regulation changes in a lot of markets. And as a conclusion, I think we will be seeing more changes in the next year than we've seen probably in the past 20 years. And I think that's very exciting. 
[00:57:45] Anne Havekost: [00:57:45] Thank you very much. Okay. This brings us to the end of today's session.
[00:57:51] Now we are always returning to the common denominator of increased complexity of OEMs and dealers having [00:58:00] to balance heavy investments in electrified product portfolios, mobility solutions, and digitalization efforts. While at the same time, struggling with changing distribution models, different customer journeys, as well as changes to customer behavior and expectations.
[00:58:17] Those OEMs will emerge as winners that successfully integrate all these aspects into a profitable business model. This is true for both industry disruptors that have embraced innovative products and distribution models yet might face unsustainable manufacturing capacity and lack the heavy financial muscle to survive mid to long-term, but it's also true for incumbent OEMs that have accommodated to the changes at different levels of speed and success leading to the need, for example, of investment in startup capabilities or for consolidation and partnership across the value chain. I feel we've explored interesting insights and just [00:59:00] some of the major trends that are happening in the automotive industry. From the point of view of all main stakeholders and highlighting regional differences across the globe.
[00:59:10] I'd like to thank our contributors today. Eric Menoret, Xavier Vandame, and Shawn Coyle. I'd also like to extend my gratitude to our team for making this video possible. And on behalf of MSX, a big thank you to our audience. We hope you enjoy the company, seeing us today and our discussion, and would love to welcome you again to one of our next sessions. Until then we invite you to explore some of our articles or podcasts on www.MSXI.com.
[00:59:44] Feel free to reach out to us if you have questions or wish to receive further details on any of the topics that we discussed today. See you soon and stay healthy.
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