The coming years, we could expect the global demand for cars to increase, fuelled by recovery in Asia. However, over-capacity will persist at today’s level of around 30%. We are likely to see further industry collaboration, mergers and indeed consolidation as manufacturers seek global scale and access. At the same time, there will be an overriding focus by all involved in the industry to take cost out of the supply chain, whilst increasing responsiveness to the end customer. We will see significant changes both in supply chain dynamics and the inter-relationships between the various players involved — with manufacturers pushing down the chain, consumers pushing up, and distributors/dealers being caught in the middle. Manufacturers will not just want to ‘own’ the new car-buying customer; they will also want to ‘touch’ the customer far more frequently with other products and services. For their part, customers will demand greater choice and information, not just in terms of the product, but how it is financed, how it is serviced, how long they keep it for, etc. They will also demand higher levels of service, innovative solutions and value added services. Those companies who want to remain relevant in the future will need to change their whole mindset and think in terms of customer centric strategies rather than the product driven offerings of today. Manufacturers and dealers will compete for “ownership” or “control” of the end customer. “Ownership” not just in terms of the initial sale of the car, but for the life of the car — and, increasingly, for the life of the customer.

European manufacturers haven’t been inclined to undertake the performance improvements they need, because the regulatory environment so far has made them feel relatively comfortable. Exemption from various EU competition rules has given these companies a degree of control over their retailing systems. As a result, their high margins on spare parts and services have more than compensated for inefficiencies (the average dealer, for example, is only a fraction of the size of the average US one).
But now the kind of regulation that favored European manufacturers over retailers – and, some would say, consumers – is being swept away. In its place came the ‘revised block exemption’, which is designed to erode manufacturers’ control over car retailing. The new regulations confront auto manufacturers with the alarming prospect: sharply reduced control over their distribution networks, the potential for lower margins on new cars, and a smaller share of the highly profitable after-sales market. The new EU legislation is meant to increase competition in sales of new cars and in markets for services and parts and is good news for consumers, independent service shops, spare-parts suppliers, and many dealers. The increased power of buyers reduces the overall profitability of the industry. What began as a cost-driven pricing will move to a different price model: price-driven costing.