COVID-19 blindsided the world, immobilizing countries and industries alike. In the US, millions of families are experiencing a financial crisis due to the exceptional economic shutdown, loss of employment and looming signs of a recession. Given the chaos this pandemic is causing, to think there may be a silver lining seems almost ludicrous. But, in an unexpected and weird way, COVID-19 may actually be an accelerant to mobility innovation for the automotive industry.
Over the last several years, original equipment manufacturers (OEMs) have been rolling out connected services—such as GM’s Marketplace—that blur the lines between car and home to deliver a digital experience that is an easy extension of what has become our “24/7 always on” life.
Manufacturers have focused investment on developing connected car services to such an extent that the global connected car market was valued at $72.89 billion in 2017, and is projected to reach $219.21 billion by 2025 at a compound annual growth rate of 14.5%.
In an effort to compensate for the decline in vehicle sales due to COVID-19, auto manufacturers may further fast track the expansion of their connected services and shift investment from highly automated vehicle technology to Mobility-as-a-Service (MaaS), which holds the promise of greater profitability.
It will be another ten or more years before fully functioning self-driving vehicles become a reality on our roads—so automakers are looking at a longer timeline before they see a satisfying return on investment in developing highly automated vehicle technology. Conversely, manufacturers can reap greater benefits and profits in the near future by developing connected services that delight and compel consumers enough to pay for a subscription, which has not happened at a satisfactory level to date.
We explore how automakers can own the connected car space and develop winning connected services that captivate consumers in a white paper that we will soon be publishing. Sign up for our newsletter if you want to be one of the first to receive “Meet the Connected Car Concierge: How Automakers Can Delight Consumers & Win.”
COVID-19 hit dealers hard. Some states did not categorize dealerships as an essential business, thereby forcing them to close their doors to prospective buyers. Many dealers, especially the smaller ones, were not optimized for digital vehicle shopping, acquisition and delivery. Whether it was due to “productive procrastination” where they knew they needed to modernize but chose to invest in other areas, or simply a lack of funds, many dealers were caught off-guard when states issued stay-at-home orders. In response, they pivoted quickly and “went digital” practically overnight to keep the doors open and preserve their financial health.
With the fire drill of implementing a comprehensive digital vehicle acquisition process behind them, or nearly behind them, franchise dealers are now in a much better position to support OEMs as they expand their connected services—and, of course, to reap the financial rewards that appear to be so promising with connected services and MaaS.
Escalent’s Automotive & Mobility team recently conducted a study to better understand the impacts of COVID-19 on consumers and the automotive industry. The findings revealed that 12-month vehicle intenders will employ several strategies to save money on their next vehicle. Many buyers are willing to compromise comfort and convenience, opting for smaller vehicles and less features to save money. Others will opt for a used vehicle to reduce the cost of vehicle ownership. As we trek toward the apex of the COVID-19 curve, the proportion of Americans who will select a used vehicle is likely to increase.
Late-model vehicles (under five years old) provide an average gross profit of $950 compared to $140 on a mass-market new car in 2019, according to J.D. Power. Buyers will not have to contend with limited inventory because 15.28 million late-model vehicles will be available to cash-strapped buyers this year. In an unexpected way, both dealers and buyers walk away with a win.
Of course, the wild card is consumer adoption of new mobility solutions and the new role personal vehicle ownership will play. Time will tell whether the future of transportation looks more like subscription-based car sharing made available through all dealerships (rather than a few), or cloud-based, on-demand, highly automated vehicles consumers summon from their smartphone.
Until then, let’s hope we see a light at the end of the tunnel soon and look forward to tomorrow.
Escalent will continue to follow the American perspective, how it may impact purchase behavior, and the effects on the automotive and mobility industry as the COVID-19 pandemic continues to evolve. If you would like to learn more about our findings or discuss how we can help you navigate your business through this crisis, please send us a note for a free consultation.
Escalent interviewed a US-based sample of 1,000 consumers aged 18 and older from March 18 – 24, 2020. Respondents were recruited from the Dynata and Ipsos panels of US adults and were interviewed online. Quotas were put in place to achieve a sample of age, gender, income, and ethnicity that matches the demographics of the US population. The sample for this research comes from an opt-in online panel. As such, any reported margins of error or significance tests are estimated, and rely on the same statistical assumptions as data collected from a random probability sample. Escalent will supply the exact wording of any survey question upon request.