What does 2013 hold for the auto industry in Canada?

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With the Detroit auto show this week (yes, despite the strong presence of Los Angeles, New York, Toronto and Chicago as showcases for new models, Detroit still seems to be the emotional kick-off of the new automotive year) what signals do we see that provide insights into what lies ahead in Canada?

 

 

We see four major areas to watch in Canada for 2013:

  • Vehicle sales patterns will shift as the population shifts
  • More sophisticated technology will bring real benefits for buyers, but will create some turbulence for manufacturers and regulators
  • Canada’s manufacturing capability will continue to be under pressure
  • Changes in the retail environment will accelerate in the next few years
     

We will also take a quick look at a couple of the major themes apparent at the opening of the Detroit show early this week.


Vehicle sales – moderate growth and a period of transition We had a strong sales year on 2012. One of the features, and a trend that has been developing over the past few years, is the lengthening of the financing terms on new vehicles. This means that many who bought in recent years may be out of the market for a longer period of time. Couple this with the high debt load of Canadians (with those aged 50+ beginning to realise the threat that this poses to their longer term financial position) and shifting demographic patterns, we may not see more than just a moderate increase in sales in 2013. There are two transitions that will likely take place:

  • With the average age of a new car buyer still touching 50 and a large proportion of buyers being over 55, we see greater reluctance among these consumers to buy a new vehicle in the next year while those aged 18 – 34 are much more likely to be in the market. At the end of 2011, 22% of those aged 18 – 34 indicated positive intent to purchase or lease a new vehicle in the next 12 months. This increased to 26% at the end of 2012. Among those aged 55+, the percentage dropped from 17% to 14% over the same period. This will introduce decidedly different dynamic in the auto retailing environment – both in the decision-making process and in the dealership itself. Auto manufacturers and dealers will need to deal with a new “cohort” of customers, many of whom have different attitudes, brand perceptions and buying preferences from their predecessors. While this shifting of cohorts has always been there to some extent, economic conditions that have prevailed over the past five years have likely kept some of those younger consumers out of the market. The change will be more keenly felt in the next two or three years.
  • We’ll also see an increased questioning of the accepted notion that ownership of a vehicle is something to aspire to and an automatic part of our lifestyles. A younger, more urban buyer, different financial priorities and the continuing shift in how consumers want to express themselves, could have a moderating influence on sales growth in the future. Stronger interest in car sharing will be part of this and, although there will still be a need to have their own transportation, many younger buyers may see this as a viable alternative to ownership until they reach that point. Right now, their challenge is that awareness of this option is lower among these younger consumers – but therein also lies the opportunity.
     

Technology – battles ahead, but consumers still want more stuff
When it comes to technology in vehicles, there is no denying that things change on a daily basis. As far as powertrains are concerned gasoline is still king for consumers, but hybrids have reached that tipping point of broad acceptance as a mainstream option. In a study we conducted in the summer of 2012, pure electric vehicles actually achieved slightly better overall acceptance than diesel (fewer consumers rejected pure electric outright). This does not mean that consumers are ready to switch to electric, but that diesel still bears some of the negative baggage of the past. The bottom line is that consumers are ready to accept alternatives when the price and characteristics of those alternatives make sense to them from a financial and performance point of view.

Inside the vehicle, we see a real battle between what consumers would like to have and what makes sense from a safety perspective. Consumers are showing a real appetite for features that allow them to be connected when they’re in the vehicle and this will have to be balanced with the realities of safe driving. But which technologies do consumers really value and how would consumers like to “bundle” these new technologies, given the price? Harris/Decima will be releasing a study later this quarter that shows how future car buyers value up to fifty existing and new technologies and how they would like to combine them on their next vehicles.


Technology is at the heart of the changing retail environment as well. More about this later on.
 

Manufacturing in Canada – is this a watershed year and do Canadians care?
We’ve already had one surprise on the manufacturing front with the imminent shift of production of the Chevrolet Camaro from Oshawa to the US. And while the Ontario and Federal governments still have a significant direct stake in the industry and have signaled on-going support and funding for innovation in recent days, the playing field is still tilting southwards. Southern US states and Mexico are seeing continuing investment in their manufacturing capabilities and the pressure will be on as manufacturers look for the most efficient way to produce vehicles for the North American and other markets. The recent surge in vehicle sales in the US is a positive development for Canada’s manufacturers, but the drive for efficient production, not legacy, will determine future investment decisions on production. The Camaro move is an example of a decision driven by business realities and is just part of the longer term realignment of production and sales globally.

During the labour talks between the CAW and Detroit Three last year, we found that only 51% of Canadians were even aware of the talks. Granted, the percentage in Ontario was much higher (66%), but that still left 33% who said they had no knowledge of the talks. All Canadians are stakeholders (literally) in the outcome of the realignment that is taking place and there needs to be a strategy in place to ensure that we don’t get left behind.

 

Retail – pay attention to changing customer attitudes and embrace social media with your eyes wide open

The auto retailing model has essentially remained the same for decades. This may be the year when population shifts and changes in consumer attitudes really begin to be felt in the dealership and it may be time for many dealerships to look again at their standard practices. There are three areas in particular to watch.

The first is in the way consumers will go through the purchase process. No one doubts that most consumers go on line before they make a vehicle purchase. The common belief was that this would reduce the number of dealerships visited and shorten the overall purchase cycle. This doesn’t seem to be the case. Just before the end of the year, we surveyed Canadians to find out what they might do differently in 2013. What we found was that many Canadians vehicle buyers will:

  • Spend more time on-line researching their next vehicle;
  • Take more time to make their final decision
  • Be more assertive with the dealership when buying
  • Visit more dealerships, not fewer

This has clear implications for dealerships. The old tactic of pressure to buy that day is more likely to push the customer away and salespeople need to hone their skills in following up with the customer so that they do come back for that second or third visit. As well, the test drive may assume even more importance than before. The sales training curriculum will need to be updated.

These changes are clearly an outcome of the amount of information available to car buyers and their growing confidence in using that information. Interestingly, a relatively small percentage said they would be paying much more attention to social media in the car buying process. The growth is certainly there, but so are the fundamentals of a solid sales process. The key will be to leverage social media to complement and enhance sales processes, rather than replace the fundamentals.

The second area to watch is the facility. In upgrade and image programs, there is a strong focus on the “bricks and mortar” within the facility, often to the exclusion of improving the overall customer experience at the dealership. Given the changes taking place in the cyber-retailing world (and in other retail environments) and in the shopping process, isn’t this a bit like rearranging the deck chairs on the Titanic? Customers have new expectations. These are set by their other retail experiences and by their experiences on-line.

Is there a seamless connection and are the processes appropriate to the new environment? Facilities programs and improvements should focus as much on the seamless transition from the on-line environment and on the ease and efficiency of customer activity in the dealership as on the bricks and mortar elements of the facility.
 

Observations from the 2013 Detroit Show
Two broad themes were evident at this year’s show.


1. Advanced technology is replacing the traditional signals of luxury for consumers who “want it all”

  • Technology is no longer limited to just high-end vehicles and can be found inside the car for consumers to touch and experience and in the mechanics to transform the driving experience. As this plays out, it will be interesting to watch and see who “owns” the technology (particularly inside the car) in the consumer’s mind – the manufacturer, or will some of the strong technology brands begin to establish their territory. Which will be more appealing in the minds of the new, younger cohorts of consumers coming into the market?

2. Fuel economy and smaller engine sizes no longer signal less prestige or lower quality and performance

  • The four cylinder gasoline engine is no longer just an entry-level offering. Advances in technology, along with the characteristics of alternative powertrains (Diesel, Hybrid and Electric) and the tangible benefits at the gas pump will keep this trend moving quickly.

2013 promises to be an interesting year from many perspectives. The development and consumers’ acceptance and comfort with new technology are both increasing exponentially. Merely keeping up with these changes will be a challenge!