How big does an automaker need to be to survive the car industry’s current upheaval?
I have never seen the new car market in such a volatile state.
Some brands are managing rapid growth, others rapid contraction.
Recent VFACTS sales figures show some car brands’ year-on-year sales results in Australia are down anywhere from 10 percent to 30 percent, and even more. Some have gone the other way. Some of these brands are current and former Top-10 sellers.
This kind of volatility is incredibly hard to navigate and two major forces are driving most of it:
- The ongoing need for legacy automakers to hybridise / electrify their model ranges (at huge costs) while remaining profitable
- And the arrival of greater competition from new carmakers
Newcomer brands like BYD and GWM are doing a remarkable job of earning ever-greater slabs of local market share.
At a global level, it’s required major rethinking by the biggest and oldest automakers.
Ford’s global boss Jim Farley has expressed alarm at the strength and sophistication of China’s automotive industry.
Even Oliver Blume, head of Porsche and Volkswagen, has reportedly shared that “Our business model, which has served us well for many decades, no longer works in its current form.”
These market changes are so vast The Australian Financial Review reports researchers estimate 43 percent of cars sold in Australia by 2035 will come from China, extraordinary given virtually no cars sold in Australia in 2015 came from there.
What does all of this mean?
It means a lot of legacy carmakers probably think they need to get bigger to survive, and a lot of new car brands probably think they need to get bigger to thrive.
Both aren’t entirely correct.
It’s tempting to believe that navigating the heights of the local new-car market requires more size, but what it really needs is right-sizing.
At some point, sales of the new-energy car brands will plateau. Their sales growth over time will bring them new challenges, like the need for more aftersales service and parts support, especially in regional and remote areas.
Also, at some point, the legacy carmakers will introduce new models to compete more directly with the new-energy brands.
This will level the product playing field.
Globally and at market levels, the legacy brands might have immediate advantages with larger established dealer networks, a greater understanding of the Australian market and customer, and the appeal of brand heritage.
The newer brands might have advantages with lower vehicle prices and quicker-to-market product updates.
But one thing is critical for all of these car businesses and that is they achieve the right sizes, especially when it comes to new-car development and manufacturing. This will let them meet changing market needs faster than larger and slower competitors, or smaller and less able brands.
Right-sizing is not about slashing everything to the bone.
And it’s not about creating the biggest of everything in the belief that ‘might means right’.
It’s about balancing infrastructure, supply chains, personnel, and financial scaffolding with carefully thought-out short- and long-range product plans designed to reach business goals in specific critical markets.
Right-sizing sets a course for the longer-term.
It can steer a legacy automaker over the roughest seas and it can help new brands avoid the same types of waves that might unexpectedly engulf them as they climb the sales-growth curve.
That’s why bigger doesn’t always mean better, and why right-sizing is so important – especially right now.
About Premcar:
Premcar Pty Ltd is a leading Australian vehicle engineering business that specialises in the automotive, defence and aerospace industries. For more than 25 years, global car-makers have made Premcar their go-to partner for the complete design, engineering and manufacture of niche-model new cars, full-scale new-vehicle development programs, and electric vehicle (EV) conversions and manufacturing. Premcar’s body of work is extensive. It is the name behind more than 200,000 new cars and 55,000 new-vehicle engines. The company has delivered technical advancements and sales success for major car brands from Europe, the USA, Japan, China and Australia. Visit premcar.au.
Image credit: thebeep.com.au
