Ultimately, COVID-19 appears to be speeding up change in the auto industry

By Bjorn Biel M. Beltran, Special Features Writer

THE WORLD has received a shock like no other with the outbreak of the COVID-19 pandemic, and car makers all over have been feeling the pressure.

In fact, according to data from global management consulting firm McKinsey & Company, it is estimated that the top 20 manufacturers in the global auto sector have seen profits decline by approximately US$100 billion in 2020, a roughly six-percentage-point decrease from just two years ago — a drop in profitability that might take years to recover.

Yet even before this great upheaval, the auto industry had been in the midst of rapid development and change. The pace of technology had sped up innovation in the industry for years, and with car manufacturers constantly looking for a competitive edge, the future of mobility looks very different from how it was previously imagined.

The digital revolution has ushered in an era of hyper-speed connectivity, and no longer is it limited to interpersonal communication. Utilizing technologies such as the Internet of Things and 5G, vehicles of the future can have access to a wealth of information by communicating with one another on the road, sharing data on things like the environment and weather conditions.

Such data could be used to prevent collisions, alert the driver to potential hazards, and even provide car makers design feedback on their models. The information could then be analyzed to optimize the manufacturing process of future cars.

The connectivity also allows for smart gadgets and cars to communicate with one another, allowing drivers to remotely control their vehicle functions with their mobile devices. Conversely, dashboards are becoming more and more sophisticated, allowing for easy playback of media from phones, laptops, and even smartwatches.

That’s not all. Other consumer trends are exerting their influence on the auto industry, particularly trends revolving around convenience and accessibility. Car subscription services are on the rise alongside ridesharing services as more consumers demand mobility solutions without the burden of a mortgage. Automakers are in the unique position of learning how to balance these new business models to meet the ever-changing expectations of their customers and meet their own revenue goals.

Sustainable mobility has also become a significant driver of change. Due to the increased availability and a positive consumer sentiment, electric vehicles are becoming more popular. Indeed, EV sales are poised to hit their highest level on record in 2021, according to the car shopping experts at Edmunds, with data showing that EV sales made up 1.9% of retail sales in the United States in 2020. Edmunds analysts expect this number to grow to 2.5% this year.

Such trends, along with the massive disruption brought about by the pandemic, have meant a time of rapid change in the development of the global automotive industry, even affecting such things as the process in which consumers buy their cars.

With the world on lockdown, consumers have had no choice but to use online sales channels in conducting their business. According to a recent McKinsey digital sentiment analysis, in Europe, the use of digital channels has increased by an average of 13 percentage points. Growth in online channels is high for every country surveyed, but the biggest boost has occurred in Germany, which has seen the use of digital channels jump 28 percentage points in response to the COVID-19 crisis. Moreover, 72% of first-time users in Germany and 70% of regular users are planning to continue engaging online even after the crisis subsides.

However, previous surveys by McKinsey have found that automotive players were uncertain about using digital channels to market their products. A 2019 Digital Quotient analysis, which is a McKinsey method for evaluating an organization’s overall digital maturity, revealed that the average automotive business has a clear need to digitize, with the industry earning a below-average score compared with other business-to-business players.

Consumer preferences are also changing. Surveys show that due to the economic downturn caused by the pandemic, more people are choosing to go for short-term, subscription-based services that do not tie up significant capital.

“On-demand mobility is on the rise,” McKinsey reported. “The COVID-19 crisis has reinforced the existing trend toward greater flexibility, as customers hesitate to commit to large-scale investments and want flexibility in a fast-changing world.”

“The automotive industry has reached a fork in the road: one path leads to reinvention and success, while the other maintains the current status quo. Business leaders will only have a brief window of opportunity to reimagine their core operations. To ensure their survival and success now and in the future, it’s time for automotive industry players to act,” it added.