Key Challenges Facing the Automotive Industry in 2021

A post-COVID recovery strategy for the automotive industry must include long-term solutions to existing and new challenges, rather than just reactive measures to provide short-term relief. One can chart a sustainable path forward by looking "medium-term" and then "long-term."

Fremont, CA: 2021 has been a year of upheaval.While everyone has had a difficult year, the automotive industry has faced unique challenges. Manufacturing has been disrupted by the closure of plants in China, and a drop in consumer spending has resulted in a significant decrease in the purchase of new cars. In the United Kingdom, new car sales fell 46 percent in March and 97 percent in April.

COVID, on the other hand, has not fundamentally altered the trajectory of automotive retail or manufacturing. The industry was already at a crossroads, and social distance has only accelerated changes that were already taking place. Finding ways to accommodate changes in consumer behavior and expectations, as well as creating new revenue streams, is critical for success beyond 2021.

A post-COVID recovery strategy for the automotive industry must include long-term solutions to existing and new challenges, rather than just reactive measures to provide short term relief. One can chart a sustainable path forward by looking "medium-term" and then "long-term."

Network Contractions and Remote Working

Network contractions were already underway prior to the pandemic. Honda, for example, planned to close 106 dealerships in Australia due to low profitability. Ford has the largest dealership network in the UK, with over 400 showrooms, but it plans to cut that number in half by 2025.

When COVID occurred, a number of networks went completely offline, while others resorted to remote working. Managing remote employees while maintaining quality control is a completely new challenge for automotive retail. Closing a dealership is never easy, but it has become even more difficult in the age of online sales and ambiguous sales attribution.

Online Sales

Prior to social distancing, online channels had already become critical to car sales. In 2018, an estimated 80 percent of buyers began their purchasing journey online. Although the dealership is still an important part of the buying process, COVID restrictions have increased the importance of creating fully digital purchasing options.

Buying a car online is not as simple as most other e-commerce transactions. For one thing, cars are expensive and rarely "returnable." Having said that, many brands now provide "online only" purchasing options and will deliver a car to one's home.