The auto sector has been severely disrupted
Analysts including Deloitte1, McKinsey2, Autocar3, and DC Advisory4 have been tracking the impact of the COVID-19 pandemic on various aspects of the automotive industry, including launches, sales, usage and servicing – and the results do not make for happy reading.
According to figures released by the SMMT (Society of Motor Manufacturers and Traders), the drop in trade was almost total: car registrations have fallen by 49% since the start of January, with just 653,502 new cars sold, the lowest half-year total since 1971.
However, there are signs that the sector may now be inching towards more normal conditions. As the lockdown has begun to ease in the last month, so too dealerships took their first steps back into operation. With a raft of social distancing measures in place, such as queue management, sanitising of surfaces, gloves, masks and screens for sales staff and unaccompanied test drives, they began to see footfall rise and, as we’ve seen, sales too.
In June, over 145,000 new cars were registered, and while this represents a 35% drop compared with the previous year, it is a significant increase on the May numbers when just 20,000 cars were sold.
Moreover, the pain wasn’t distributed equally across the sector, with some managing to buck the trend, at least somewhat. Both Toyota and Lexus actually increased their sales, with Toyota’s June figures up 2.7% year-on-year and Lexus’s increasing by 13.6%.
But the disruption is about more than COVID
The automotive industry had already been grappling with a number of highly significant longer-term (i.e. pre-COVID) trends, for example:
- Traditional models of car ownership and purchasing were under severe pressure with leasing, partial ownership and short-term rental all giving drivers more flexibility.
- Traditional models of car retailing were increasingly being challenged by a new, younger generation of buyers increasingly wary of commission-led sales and looking for more dynamic, immersive, and transparent interactions.
These underlying trends won’t change, with COVID acting as a further disruptor, both in terms of economics and retail practices. An industry that had anyway been under severe pressure will have to urgently reinvent itself and be forced to question many of the fundamental assumptions of how it operates. Definitions of ownership, and approaches to retailing, marketing and even how new offerings are presented to the world will all have to change radically over the coming years.
Auto events had already begun to go virtual
For decades car shows have given a structure to the automotive calendar. The ‘Big 5’ shows (Geneva, Frankfurt, Detroit, Paris and Tokyo), supplemented by a whole raft of ancillary events, provided manufacturers with highly-visible opportunities to promote their brands, show off their latest models and showcase their future thinking via eye-catching concept vehicles.
But, even pre-COVID, things had begun to change. Over the past decade or so, auto shows had been evolving, partly to capitalise on new technologies for more effective and immersive staging and partly to reflect changing societal norms (for example, the use of glamorous models or “booth babes” draped over car bonnets had fallen out of favour5 as the car industry awoke to the societal push for gender equality and against the objectification of women).
Within the past few years, major automotive manufacturers have started to question long-standing assumptions about how their business works, and this has extended into the previously sacrosanct world of the auto show. In autumn 2016, for example, Ford, Volvo and Rolls-Royce were among automakers that decided to skip the Paris auto show. In 2018, BMW, Mercedes and Audi announced that they would not attend NAIAS in Detroit the following year.
The reasons for this are manifold. Firstly, attendance at such shows doesn’t come cheap – some have estimated the costs (including attendance fees, getting their vehicles and staff to the location, dressing their stands, investing in publicity, and so on, to run into tens of millions of euros6). Clearly, it was all about ROI. While these costs have been justifiable on the basis of both hard metrics like sales and softer ones like better awareness, stronger brand perceptions and social media likes, the digital era now means automakers don't need such shows to get big attention, instead interacting directly with shoppers on YouTube or Instagram or in a variety of new ways.
- In 2017, BMW launched the all-new M57 in EA’s Need for Speed Payback video game
- Automakers (e.g. Honda8) are doing more reveals away from the hurly-burly of large scale events, feeling that they get more guaranteed coverage for a lower investment
COVID is accelerating the move towards virtual auto shows
COVID-19 has almost instantly turned the development of a more questioning attitude to motor show participation into an urgent, tactical, and enforced pivot as one event after another was cancelled. Of course, this is not unique to the automotive industry. Events as varied as SXSW, Glastonbury, UEFA Euro 2020, the Tokyo Olympics, Eurovision, and the Hajj pilgrimage have all fallen victim to the COVID-19 lockdowns and travel bans.
In many cases, auto events were merely postponed, either until the autumn or winter of this year, or until 2021. In others, event organisers have sought to retain the event, but in a virtual form. The Geneva Motor Show 2020 was cancelled just days out by organisers after the Swiss government decided to ban events of more than 1,000 people to help contain the coronavirus outbreak in late February this year. However, the show carried on online via its own dedicated YouTube channel9 as the world’s leading carmakers went ahead with their unveilings.
The virtual auto show – the new normal?
As well as cancelling this year’s show, organisers have already announced the cancellation of Geneva 202110, citing the financial climate and uncertainty about what COVID will look like in future. More than that, they have also put the show up for sale11.
Such an early and pre-emptive announcement will have a couple of clear consequences. Firstly, it will force those considering going digital with their launches to up their game. While a relatively cobbled together effort might just about be deemed adequate this year, given the lack of notice manufacturers got, the same won’t now be true for next year. With a whole year to gear up, manufacturers will be expected to pull out all the stops.
Secondly, it may represent a game-changer for the future of the traditional auto show. By the time Geneva returns in 2022, if indeed it does return, many manufacturers will have had two years of non-physical launches. They will have full ROI data and lots of great learning about what works and what doesn’t. It is very likely that some will come to the conclusion that their valuable launch budgets will be better spent on events of their own, at a time of year that suits them, where the focus will be entirely on them and it will be easier to ensure their efforts get the splash of coverage they deserve.
How do auto brands react to this new opportunity?
Auto brands are thus faced with a clear choice: should they participate in virtual auto shows or not? If so, should they participate in industry events (such as Geneva) or simply run their own? Not surprisingly perhaps, some are choosing the latter approach.
Volkswagen responded to the cancellation of Geneva by making the VW brand show stand available for online visits12 round the clock and free of charge, for a limited time. This represented the first time that VW had presented new models in digital mode. Their “experience” allowed all vehicles to be experienced interactively and in a personalised fashion. Visitors could stroll across the booth, view vehicles from all sides and change colours and wheel rim configurations using easy-to-use functions. The focus was on the new VW products for 2020: the future electric vehicle ID.3, the new R with plug-in hybrid technology and the latest generations of several of their models. Similarly, Maserati have upcoming digital launches for their MHEV Ghibli (July) and hotly anticipated supercar, the MC20 (September).
What does a best-in-class virtual auto event look like?
While the precise mix of elements that virtual visitors might expect to see in a virtual motor event will vary depending on whether it is an industry-wide or manufacturer-specific event, we feel that what such an event should be aspiring to is to create a virtual environment that takes the best elements of an IRL auto show, but adds extra online bells and whistles to create something better than the sum of the parts.
Andy Walton, Senior Experiential Account Director at TMW UNLIMITED adds, "Considering how the physical experience transfers to a digital environment is key.
This could involve the use of VR technology to create a virtual space that feels cavernous and worth of continued exploration, potentially across multiple visits.
Alternatively, the creation of virtual goody bags, enabling visitors to fill up their metaphorical conference tote bag with the usual array of promotional literature packs, tchotchkes/freebies and sweet treats, which should then be sent out following the “event”, would allow for a data exchange.
But people will need to know your virtual event is happening, so ensuring a robust promotional plan to raise awareness ahead of and posting of further content after the event will ensure reach and longevity."
COVID-19 has placed even greater pressure on an automotive sector that was already battling several very challenging social and economic trends. The sector must pull off a major shift in mindset if it is to navigate these turbulent and unprecedented times: it must come to regard the shift in circumstance as an opportunity as well as a challenge.
Chris Mellish, CEO TMW UNLIMITED, adds “Brands need to constantly evolve and develop in these times to create experiences befitting to consumers’ needs. The balance of creativity and complexity in virtual events requires true integration and smart, proactive thinking.”
Thinking specifically of auto shows, it is clear that the shift from physical to (at least in part) virtual had already begun, before the pandemic hit. It is also clear that physical events retain a degree of mystique and magic that virtual events cannot (yet) match. But it is also clear that some in the industry already regard what has been done to date as the beginning of an ongoing story:
“Our first digital booth is only the opening chapter in our new sustainable concept for future innovative online experiences.”Jochen Sengpiehl, CMO of Volkswagen Passenger Cars
This article was written by Nick Chiarelli, Head of Trends at Unlimited and Andy Walton of TMW UNLIMITED.