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Understanding the crisis as an opportunity – how the car trade can actively shape structural change

Can the ­automotive industry be ­reinterpreted­?

­Individual ­mobility ­means ­freedom, which ­everyone is ­entitled to ­and which ­must be ­made­ accessible. ­The ­claim of ­politics as well as the ­mobility industry ­- car, air and rail transport ­as well as all ­other mobility providers ­alike ­- must be to ­protect ­this ­freedom for those ­who ­already ­have ­it, to ­open it up for ­those who ­want or ­need it, and to ­secure it for ­future ­generations.

­The ­automotive trade in ­Germany has been ­in ­crisis for ­a long time­: ­First, a ­great deal of ­trust ­was ­lost ­among the ­public and ­customers as a ­result of the ­diesel scandal. ­Germany’s ­former showcase industry ­had ­lost ­its sympathy bonus ­practically overnight. ­Then, ­ongoing ­discussions about CO2­ limits­, ­possible driving bans ­in ­inner cities ­and a widely ­announced ­(but ­so far ­failed to materialize­) mobility shift ­towards ­electromobility have ­led to ­uncertainty ­among ­consumers. ­Postponed ­vehicle purchases and the ­resulting ­decline in ­sales figures have ­caused the ­already ­narrow ­margins in ­the ­trade to ­crumble further ­- not ­least fuelled ­by ­increasing ­competition from ­online brokers ­and independent ­leasing companies­. The ­business ­is ­in ­a ­dangerous ­downward spiral­: in order to ­achieve ­bonuses or target premiums, ­ever ­larger numbers ­have ­to be ­marketed. In ­the process, ­inventories ­are being ­run up further and further, and ­liquidity is being ­utilized to the maximum­. ­This increases the companies­’ ­susceptibility to crises. ­As soon as the market weakens even slightly, ­inventories have ­to be ­reduced and ­vehicles ­sold ­- no ­matter what­ the cost­. On the ­stock market, this ­phenomenon is called a ­”margin call” – the ­point at which everyone has ­to­ sell in order ­to ­maintain ­their ­minimum margin­, ­and ­from then on prices ­know ­only ­one way to ­go – down­.

The ­young buyer groups are ­just­ breaking ­away because the sense for ­this type of ­mobility ­is ­no longer ­understood. In the ­cities­ in particular, ­more and more ­people are doing ­without ­their ­own cars and ­using ­an ­individual mix of car sharing, ride-hailing buses and trains­, rental bikes ­or e-scooters­. Here, ­the ­own car becomes a burden: the ­purchase of ­a new car is ­hardly ­worthwhile for ­private individuals ­anymore, because the ­economic decay ­is enormous. In ­addition, the ­cost of ownership is also ­a ­burden. The ­cost-benefit ratio ­is becoming ­increasingly unbalanced­. ­Moreover, ­anyone who has recently ­looked for ­a ­parking space in the ­inner cities ­also ­understands ­the annoyance that ­driving a car in ­the city ­regularly ­causes.

­Driving­ less does ­not mean that ­people­ are ­less ­mobile. On the ­contrary: the number of ­kilometres travelled ­per ­person has risen ­steadily in ­recent ­years. ­This ­trend ­will ­continue in ­the ­coming ­years. ­Mobility service providers ­are ­successful if they are ­technologically up to date, ecologically ­sustainable and affordable, ­in ride sharing, on-demand mobility services ­or in the ­purchase of the ­family car­. The ­winners ­will be those who ­best ­understand how to ­bundle ­mobility services ­into ecologically implemented ­business processes­. The ­driving force ­will become secondary­. What will count is ­the demonstrably ­sustainable ­implementation of the ­easiest-to-acquire and ­most attractively ­priced ­offer on the ­respective market.

For the ­automotive trade, ­this means ­evolving ­from new and ­used car ­sales to ­mobility sales. In ­2025, ­successful ­providers will ­no longer measure themselves solely by the ­number of ­vehicles ­sold, ­but also by ­profit per ­passenger kilometer ­- ­a ­completely ­new ­concept for ­most. ­The car of the ­future is a vehicle on ­demand that ­drives ­autonomously to ­where it is ­needed.

The ­car trade ­must ­reinvent­ itself

The challenge is to break ­down the ­wall ­between ­online and ­offline business ­in the ­automotive trade and to ­link ­both­ ­sales channels­. The ­physical touchpoint of ­the ­car dealership ­gets to the ­heart of the ­brand experience. ­However, ­new ­concepts for ­omnichannel retailing are ­becoming ­more relevant­, creativity and variety are in ­demand: a pop-up store, a shop-in-shop, an ­outdoor showroom ­or a mobility ­shop ­where ­different ­mobility offers ­are ­available. ­Imagination is ­demanded of ­the ­car trade, which is ­mostly lacking. ­Imaginative ­dealers such as ­Autohaus ­König from ­Berlin, ­which has been offering ­its Fiat 500 models via the electronics retailer Media Markt ­since 8 June, are a rarity­.

­The ­aforementioned ­example ­immediately slays two ­fundamental ­problems of the ­car trade­: ­on the one hand, ­the ­difficulty of ­gaining ­access to the ­customer, who is ­shaped by the ­digital ­shopping culture, ­and on ­the other hand, ­designing ­the buying process ­as a stimulating ­customer journey that ­consistently ­and ­optimally ­links the ­online channels ­(­currently still ­primarily ­used in the ­information phase­) and the ­offline channels ­(such as the ­test drive­, ­sales talk, ­or the ­service appointment­). ­Data glasses­, ­virtual showrooms ­and / or ­video consultations ­do not ­fill ­car dealerships, ­but ­they do generate ­attention and drive the ­comfortable ­customer off the couch. ­These ­offers ­should have been ­part ­of the ­dealers­’ ­standard repertoire ­long ago. ­The ­challenge ­is to ­see ­digitization ­as a holistic strategy for the ­entire ­company and not just as a ­collection of ­isolated ­measures. ­A ­future ­business model ­should ­therefore ­answer ­the ­question of ­which ­sales channels will ­even ­exist ­tomorrow ­and via ­which ­new ­digital ­channels the ­company ­can offer ­its ­products and ­services. ­In ­practice, ­however, ­too ­few ­car dealership entrepreneurs still ­ask themselves ­these ­questions. In many cases, the reason lies in ­a ­generational issue­: the ­active ­management team ­often ­comes from ­an ­old ­industrial world in which ­the ­manufacturer sent off the assembly line what the ­dealership ­was supposed to­ sell. ­In the ­new, digital world, ­however, the ­customer ­determines ­what he buys when / where / from whom.

­Various ­brands are ­already ­pushing ­ahead with ­network consolidation ­and ­trying to ­reduce the ­number of ­their ­partner dealers. ­In ­urban areas, ­new ­formats­ will gradually ­replace the ­classic ­car dealership. ­As margins ­continue to shrink­, ­car dealers­ will ­join forces in order ­to ­benefit ­from ­economies of scale on the ­one hand ­and to be ­able to ­raise the ­necessary ­financial ­resources for ­investments in the ­future on the ­other. ­These ­dealer alliances ­will ­increasingly ­try to ­build up ­their ­own ­brand­, ­establish ­these ­online and ­offline as ­platforms and ­make ­themselves more ­independent of­ manufacturers as ­suppliers of ­different ­brands. ­In this way, ­car dealers are becoming like ­supermarkets­, a ­business ­dominated ­by ­a ­few ­giants.

In ­so-called ­megastores, ­new car customers can ­compare ­products and ­prices ­across brands. ­They ­thus­ find ­the ­transparency they are ­accustomed to from ­the ­digital world in ­a ­physical ­location. ­The difference to the ­Internet: ­Megastores ­and ­brand boutiques ­always also ­score ­with ­high-quality ­advice, which will be ­highly ­relevant ­at least ­in the medium term ­with ­a ­product that is ­becoming more ­and more ­technologically ­sophisticated ­(­especially in human-machine communication­). ­So much for the ­theory.

­Entrepreneurs ­must ­act­ now

The ­Corona crisis ­reveals ­another ­problem of ­low ­reserves: ­car dealerships ­nationwide ­had to ­close ­their ­showrooms ­for ­several ­weeks. ­According to ­a ­survey by the ZDK, ­around 70% of ­businesses ­had ­registered for ­short-time working in ­the meantime. ­For ­sales staff, ­the ­figure was ­as high as 90%. The primary ­goal was to ­secure ­liquidity ­at ­any price. ­Nevertheless, ­most ­companies simply ­lacked the financial ­basis to be ­able to ­absorb ­longer ­sales losses ­with ­their own ­funds. ­In the ­past ­year, ­the average ­return in ­the ­industry was ­just ­1.4% – in ­an ­environment with ­high ­investment and ­capital requirements, ­too ­little to ­build up ­sufficient ­equity ­for emergencies. ­Many ­companies are ­therefore unable to ­build up ­a ­stable ­equity ratio of ­at least 25% ­and are consequently ­overly ­dependent on lenders. ­If even one bank ­calls in its ­loans, ­this means the ­end for ­many ­companies.

iStock/Joey Cheung

The ­large remainder ­below the TOP 10 trading groups, ­however,­ must ­ask ­themselves ­how they are ­to ­continue ­after ­Corona. The ­current ­crisis ­should ­be ­seen ­as an ­opportunity to ­analyze ­one’s own situation ­ruthlessly ­and to ­set the ­necessary course for ­the ­future. ­In ­doing so, ­all ­important stakeholders ­should ­be ­involved­: this ­includes ­owners/shareholders­, the ­management ­as well as the ­most important ­capital providers­. Only if all ­those involved ­pull together can a sustainable ­solution ­be ­achieved.

The ­options for action ­are as ­varied as the ­individual ­company situations­, and there is no ­patent remedy for ­all of them. ­Nevertheless, ­five ­strategic ­initiatives ­can be ­identified with the ­help of­ which ­car dealership entrepreneurs ­should­ start­ today in order ­not to miss the boat ­for ­tomorrow­:

­Creating ­awareness for ­change: ­Herbert Diess ­works according to the motto ­”­Think ­from the customer­’s point of view­! It is my ­company! Highest ­standard for me and ­my ­employees! ­Achieving­ impact­! ­Concentrating on the ­essentials­! ­Achieving­ more with ­less! ­Rethinking and ­simplifying! Backbone­, courage and perseverance­! ­Be ­sincere! ­Think­ positively­!”

The upcoming ­transformation will ­lead to ­profound ­changes in terms ­of ­work forms­, ­organizational structures ­and ­business models. ­The ­first ­essential step is to ­become­ aware of­ this ­and be ­open to change. ­This applies above all to the ­company’s management ­- in the ­second step, ­it must then ­prepare the ­entire ­company and all ­employees for the ­change ­and ­take them ­along on the journey. Many ­traditional ­managers are ­not comfortable with ­this form of ­change ­management ­- ­it is ­too different from what they ­were ­used to in the past. ­At ­this ­point, a ­change ­manager or coach from outside can ­help to ­train ­and ­support the ­managers in ­dealing with the ­new ­challenge.

­Examine ­strategic ­positioning: ­Margins ­in the ­automotive trade ­will ­continue to ­come under­ pressure. ­At the same time, high ­investments in ­digitalisation­, ­infrastructure and ­employees are ­necessary in order not to ­lose out. ­Every ­company ­should ­scrutinize ­its ­individual ­strengths and weaknesses and ­derive ­its ­development opportunities ­and ­possible ­business risks from ­this­. When ­defining a strategy, it is ­essential not to ­think ­too ­narrowly­, ­but to be ­as ­open­ as possible to ­new interpretations of ­one’s own ­role. For ­example­,­ one might ­discover that there is a ­great ­demand for motor homes ­in ­a market area ­or that ­companies are ­interested in ­closed car sharing pools ­and are ­looking for ­a ­service partner ­with ­roots in the ­region. ­Both ­topics are ­not part of the ­original ­dealership business, ­but can be ­served with ­the ­existing ­expertise­.

­Guarantee ­future viability: ­Change does ­not ­happen ­immediately, ­but is a ­long journey. ­However, in order ­to ­achieve ­the goal ­tomorrow­, ­all ­performance-related ­processes ­must be ­put to the ­test ­and optimized in the ­here and now ­(­operational ­excellence). This also ­includes an ­evaluation of the company’s own ­organization and ­management structure­: Are the ­right ­people on board to ­initiate ­and ­shape the ­change­? If not, ­shareholders and ­management ­need to ­initiate measures to ­get the ­right people on board. ­If necessary, ­the ­help of ­experienced ­interim managers is ­needed who are ­familiar with ­crisis situations ­and ­can ­convey the ­necessary ­urgency for the ­situation to the ­team within ­a ­short time and ­ensure ­the ­implementation of the ­necessary ­measures.

­Securing ­financing power: ­In addition to ­cost discipline ­and ­efficiency improvements, ­sufficient ­capital resources are ­just as ­essential as a ­balanced ­capital structure­. Here, it is important to ­analyse­ exactly ­how the ­company­’s liabilities ­are structured and whether ­the ­maturity ­and, not ­least, the ­conditions of ­the ­individual ­financings ­fit in ­with this ­(maturity matching­). This ­should be ­organized ­together with banks and ­financing partners­. ­To do this, however, it is ­first­ necessary to ­define the company’s ­own ­strategic ­direction in the form of ­a ­resilient ­business plan. ­The ­business plan ­should ­cover ­a time horizon of ­five ­years ­and ­contain ­various ­scenarios as ­well as an ­integrated ­planning calculation consisting of ­balance sheet, ­profit and ­loss account ­and ­liquidity and cash flow planning.

­Actively ­shaping the ­future: ­There are ­numerous ­reasons ­why a ­concept that is ­sustainable in the long term does not ­materialize­: despite ­adjustments­, the company­’s own market position no longer ­appears ­competitive, ­sufficient ­financing ­cannot be ­secured for the ­necessary ­investments in the new ­business model, ­or the ­shareholders ­no longer want to go along with the path­. In all of ­these ­cases, it is important to ­actively ­consider ­various ­alternatives in order ­to ­preserve ­the ­company’s value in the best possible way­: these ­can be ­mergers ­or acquisitions ­with ­competitors­, ­extended ­cooperations ­or even the ­initiation of ­a ­structured ­succession process ­up to and including the ­sale of the ­company.

iStock/Pinkypills

­Mastering the upheaval ­in the ­car trade ­requires a ­willingness to innovate­, the courage to ­act entrepreneurially, ­but also ­analytical skills ­and a ­certain objectivity ­towards the­ facts. It is ­therefore­ advisable to ­work out one’s ­strategic reorientation ­together with ­a ­neutral ­consultant who is ­not involved ­in ­the ­operational ­structures and ­enables ­an ­undistorted ­view of the ­company with ­its strengths and weaknesses. In ­this way, it can be ­ensured that a ­comprehensive ­analysis is ­carried out that ­both ­meets the ­individual ­demands ­and ­requirements of the ­dealership ­/ ­car group and ­takes into account the ­changing ­market conditions.

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