AMDA: Recovery Based On Trust in The Digital WorldBy Alejandro Enríquez | Thu, 10/08/2020 - 06:00
Q: How would you describe AMDA’s role amid uncertain times?
A: We were proactive in the most challenging situation the automotive market has faced in more than 80 years. The pandemic led to lower sales of light and heavy vehicles, with the light-vehicle market taking the worst hit. Between January and August, the market fell 31.4 percent year-on-year. In absolute numbers, this represents 268,000 fewer vehicles sold than in 2019. Behind this drop, there is an impact on investment opportunities, job opportunities and, particularly for dealerships, we estimate that 6,200 jobs were lost in this period, a 5 percent reduction compared to 2019. This is despite the great effort dealerships have made to keep jobs. Having skilled workers requires investment to train them properly, which makes it even more challenging for car dealerships when they lose those valuable assets. Fortunately, there are no signs to suggest that dealerships will definitely cease operations.
The worst effects of this crisis are yet to be seen, so the risk remains. After the historic drop in sales, the recovery trend observed from June onward remains slow and growth rates are still moderate. The times ahead will be challenging. AMDA forecasts a 28 percent fall in total sales for 2020, which sets sales below the 1 million line. The market will likely not see 2019 levels of sales until 2024. Dealerships must plan accordingly and we hope all of them survive.
Q: What is the objective of AMDA’s partnership with Mercado Libre?
A: Government orders to close dealerships and mobility restrictions forced the market to take a big leap into digitalization. Interestingly enough, although some companies had already adapted digital strategies, most market players transitioned toward digital sales slowly. The pandemic turned everything digital, not only for sellers but for potential customers, especially among those over 50 years of age. We need to generate more capabilities and focus on training at the different levels of organizations. There will be a coexistence between physical dealerships and digital platforms. What we are seeing is that more and more sales start online with just a few steps taken on the sales floor.
Our partnership with Mercado Libre is focused first on training. However, our goal is to enable more useful tools to make the most of that marketplace. We are also creating partnerships with JATO Dynamics and other companies to strengthen dealerships’ capabilities through relevant data and analysis to improve customer experience.
Q: How should dealerships build a customer-centric focus?
A: We have to get back to basics. Companies and organizations often have taken an overly complicated path toward to the customer rather than simply creating a business relationship with the customer. The fundamental principle is to generate trust in the customer through product quality and sufficient training to identify what the customer is actually looking for rather than pushing for what we want to sell. We should translate this to the digital world. An important element is intuition, which makes for a smooth user experience, a direct interaction with a few clicks that displays our customers’ interests on the screen. All dealerships master these elements in the real world. Rather than investing in powerful digital ecosystems, they should use that same personal touch when creating their unique connection with the customer. This becomes more relevant when we have new customers who are having their first digital experience with a vehicle sales process. Generating trust with the customer should be the foundation not only of the automotive sector but for all value chains.
Q: How should brands and dealerships prepare to deal with recent mobility trends?
A: We need to be cautious in how we read changes in consumer behavior. A preliminary reading about the increasing importance of the sharing economy and environmentally friendly mobility solutions, especially among younger generations, can be seen as a setback for the automotive industry. This trend is of particular interest in the US and Mexican markets given the strong use of individual vehicles. In Asian and European economies with a greater offering of mobility solutions, new-vehicle sales per 1,000 habitants remains high, at around 40 new vehicles per 1,000 habitants. In the case of Mexico, we still have room to grow in the automotive sector given that by the end of 2020, there will be about 10 new vehicles per 1,000 habitants.
On the other hand, without an effective vaccine for COVID-19, interest among Mexicans has increased to find a safe private transportation method. It is necessary to note, however, that not everyone can afford a private vehicle. Having said that, those who can are acquiring either a used vehicle or a compact or sub-compact new vehicle.
Q: What is the impact from an increasing interest in used vehicles among Mexican consumers?
A: In times of crisis, this creates the possibility for the customer to buy their first vehicle or a better model. Over the last three years, as new vehicle sales decreased, used vehicle sales increased accordingly. It is important to note that there are no sound records on used-vehicles sales given that most transactions take place in the informal economy. Data available from online sales sites, such as Mercado Libre or KAVAK, alongside relevant data from financial institutions provide a raw picture. For instance, while financing for new vehicles dropped 28 percent between January and July 2020, financing for used vehicles only dropped 10 percent compared to 2019. In 2019, while financing for new vehicles dropped by 10 percent, used vehicle financing increased by 10 percent against 2018. Dealership recovery will be driven by used-vehicle sales performance. In some cases, dealerships have broken records for used-vehicle sales.
Q: What is the relevance of recent changes in tariffs implemented by the Mexican Ministry of Economy regarding imports of electric vehicles?
A: Used vehicles had a tariff of around 50 percent. The new rule for used electric vehicles now establishes a 15 percent tariff. This increases interest in used EV imports but it does not establish parallel regulations to conduct these imports and there is a risk to import 7-year-old or older models that in practical terms are technological scrap almost at the end of their life cycle. The market could be distorted by the gap in the real cost of an EV and an apparently good EV could have a negative environmental impact.
The Mexican Association of Automotive Dealers (AMDA) was founded in 1945 and now represents the interests of around 2,390 dealerships located in more than 210 cities throughout the country