The Evolution From Traditional Vehicle Distributors to Disruptors
The automotive industry has not been able to fully recover from the COVID-19 pandemic. Delivery delays and shortages of essential parts have become common occurrences, putting a strain on dealerships and impacting customer satisfaction. To address these challenges, dealerships have deployed innovative strategies to quickly adapt to industry trends, customer demands and other logistics challenges.
“The pandemic put a lot of financial stress on companies. We understood that instead of adapting, we had to evolve and find alternatives,” says Fernando Enciso, Director México, Grupo Surman.
Manufacturing and distribution in the automotive industry have highly different dynamics. For many years, innovation in the industry solely focused on the vehicles themselves, with traditional distribution processes remaining the same. In the past, the market was dominated by a few major brands, such as General Motors, Nissan, Ford, Chrysler and Volkswagen, with customers developing a strong preference for one or some of them. This way, the industry experienced regular growth year after year, without major disruptions, explains Enciso.
In the late 20th and early 21st century, new players like Honda and Toyota arrived, disrupting the market with high-quality vehicles with lower maintenance costs. The new competition forced traditional brands to review their post-sale processes, strategies and costs. As competition intensified, processes and indicators in the distribution industry began to change.
As time passed, the market continued to evolve with Korean brands KIA and Hyundai, which positioned themselves by offering greater guarantees than traditional brands, says Enciso. This change led traditional brands to explore new strategies to defend themselves and adapt to the new competition.
Later, the COVID-19 pandemic brought great uncertainty to the industry. Many dealerships closed their commercial areas, leaving only their service areas active. Dealerships had to reconfigure their business format, relying solely on after-sales and not knowing when the situation would stabilize. “After the pandemic, despite returning to normal, we still had no inventory because manufacturers reduced production. This is a challenge we are still facing,” says Enciso.
The smaller number of new vehicles has led many individuals to Mexico’s second-hand market, creating a significant breach between OEMs, dealerships and the end customer. This widening gap has reduced demand and sales of new light vehicles, while opening up the door for Chinese competitors.
Chinese brands are now offering high-tech options, including hybrid and electric vehicles with long-range batteries. “The industry is also adapting to Chinese competition and new trends in electric mobility. In this scenario, we have to take the opportunities to change,” says Enciso.
Less production of new vehicles also to led a reduction in demand for car transportation services, affecting both dealerships and OEMs by contracting the market management services that many of them provide. This issue created additional layers that dealerships must work through.
In an effort to stay competitive and provide added value to customers, many dealerships are increasing their service portfolio, providing insurance coverage and offering financing alternatives through in-house companies or strategic alliances. For example, dealerships may offer extended warranties with a broad range of financing options to help customers secure the best possible deal. By offering these types of services in-house or through partnerships, dealerships and online sellers can enhance the customer experience and build stronger relationships with clients.
Dealerships also provide different advantages for OEMs, such as increased liquidity. This allows automakers to distribute vehicles through their network quickly, freeing up time to focus on expanding manufacturing capacity and upgrading technology – both critical aspects of meeting customer demands.
In addition to providing OEMs with greater liquidity, the dealership model allows for efficient vehicle distribution, thereby enabling automakers to improve manufacturing processes and upgrade technology to meet changing customer preferences.
As the world transitions from an industrial age to a digital one, the market is evolving rapidly calling for distribution formats that are more sustainable and technological. As Mexico prepares for the transformation that EVs will bring to the distribution sector, it is necessary to recognize that every crisis brings opportunities. “We understand that every crisis has its positive and negative parts. We chose to focus on the positive as we understood that change brought possibilities,” says Enciso.