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GLOBAL 2016: In reverse of recent trends, Europe improves, U.S. hits record, China slows

And brands peer into a foggy future of mobility

Growth contradicted recent global patterns, with improvement in Europe, record sales in the U.S., but slower expansion in China. Meanwhile, carmakers took initial steps to anticipate a future where, disrupted by societal forces, car brands become mobility service providers as well as product manufacturers.

This vision results both from trends that discourage personal driving, such as  increased urbanization and traffic congestion, and forces that point to alternatives, such as the rise of the sharing society and the desire for utility without ownership, particularly among youth.
 
The pace of change will vary by geography and market, and will depend on balancing consumer expectations with production realities in a capital-intensive industry. For now, technology is the greatest influence on the category, as brands differentiate with driving experience, entertainment and early versions of autonomous cars.
 
Many car brands exhibited at the Consumer Electronics Show, the annual showcase of technological innovation held in January in Las Vegas. Ford opened a research center in Silicon Valley, and introduced a program that anticipates a future where cars are one component of a comprehensive mobility solution.
 
The electric car brand Tesla appears in the BrandZ™ Car Top 10 for the first time, suggesting that the future has arrived. With the availability of a relatively affordable Tesla (priced at around $35,000), more people might experience that future. In addition, Tesla’s model of direct sales could portend distribution changes in an industry that currently relies on dealership networks.
 
If the future seemed complicated for carmakers, one factor simplified the present for many consumers: cheap gas. The plummet in global oil prices that led to lower prices at the pump drove car sales, put pressure on diesel models, and pushed purchasing preferences to larger cars, like SUVs. Full-size pick-up trucks remained popular in the US.
 
At a point where Volkswagen hoped to shift toward greater emphasis on SUVs, the company struggled to contain the impact of revelations that it circumvented emissions standards. The incident also affected the value of VW’s Audi brand. The overall value of the BrandZ™ Cars Top 10 declined 3 percent, following a rise of 3 percent a year ago.
 


Sales vary by region
Sales in the U.S. increased 5.7 percent to a record-setting 17.5 million cars sold. Low-interest credit and pent-up demand combined with cheaper gas to fuel these sales, which reached their highest level since 2000. The U.S. remained a relatively profitable market, partly because of the brand rationalization that followed the global financial crisis.
 
Car sales in the UK also reached a record level, climbing 6.3 percent, to 2.6 million vehicles, with sales driven by consumer confidence, affordable credit and the strength of the pound against the euro. In Europe, new car sales rose 9.3 percent to 12.6 million units - a strong result, but still well below the 18.2 billion cars sold in 2007, prior to the global financial crisis.
 
The growth of car leasing also impacted overall car sales numbers. The increase in preference for leasing suggests that consumer attitudes may be changing; for some people, access to a car may be more important than ownership. Leasing also makes a major investment seem like one more affordable monthly payment for a service, like a mobile phone bill.
 
China remained a car ownership market. Sales reached 21.1 million cars in 2015, a 7.3 percent increase compared with a 10 percent rise a year ago and 16 percent in 2013. A tax break stimulated demand, along with discounts, which hurt margins. Although the rate of sales growth slowed for many international brands, local Chinese brands grew 15 percent, almost double the rate of the market overall.
 
The Chinese market also points to the future role of dealerships in how consumers will purchase cars. During China’s Singles Day shopping event in November, e-commerce giant Alibaba sold over 6,500 cars on its Tmall site. Customers purchased cars online but picked them up at dealer locations. Some cultural differences enable this behavior, as Chinese car buyers spend more time doing online research before purchasing, but are less inclined to test drive a vehicle.
 
The slowdown of the oil-dependent economies of Brazil and Russia negatively impacted car sales. Car sales in Russia fell 39 percent. India imposed restrictions on engine size and imposed a new tax on car sales as part of an effort to help abate air pollution.

 
A future beyond car sales
Anticipating a future beyond car sales, Ford extended the brand to include a suite of mobility services called FordPass. The app-based initiative includes trip planning, transportation ticket purchasing, ride sharing and other utilities, plus a payment wallet.
In New York, Ford also planned to open the first of what will be a worldwide network of urban storefront mobility service centers called FordHub.
 
Ford also tested a car-sharing program called GoDrive. In a sense, Ford is going back to the future, reenergizing its founding vision to provide affordable mobility. Seeing change as inevitable, Ford intends to disrupt itself before social trends or competitors disrupt Ford.
 
Most major brands experimented with programs for fractional ownership or leasing, as well as short-term rental. BMW and Mini operate a rental scheme called Drive Now. In San Francisco, Audi is trialing a program where, for a monthly fee, customers can select from among a group of Audi models according to occasion and need. As the category shifts toward an emphasis on mobility, the competitive set widens. For example, Germany’s railroad, Deutsche Bahn, operates a car-sharing operation called Flingster.
 
Besides the logistical challenges these car-sharing programs present, carmakers worry about devaluing their brands. But the change in carmaker mentality and mission seems inevitable, because younger people view cars differently than the older generation for which a car represented status and freedom. A smartphone fills those needs for many young people who consider cars just one of many alternatives for advancing on a journey
 
In this world, the car becomes like the device, valued for design and functionality and especially for the frictionless experience. In an apparent nod to this trend, Volkswagen planned to change its tagline from “Das Auto,” which focused on the car as object, rather than the car as one critical component of a set of more complicated mobility solutions.
 
In the industry’s most positive analysis, mobility solutions provide new revenue streams for car brands, which will be manufacturing cars, at least for the foreseeable future, although revenue may shift gradually from products to services, potentially a large and lucrative business.
 
Strong brands dominate
Meanwhile, carmakers with brand strength continue to dominate the BrandZ™ Cars Top 10 ranking. Toyota remained solidly in the number one position, demonstrating the brand’s ability to sustain a reputation for product reliability even after the problems with unintended acceleration several years ago. Both Toyota and Honda embraced the importance of design, which adds an emotional appeal to brands respected for their functional excellence.
 
BMW benefited from the introduction of its 7 series with technology that included an app store for driving entertainment, gesture control for the phone or radio, and limited autonomous driving for moving the car into and out of a garage without someone in the driver’s seat. The slowdown in China impacted sales, however. China’s slowdown also hurt Land Rover, which experienced growth in other markets, particularly North America.
 
In contrast, sales for Mercedes-Benz rose in China based on the strength of its C-Class Sedan and SUV, and the addition of dealerships. On the strength of that performance, combined with worldwide sales, including the flagship S-Class, Mercedes-Benz was poised to reclaim luxury car sales leadership from BMW and Audi. For the first time, Porsche sold over 50,000 cars in the U.S., and Nissan performed well, particularly in North America.
 
One unanswered question about the future of brands in the car category is the implications of new competitors entering from outside the category, such as strong technology brands like Google or Apple. Their partnership with traditional car brands would raise many issues including ownership of consumer data, much of which is now controlled by dealerships.

Brand Building Action Points

1. Be nimble.
Decision-making needs to be more nimble than ever, because the technology wave is breaking - car brands that do not learn to ride it risk being caught in its undertow.
 

2. Partner with tech brands.
Don’t lurch to try and be Apple. But be open to new forms of relationships with the technology industry. Coming from an industry known for control, car brands need to embrace more of a partnership mentality. Think about the technology brands as equals - as experts in their space.
 

3. Collaborate with competitors.
Collaborate more with other car brands on issues such as engine technology in order to share the enormous cost of R&D. Collaborate to have common standards, something that will be necessary with automated cars that will need to communicate with each other using a common language.
 

4. Be in the experience business.
Having a manufacturing mentality, car brands need to understand that they are now also in the experience business. That experience defines a different relationship with the buyer-user-owner. It means that the brand needs to understand and speak directly with the end customer, instead of allowing the dealer to mediate that relationship.
 

5. Make the experience frictionless.
The experience must be frictionless. Whether the customer experience happens through the dealer, online or offline, it needs to be fast and easy. Any small annoyance will turn people away. Because differentiation is so much lower than in the past, and technology brands have trained consumers to expect frictionless experiences, consumers will not hesitate to switch. Own the experience and own the data derived from the experience.