Disrupting the Chaos: Recovery and the Automotive Sector

This article is written in collaboration with Mercedes-Benz Malaysia.

Signals of a recovery in the Malaysian automotive sector may be a rare beacon to carmakers hit by the effects of the coronavirus. In August, the Malaysian Automotive Association upgraded its 2020 estimates of total industry volume (TIV) of car sales by around 20%, from 400,000 to 470,000, an increase of 17.5%, in response to the government’s economic stimulus package.

Globally, the picture is less certain. Already facing largely stagnant growth in the US and across the EU, and decreasing demand in the previously bullish Chinese market, 2020 was set to be a challenge for this hyper-competitive industry well before it was hit by a global pandemic. Debate rages as to whether the emergence and spread of COVID-19 could have been predicted, limited or prevented, the economic domino effect that we’ve witnessed is unprecedented in the digital era, with the car industry being particularly hard hit.

The process by which today’s cars are manufactured and assembled is exceptionally intricate and contains hundreds of international interdependencies. When the pandemic struck hard in China in the early months of the year, there was a fear that the supply of parts would slow as Chinese factories shuttered and their workers were confined to quarters. As the virus spread to other countries, auto-making factories across the world were forced to close or reduce their operations, as did showrooms and service centres. Even where factories and services could operate, travel restrictions and border controls often limited the distribution and supply of goods by road and sea.

Consequently, S&P forecasts estimate global light vehicle sales will peak at between 70 million to 75 million units in 2020, a drop of around 15% to 20% on 2019 levels. However, with better than expected US demand in Q3 and a partial recovery expected in 2021, the mood is downbeat but not desperate. Especially as those global averages disguise regional fluctuations that could create longer term implications for the industry.

While some industry voices have called for ring-fencing and the creation of localized supply chains to provide a buffer against exposure to international uncertainty, others have counseled a more cautious and longer-sighted approach. Speaking to the New York Times and other publications in May, Daimler Chief Executive Ola Källenius said: “I wouldn’t come too quickly to the conclusion that we have to regionalize supply chains…The globalization that we have achieved in the last 20 years has led to enormous productivity gains. I would see it as a mistake to back away from that.” Mr Källenius concluded that supply chain interruptions had not prevented the production of a single Mercedes.

The same fluctuations in global demand statistics also hide regional success stories and reasons for optimism. While the Malaysian Automobile Association’s TIV of 470,000 is considerably lower than its pre-coronavirus estimate of 607,000, it is a measure of the success of the Malaysian government’s efforts to stimulate demand in the auto industry and of the industry’s success in adapting to the new normal we’re experiencing.

The government stimulus package announced in June included a 100% sales tax exemption for locally assembled cars and a 50% exemption for imported vehicles from June 15 to December 31 2020. With the subsequent relaxation of movement restrictions and the establishment of Standard Operating Procedures for showrooms and sales centres as the country moved into the Recovery phase of the Movement Control Orders (RMCO), June recorded the highest rate of applications for hire purchase financing in 24 months.

Cuts to sticker prices, especially those that maintain profitability levels, are an obvious enticement but industry innovations are also playing a key role in driving the uptick in sales. The digital or virtual showroom is something that we’ve seen carmakers play with in recent years. 2020 has seen the trend accelerate as digital becomes the primary touchpoint for many consumers. Advanced car configuration models, virtual assistants and, of course, human sales staff available via phone and video are providing customer outreach. Virtual test drives featuring 360º views put you inside the cabin, giving you a flavor of what your own ride could feel like.
Flexible, digital, efficient and sustainable: Factory 56 at the Sindelfingen plant embodies the future of production at Mercedes-Benz and sets new standards for the automotive industry.

Of course, the main attraction is always going to be the car itself. In the luxury segment build quality, passion and consumer experience are key drivers. Virtual tools, like those described above, coupled with unique consumer experience driven services like Mercedes-Benz’s innovative Mercedes me connect are helping to define this new trend. Combining real-time vehicle monitoring and diagnostics with personal assistant style functionality, apps like these are turning after-sales service into everyday touchpoints.

As we embrace the uncertainty that subsequent waves of the pandemic still impose on our movements, brands are increasingly offering customised and flexible maintenance and after sales care to their consumers. Here again Mercedes-Benz is setting a high standard for automakers in Malaysia; options like Premier Express servicing that provide a guaranteed time slot with a quick turnaround to limit customers’ time on-premises.

For customers wanting to limit their contact with third parties to an absolute minimum, a Drop & Go service allows them to drop their car and key at a service centre at any time of the day or night and collect it once the service is complete. Or they can opt for the entirely hands-off approach of Door-to-Door servicing, where a qualified driver collects your car and returns it once the operation is complete.

Then there’s the role of technology itself in helping to define those traits of quality, passion and experience. We’re increasingly seeing the introduction of hands-free, voice and gesture-based interfaces in public spaces. Those same technologies have already made their way into many luxury vehicles, helping to increase demand and power optimism within the segment. Systems like the Mercedes-Benz User Experience (MBUX), which are fusing multimedia functionality and artificial intelligence with voice and gesture control interfaces to create a truly customized and streamlined user experience that can anticipate many of its riders’ needs.

What may be less obvious is the role that consumers play in pushing car makers towards more sustainable business models and practices in these volatile economic and environmental times. Consumer sentiment helps to define trends, but unless those sentiments translate into sales, progress will be slowed. Carmakers like Mercedes-Benz have set ambitious targets like a 2039 pledge to transform into a carbon neutral business.

That won’t happen in a vacuum. For companies to make the supply chain changes and implement intelligent platform strategies that will drive down materials and powertrain costs, it will require consumers to buy into that same message of hope and to embrace new technologies like electric vehicles (EV). While EV sales are buoyed by government subsidies in many countries, global advances in battery technologies and economies of scale are bringing electric powertrains ever closer to price parity with combustion engines.

It’s too early to predict what the next few months will bring to the altered reality of this pandemic dominated landscape, the Malaysian automotive industry and its key players, like Mercedes-Benz, looks well placed, in terms of opportunities and adaptation, to meet the needs of the country’s re-emerging consumer confidence.

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