AMI

AMI Car Brands Online: 2016/17 In Review

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Introduction

Car Brands Online: the year in review has become sophus3’s ‘annual report’ on the state of the car market and the industry’s digital activity. The perspective of the report is twofold.
‘The year in numbers’ provides a detailed overview of car brands’ performance  in Europe — online and offline — during the past twelve months. Using a wealth of digital, campaign and sales data, this section provides a set of key performance indicators against which car brands can benchmark their own progress. The purpose is to suggest an objective framework to measure performance so as to be able to isolate and understand the factors that lead to success.
The second section of the review — ‘The year ahead’ — looks at the issues that will affect the car market in 2017. Political change in Europe and the US both threaten a wider instability that could be detrimental to car makers. But the industry is also facing severe structural disruption — the result of technological innovation and new market entrants — that is moving from being a distant, to an imminent threat. There is much talk of car brands needing to ‘adapt or die’, through rethinking  their business model and their relationship with customers. But what does that ambition mean in practical terms for those working  at the sharp end of the car industry? What is the roadmap that those in digital roles within or supporting the industry should be following?

Paul Rutishauser
London, February 2017

Continue to read online or alternatively you can download the whitepaper as a .pdf.

Executive summary

2016 in numbers

  • Visits to car brand sites in the ‘Big 5’ exceeded One billion with traffic increasing 7%.
  • The duration of visits and the number of pages viewed both declined further.
  • Mobile devices are now the dominant mode by which auto sites are accessed. Visits through PCs declined a further -9% during the year.
  • Sundays have declined slightly as a day favoured to ‘surf and research’ but dwell times suggest it is still the day when consumers are most engaged.
  • Search results and online campaigns combined are the main driver of site traffic (50%), although campaigns declined slightly in the share of visits generated.
  • YouTube is the standout social media channel: for some car brands it generates as many interactions as their own websites
  • Car brands spent €4.5 billion on TV and print campaigns in the Big 5. (p 10)
    For a second year Renault spent the most on offline campaigns with Volkswagen in second place.
  • Car registrations in the EU were near to ‘pre-crisis’ levels in 2016. The growth in the Big 5 was +6.5%.
  • One in four cars sold last year in the EU was an SUV, registrations of which were up 22% year on year.
  • By contrast sales of alternative fuelled vehicles (AFVs) were lacklustre with growth lower than the market as a whole at +4.1%.
  • The summary online metrics for 2016 showed that a car brand requires 99 website visits for every vehicle registered, and to win each of those visits will have cost, on average, €4.2.

2017 the year ahead 

  • The volatility of the economic and political situation will likely preoccupy the industry in 2017.
  • Brexit as well as  Dutch, French and German election results, plus US protectionism, could all adversely affect car sales.
  • Overheating of the sector through the deployment of PCP finance could also turn around and ‘bite’ the industry.
  • But preoccupation over the short term would be a distraction for dealing with structural disruption which will commence within the next 5 years.
  • This disruption will be caused by new technologies (connectivity and autonomous driving) and new market entrants (‘tech giants’ and ride hailing providers)
  • OEMs are threatened with marginalisation in a mobility services market that will demand fewer vehicles.
  • Manufacturers need to develop a roadmap for this changed landscape in which digital will become key to delivering and profiting from innovation.
  • A focus on transaction and mobile platforms should be an immediate priority
  • Rethinking branding, lead generation and retail strategies will also be required.
  • But it is not all ‘doom and gloom’ – whilst threatened by disruption, automotive OEMs are also best placed to respond and profit from it.

Part 1 | The year past, 2016 in numbers

Car Brand Websites 2016

Web traffic growth slows slightly

The eDataXchange project is unique in tracking visitor traffic across the websites of nearly all the automotive brands active in the EU ‘Big 5’ Markets (Germany, the UK, France, Italy and Spain). It provides a measure of the size of that audience as well as its interests and how it behaves.

2016 saw a steady increase in traffic in all of the Big 5, with the biggest uplift in Italy and Spain, However, overall the growth was not as marked as 2015 when the number of visits grew by 18%. Despite this, the long term trend over the life of the project shows how central the web is to consumer activity with the recorded visits almost trebled in little over a decade.

The simple measures of visitor behaviour – the time spent and the content viewed, showed yet again the impatience of the online audience and the challenge of engaging the individual visitor. Visit duration declined below the 3 minute mark;  just four pages are viewed on an average visit.

Shift to mobile accelerates

‘The funnel’ (left) – although a redundant concept when mapping online consumer behaviour which is more random and episodic than a simple linear ‘descent’ – does at least provide a clear understanding of the attrition rates on car websites. Of the billion or so visitors we track, only a relative handful make the journey to a critical ‘touch point’ like the test drive request page of a car site. (And even fewer follow through and submit  a test request).

The shift to mobile devices as the preferred medium to research vehicle purchase continued with increased energy during 2016. In the UK and Spain nearly 60% of all visits to OEM websites are now made on a phone or tablet. UX and UI designers for car brand  platforms should be acutely aware that ‘the Internet’ has shrunk to a width of 5cms for many visitors.

day_of_week_traffic_and_dwell_time_and_device_day_x3

When they visit…

Sunday has declined slightly in its significance as  the day when visits to car brand sites are made. This is probably due to the increase of mobile use which makes it easier to access the web from any location or social situation. A decade ago we could see  a very different pattern in these access times with the majority of visits made during working time on week days – with much lower traffic levels at weekends. It should be said there are clear market variations here: the Germans and French still favour Sunday to conduct their ‘surf and research’ activities; the Italians and Brits appear to prefer a long lunch. In all markets Saturday continues as the quietest day.

However it still remains the case that Sunday is when the online audience is most engaged, with average dwell times up to 10% higher than during the week.

But again, this should not make us think that the consumer spends Sunday with sleeves rolled up in front of their home PC. Access via mobile and tablets is actually at its highest over the weekend period.

Search and online campaigns combined are the main driver of traffic (50%) to car brand sites, although campaigns declined in the share of visits generated from 25% to 17%.

Social Media 2016

Video content is king

YouTube remains the social media channel drawing the largest audience and levels of engagement for car brands. We tracked over half a billion views on auto company’s YouTube channels over the course of 2016. Some brands receive comparable numbers of visits on this platform as they do to their own websites.

Automotive campaigns 2016

Campaign spend up (a bit!)

The spend ‘league table’ of brands across the Big 5 markets remained much as for the previous 12 months with Volkswagen increasing its outlay slightly more than its peers. Overall spend was up 5% although there were variations between brands. Ford, for example, slightly reduced spend over the year, but generally such fluctuations are accounted for by product lifecyle factors rather than having any greater significance.
Spend in all markets was up, apart from the UK. (Note that the ‘astronomical’ level of spend shown by Italy is a due to the published figures being calculated on advertising rate cards and concealing the large discounts the advertisers achieve in practice).
The core of spend continues to focus on supporting launch activity built around pan-European TV campaigns. Despite the equality that digital spend is gaining, creatively it seems that offline still calls the shots.

‘Volkswagen et Moi’ – France
https://youtu.be/prCrurp8Irg

‘FRESH: New Fiat 500’ – UK
https://youtu.be/zHBgmNKNm3Y

‘Nuevo Peugeot 2008’ – Spain
https://youtu.be/o2y2CHzoGGs

‘Uscite a divertirvi con BMW xDrive’ – Italy
https://youtu.be/d_l8UcN6tGE

Automotive Market 2016

Growth with a clear segment preference

Again in 2016, Renault and Fiat gained the most additional sales in the European Big 5 in a market that was comfortably expanding and, finally, recovering to the level of ‘pre-crisis’ sales. Italy and Spain, two of the countries most affected by the downturn, showed the strongest growth.
The German premium brands are reaping the benefits of their ongoing product offensives which have seen them fill nearly every available niche in their model matrices. As they move to being the de facto volume brands their challenge becomes how to preserve their premium mystique and their residual values?

Consumer taste continues to evolve in one very clear direction with the SUV/Crossover segment the clear preference. Nissan’s Qashqai, Kia’s Sportage and Volkswagen’s Tiguan provide a new definition of the ‘family car’. The ‘three box’ saloon is now pretty well dead and buried in Europe apart from in its premium/executive form.

Alternative fuel vehicles – a definition that takes in a large number of LPG vehicles in the Italian market – struggle to create interest. Electric vehicles accounted for barely 1% of all EU sales during the year despite a widening choice of products, improved performance characteristics and government measures in many countries designed to encourage their adoption.

Headline KPIs 'Big 5' 2016

Part 2 | The year ahead. 2017: the future is almost upon us

Volatility on all fronts

The car industry has much to contend with in 2017 as the economic and political outlook becomes increasingly volatile.

The UK’s decision to withdraw from the EU creates uncertainty for Britain and its neighbours. The devaluation of sterling that resulted will soon cause UK prices to rise. As the second largest EU car market this will affect all manufacturers. As the formal negotiation of UK secession commences we can expect more exchange rate ‘wobbles’ as speculation over the future of the EU unfolds. Longer term, post UK withdrawal, the industry faces further challenges.1 “Brexit Blues: the post-referendum automotive digital landscape”, Sophus3, July 2016, http://bit.ly/2l4xn4P

The Dutch General election in March, the French Presidential elections in April, and Germany’s Federal elections in September add to the uncertainty. Each is capable of delivering further shocks that undermine European institutions and broader economic stability.

The outcome of the US election also has implications for the European car industry. US protectionism will damage European brands with products in high demand there. But it may damage US automakers forced to reconfigure their supply chains and facing reciprocal protectionist measures. If the US industry also overturns environmental standards for short-term gain then its products risk becoming irrelevant elsewhere.

An old 'New World Order'

More worryingly, tectonic shifts in ‘the world order’ – where an isolationist US leaves a vacuum that Russia and China fill within their perceived hemispheres of interest – adds further uncertainty and threats. The Ukraine will provide the litmus test of each player’s resolve within the European theatre to determine whether damaging regional tensions are increased. The ‘New World Order’ is, worryingly, beginning to look like the one in place at the end of the 19th century.

In summary the current tide of populist and nationalist sentiment, which shows little sign of abating, threatens a fractured state of political and economic disorder completely at odds with the core needs of a globalised industry such as automotive manufacture.

Is the car market overheated?

Leaving aside all of these ‘externalities’ the European car market has its own structural problems to deal with. Many consider it ‘overheated’ to dangerous levels. The UK has spearheaded the use of personal contract plans (PCPs) to finance car purchase and other markets are following suit. In 2016 the UK bought more cars per head than any EU market, 9 out of 10 of them through PCPs. Whilst PCPs allow the industry to ‘shift metal’ these deals, which are also clearly attractive to consumers, have two attendant risks.

The first is the general one that they have added considerably to household debt that now exceeds the level widely held as contributing to the 2008 financial crash. However, talking of this exposure as an armageddon of ‘subprime’ debt waiting to bring down financial institutions is probably exaggerated, if only because of the smaller totals involved and the lack of evidence of significant ‘delinquency’ on these loans. However, overstretched household budgets, even if they do not cause crash-and-burn, are an unsound basis from which to generate sustained and orderly growth in any consumer market.

The second risk is more specific to the brands and their captive finance houses who are the most exposed in these transactions. A downturn in the car market could see a glut of vehicles returned at the end of their contracts with a second hand value lower than that forecast when the finance terms were calculated. In such a situation the OEM bears the difference.

The danger of distraction

The industry’s need to concentrate on the immediate future and firefight a host of short term threats is unfortunate. Ideally those working in every area of the sector would now be focused on understanding the approaching wave of acute disruption bearing down on them and spending time planning their strategic response.

Senior industry leaders have summed up the scale of that approaching upheaval, for example, Mary Barra, chair and CEO of General Motors:

“We are moving from an industry that, for 100 years, has relied on vehicles that are stand-alone, mechanically controlled and petroleum-fueled to ones that will soon be interconnected, electronically controlled and fueled by a range of energy sources. I believe the auto industry will change more in the next five to 10 years than it has in the last 50”2“The next revolution in the auto industry”, Mary Barra, address to World Economic Forum, 21 January 2016.
http://bit.ly/2lnfIYf

Much has been written about the car industry’s future trajectory, often in apocalyptic tones. But here are a few tentative observations on the likely nature of those changes.

Future threats and disruptions

The unfolding disruption comes from three sources. Firstly, new technologies are fundamentally changing the way cars will be used and made: digital connectivity, autonomous systems, alternative power trains are the key factors here. Secondly, new market entrants – tech giants like Google, ‘new wave’ manufacturers like Tesla, and new services providers like Uber- are utilising these technologies to compete with the long established automotive OEMs. In turn, this combination of new technologies and new commercial entities is enabling and imposing new business models for an emerging ‘mobility’ industry. These models include car sharing and ride hailing.

The incumbents in this space, the automotive OEMs, face an existential threat. Pay-to-go models such as car sharing are already known to greatly reduce the overall number of vehicles required to meet a given population’s mobility needs. Autonomous technology would significantly improve utilisation of that future vehicle ‘fleet’, decreasing demand still further. The OEMs are contemplating a future in which their manufacturing volumes are slashed, whilst what they do produce may have the status, and value, of little more than a generic mobility ‘pod’. They risk becoming marginal players in an emerging mobility industry in which new service providers are the ones interfacing with the customer and making most of the money.

The key point that needs to be made is that this disruption is no longer in the distant future, it is relatively imminent, in some areas well advanced. Connected systems that allow the collection of vehicle and driver behaviour data are becoming common-place in current generation vehicles. Semi-autonomous features – whether BMW’s remote parking or Tesla’s autopilot system – are already on our roads. Uber has expanded operations to 81 countries, provides 40 million rides a month and is currently valued at +$60bn: twice the worth of Toyota, the highest valued automotive OEM.

Industry reaction

But far from being caught like a rabbit in the headlights, the car industry is responding by moving simultaneously into a number of new business areas. Brands are launching their own carsharing schemes, both ‘micro rental’ and peer-to-peer. Others are buying into ride hailing, including Volkswagen (Gett), General Motors (Lyft) and Toyota (Uber). (Volvo is also developing self-driving cars in partnership with Uber.)

What is encouraging is that OEMs are also ready to work collaboratively in certain areas to protect critical terrain for themselves within the future mobility landscape. For example, BMW, Daimler and Volkswagen bought digital mapping company HERE to sidestep dependency on the tech giants for this vital piece of the autonomous services jigsaw. Similarly, a consortium that includes Ford, Toyota, Mazda and PSA are establishing an open source standard for smart phone connections and apps to resist Google’s and Apple’s separate efforts to control vehicle connectivity and in-vehicle entertainment, a likely significant future revenue opportunity within a ‘driverless world’.

Equally encouraging is that OEMs are aware of their own historic ‘cultural’ shortcomings and the need to emulate the agility of tech startups if they are to succeed. Ford recently took a $1bn stake in artificial intelligence company Argo but remains at arm’s length from its development of autonomous driving technology.

The need for a roadmap

Yet whilst there is much talk and credible activity by automotive companies to transform themselves from car manufacturers into ‘mobility solution providers’, at this point in time pretty well all of them remain 99% reliant on selling cars and the narrow set of associated financial services to assist vehicle purchase. Many in the industry seem to have grasped the ‘big picture’, the spectre of disruption, but there is little discussion about how we get from where we are now – focused on building and selling ever more cars – to where we need to be in as little as five years time, in a rapidly evolving market where the individual journey rather than ‘the car’ is fast becoming the consumer’s primary interest.

It would be arrogant for anyone to claim they have a roadmap of how the industry can get there – many factors will change and new opportunities and directions, as yet unimagined, will appear. What follows is a suggestion as to some of the things we need to be thinking about, some of the constituents of a map that can be evaluated, refined or rejected.

Our view is that the future mobility industry is going to be about transactions, lots of them, repeated through pay-as-you-go or subscription models. The vast majority of these transactions will be digitally mediated. Car brands will need to move from having a digital department to thinking of themselves as digital companies in the complete sense that, for example, Amazon is a digital company.

Online transactions are key

Short term this suggests establishing the capability to transact directly with consumers through digital platforms. ‘Click-to-buy’ – the selling of cars online – is the first baby step along that path even though long-term, if the arguments above are valid, this may well become a more marginal activity for the industry. A number of brands including BMW, Hyundai, PSA, and Jaguar Land Rover have all begun to sell their products online and more brands are following suit.3“Click-to-Buy: the car industry embraces online selling”, sophus3 white paper, 16/12/2016. http://bit.ly/2lSNSB8 The benefits should be understood as not just the immediate returns this gives in terms of sales – although by all accounts these are positive – but as much in the organisational transformation it demands of the manufacturer to efficiently win and fulfill digital sales. A key part of this is learning to deliver a genuinely personalised experience online, where the customer is put first, and their needs and preferences are met at a pace and at a level of ‘digital intimacy’ that they control and feel comfortable with.

A logical next step is to move the marketing focus from the ‘product’ to the ‘offer’. To an extent this is already happening through the industry’s use of PCP type finance mentioned earlier. Brands, particularly premium brands, are gaining sales by headlining the affordability of the monthly cost of ownership above the performance or features of the vehicle which are increasingly seen as ‘a given’. It doesn’t take a great leap of imagination to see how those core messages, and their execution, could be recrafted to sell subscription-based mobility services in the future.

Within this transition ‘financial services’ must move to the centre of a car company’s offer and be fully integrated operationally. At the moment this essential function appears peripheral in many brands’ presentation of themselves, assigned to ‘the third tab along’ on a brand’s website. From becoming a barrier to sales, executing finance agreements and online transactions needs to be re-engineered, to become fast and even enjoyable. Perhaps dating websites can provide some pointers as how to use new digital tools to enable quantities of information to be gathered efficiently and less intrusively?4“How a dating website is leading the latest web conversion trend”, venturebeat.com, 28/01/2017 http://bit.ly/2jTLJ6V

Collaboration on mobile

Initially ‘mobile’ will be a key component of future strategy. After all, services like Uber are perceived by many consumers as ‘just’ a mobile app. We also know that mobile devices are currently the primary route for the majority of interactions between consumers and car brand websites. Clearly car brands need to become proficient in crafting apps that are as compelling as the ride hailing services mentioned. They must realise however that they cannot do this alone – who would want to download and check the apps of +30 car brands to meet their immediate mobility needs? This requirement seems an obvious candidate for a consortium approach where car brands get together and outsource the creation of an aggregation platform for their services to compete with the likes of Uber. Longer term car brands will want to dispense with the mobile device as the intermediary layer between themselves and the consumer – biometric technology might be at the forefront, providing a means to hail, pay for and access mobility without the requirement for an electronic wallet/iD card.

A difficult task for marketers in the near future will be to explain this plethora of new services, technologies and concepts, articulating their benefits and aligning these with the desires of consumers. The industry has spent generations expounding the delights of driving, it now needs to evangelise the pleasures and benefits of being driven. Future technology will effectively turn the car inside out, or perhaps more accurately outside in: the external appearance of the vehicle will decrease in importance and the experience of the interior, with its many digital components, could become everything. These are much bigger challenges than selling alternative powertrains, a challenge that the industry already appears to struggle with. Brands and their agencies should now be debating the core messages they will need to pursue and how those will need to evolve in the future.

Rethinking 'brand' and retail

As the industry moves in the direction of service provision and transaction it must rethink how ‘brand’ works in a world in which the current merger of ‘brand’ with ‘product’ will need to be disentangled. At the beginning of last year Volkswagen removed the slogan “Das Auto” (“the Car”) from all of its branding. At the time this was reported as a move to appear less arrogant or ‘absolutist’ in the wake of the dieselgate debacle – but it may also have been that, thinking ahead, the company realised it needed to prepare for a future in which the slogan will not be relevant or would need “… and other stuff” appended to it. We should note also that the strongly aloof posture adopted by many of the premium brands may no longer be either appropriate or effective in the context of personalised, one-to-one digital interactions.

Brands, and their sales staff in particular, will need to rethink their attitude to customers and their definition of ‘leads’ in this future market. The current sales process and the way it is incentivised almost turns the customer into ‘prey’ to be cajoled into purchase and then forgotten about for the next few years. Consumer satisfaction with their experience of the current model is always depressingly low when expressed through surveys and feedback forms. The relationship needs to become consensual and focused on forging genuine long term relationships, it also has to work across digital platforms.

Digital showrooms and pop-up type initiatives to engage with customers in a range of locations will become more relevant whilst current showroom layouts and locations less so. Brands may well want to consider how, currently, media companies and cellphone networks combine digital presence with traditional retail outlets and venues to sign up consumers to ‘packages’ of services.

Conclusion

The extent and the impact of the disruption facing the automotive industry needs to be confronted and managed. With so much short term upheaval threatened by the turn of economic and political events it is essential that this does not distract the industry from preparing for changes that will begin to unfold towards the end of this decade.

Rather than fear these changes the industry should embrace them. If the industry can successfully move to and compete within a business model of charging for journeys, then it can expect much greater returns than it currently earns from just vehicle manufacture.

It is also well placed to achieve this – despite the adoration in many quarters for the high tech players now moving into this ‘space’. Automotive manufacturers have a century’s experience of delivering and managing complexity across a global market. The industry’s highly competitive structure forces it to be technically innovative and reactive. Car brands also have a huge loyal customer and even ‘fan’ base, whilst their status as the incumbent means there is also some leeway to throttle back or accelerate change to their own advantage.

This is not to be complacent. Clear-eyed, unsentimental thinking – like we are seeing from some industry leaders – is vital if the automotive sector is going to successfully manage this change. New models of collaboration and new strategic alliances will also need to be constructed. And, as we have argued here, ‘digital’ will be key in delivering services but also, from the start, in helping the industry understand and meet the changing expectations of consumers.

A Postcard from the Future

24 Southwark Street, just south of the River Thames in London, is the location of the offices of Sophus3. From close to here in 1380 the characters of Chaucer’s ‘Canterbury Tales’ embarked upon their pilgrimage. The current building was completed in 1867 as an exchange to trade hops for use in brewing. This is how we imagine the street might look in ten years time when the first generation of autonomous cars begins sharing the roads with conventional vehicles.

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