Diversity in the Motor Vehicle Industry Keynote, 4/27 11am-12pm EST

This year, we are starting the NAPB Conference with a special keynote focusing on diversity in the motor vehicle industry. The past year brought many tough subjects front-and-center in our daily discussions, and it is time we look inward, as an industry, to address the historical lack of diversity. There are countless benefits to promoting diversity in the organization, even beyond people and culture benefits. In this keynote, we will hear from Chris Singleton, as he sets the tone for the remainder of NAPB 2021 for us to continue these important conversations.

Chris Singleton is a former professional athlete drafted by the Chicago Cubs in 2017. Following the loss of his mother in a racially motivated mass shooting, Chris has now become an inspirational speaker and best-selling author who has shared his message of unity and racial reconciliation with clients such as: Microsoft, Biogen, Houston Texans, Washington Wizards, and more. He shares his message that “Love is stronger than hate” with over 50 organizations and over 300,000 students anually.

Women of NAPB Panel & Coffee, 4/30 10:30-11:30am EST

For the past two years, the Women of NAPB panel has provided a platform for four female industry veterans to share their experiences and insights regarding the challenges of being a woman in an extremely male-dominated industry. Fielding questions from the audience, our panelists have provided open and very candid responses, highlighting the areas in which our industry still needs to grow. In 2020, we expanded this group to exist outside of the NAPB conference, provided a space for everyone in our industry to continue these important discussions. This year, we will continue to offer this popular panel discussion, inviting new panelists to speak to their experiences. Additionally, conversation this year will be supported by benchmark data at the OEM level, as well as the individual attendee level. Topics of discussion will include OEM programs and initiatives, career progression and support, and the impact of COVID-19 on men vs. women.

Introduction

Every year during the North American Service Benchmark (NASB) Conference held in May, we discuss the top emerging trends affecting the automotive service industry that OEMs should prepare for and strategize on – Carlisle’s very own Service Outlook Presentation.

Here is a sneak peek into the upcoming Service Outlook Presentation, offering some highlights of what’s to come. This year, Carlisle selected three key topics that OEMs need to address in the near term.

Carlisle’s line-up for the upcoming 2021 NASB Service Outlook Presentation is:

1. Service After COVID-19
2. Digital Retailing
3. Sustainability

Service After COVID-19

The first topic in Carlisle’s Service Outlook is service after COVID-19. The Coronavirus has turned our world upside down. The era of highly curated waiting rooms and micro-brew coffee bars is gone for the time being, as consumers are reluctant to engage in non-essential in-person activities. This is particularly heightened in an already disengaging arena, a place where consumers dread to go to… the automotive dealership.

OEMs must pivot dramatically to a fully customer-centric model that caters to customer preference, location, and the full breadth of vehicle repair services. During this section of the Service Outlook, we will discuss the various changes to the automotive dealership and service experience due to COVID-19 and assess the longevity of these changes – what changes were a quick reaction to COVID-19 and what will be part of the OEM’s long-term strategy?

Digital Retailing

This is a topic that has already become increasingly important due to the changing marketplace and evolving customer expectations – more and more people crave digital touchpoints and experiences that can be delivered through a digital landscape. COVID-19 only underscored the need to move quickly here. As customers turn to the internet for their needs, the way they shop for vehicles and vehicle service must evolve at the same time.

During this section of the Service Outlook, we will discuss how OEMs can better retail to customers in a digital environment and how the sales-to-service handoff might look in a digital capacity. We will look to industry leaders in the space who have gone above and beyond to deliver a digital experience to customers, but at the same time, we will assess how out of industry players, are able to deliver such experiences. In the end, we will help automotive OEMs determine a strategy to compete in this ever-changing marketplace.

Sustainability

As the environment’s condition worsens and as the world looks to find solutions to reverse man-made climate change, sustainability is becoming increasingly important to consumers and organizations. What can OEMs and dealers do to promote sustainability and communicate this to consumers?

Beyond rolling out all-electric products, OEMs must think outside the box to drive sustainable change across their service network. During this section of the Service Outlook, we will delve into the different ways OEMs and dealerships alike can push for eco-friendly, environmentally conscious initiatives.

Conclusion

The goal of this session is to leave the audience thinking about how to prepare for the future. Given the past year and the ongoing challenges the automotive industry is facing, there is a lot to prepare for!

As car demand began to ramp back up in the second half of 2020, demand for semiconductors in the auto industry began to rise. Vehicles produced in major markets require about 100 ECUs, with the increase in infotainment systems, ADAS features, and xEV powertrains. The current shortage applies to all existing electronic applications down to the core vehicle function being the engine management system.

Carmakers must adjust production output to the current microchip and semiconductor sourcing shortage that has pushed the usual 90 days lead time to now approximately 6 months because of the production increase required at electronic components manufacturers level.

Lack of inventories and competition from consumer electronics force temporary production cut for several OEMs

• Many auto manufacturers including the “Big Three,” Volkswagen, Honda, Subaru, Nissan, Mazda and Stellantis expect to cut production in Q1 with about 171,000 vehicles impacted by the souring shortage in North America, according to LMC Automotive.
• Automotive manufacturers have responded differently. Ford for instance plans to drop from a three to one shift schedule during one week for the best-seller truck F-150, and to idle production for two CUV plants for both the Escape/Corsair and the Explorer/Aviator.
• GM has asked suppliers to stockpile a year’s worth of chips and build inventory. Additionally, they will require plants to be idled for the Chevrolet Malibu, Equinox and Trax, the Cadillac XT4, the GMC Terrain, and the Buick Encore.
• Hyundai has been able to avoid idling any of their global plants as the company did not preemptively cancel any chip orders in early 2020, and Toyota seems to be less affected due to a tight forecast management and constant communication with electronic component suppliers.
• Microchip manufacturers in Taiwan have agreed to prioritize automotive capacity after being asked by European governments. Taiwan Semiconductor Manufacturing Co (TSMC) stated it is expediting critical automotive products.

Securing the supply-chain and sourcing relations for an adjusted approach

• Automakers must secure resource planning and purchasing for components that are shared with other industries as suppliers such as China Resources Microelectronics said it will reallocate capacity to maximize profits and secure supplies for its core customers and strategic partners. In the meantime, Taiwan chip makers consider a 15% price hike for automotive applications, which could take effect in late February.
• Reshoring capabilities is unlikely as the ecosystem for microchips, semiconductors, and other electronics are all located in South East Asia and China.
• Additionally, given the increase in semiconductor content with new software and hardware architectures driven by ADAS and electrification, automotive manufacturers may reevaluate their supply chain and develop closer and more secure relationships with chipmakers.

Carmakers will reduce production to build inventory while negotiations are ongoing to allocate more chipset production to the automotive industry. The capacity constraints could persist until the third quarter of 2021, making it difficult to fully recover the production loss in Q4 alone. As carmakers cope with supply shortage and are forced into production cuts, the industry could see a 2% production loss this year on a global perspective compared to the current forecast, even if demand remains steady.

Ducker’s Automotive team is at the forefront of key trends impacting the industry amid COVID-19 disruptions. Visit here for the latest insights and implications for global business, or contact us to connect with a team member.

Reflecting on 2020, and looking to 2021 and beyond, we have a very serious availability problem. Aftersales part availability is on a steep decline, and a major driver is a lack of labor. While some of this may be COVID-19 related and therefore transient, much of this labor challenge is permanent because our supply base had been priced out of the market by Amazon. To put it bluntly, Amazon is snagging our people, and this problem is not going away unless we take dramatic action. I know how to solve this challenge, but you are not going to like my recommendations because it is going to cost you money in the near-term. But hear me out – there is a method to my madness. What OEMs need to do is raise wages, and provide more attractive benefits packages, to better attract and retain their supply chain labor forces. While costly in the short-term, these higher costs will translate into fewer OEM lost sales and expedites, higher dealer profits, loyal customers, and ultimately, improvements in brand equity.

What’s the extent of the availability issue?

Due to COVID-19, availability is down in the second half of 2020 from historical levels. In Carlisle’s October 2020 Automotive Parts Manager Survey, we see that on average, over 10,000 dealer Parts Managers told us their satisfaction with availability is down over 10 percentage points from the prior couple of years.

Virtually all brands have seen declines. Related, many of our automotive and heavy equipment clients shared their October facing fill and system fill metrics with us, and they are down between 0.5 and 5.0 percentage points from pre-COVID levels. By the way, backorder durations are longer, too. This is a real problem because lower availability means lower customer uptime and satisfaction. In short, we are damaging our brand reputations.

Why is availability down?

There are many tails to each of these supply chain disruptions, but the biggest issue is lack of labor. That’s right. Even though unemployment peaked at over 15% in April and was at just under 7% in December, our suppliers, carriers, third party packagers, and in some cases our own PDCs cannot find hourly people to manufacture, distribute, and fulfill parts. Ask your poorest performing supply chain partners about their labor turnover this year. I bet it is over 50%. And who’s to blame? The harsh truth is that the supply base has been priced out of the market by Amazon.

To shed some light, let me share with you some quotes from a September 2020 Amazon press release:

• “Amazon hiring 100,000 new full- and part-time employees across the US and Canada”
• “The 100,000 Operations network jobs include industry leading pay of $15 per hour and benefits [health, vision, dental, 401K match, tuition reimbursement] from day one, sign-on bonuses of up to $1,000 in select cities …”
• “Amazon to open 100 new Operations buildings in September alone across fulfillment centers, delivery stations, sorting centers and other sites …”

And, this is on top of the 327,000 employees Amazon already added globally between January and October 2020; mostly in operations!

So, now what?

In 2021, OEMs need to pay higher prices for parts, packaging, distribution, and transportation so your suppliers can hire and retain good, ambitious people with strong attendance. By and large, supplier margins are too thin to expect them to take this action without your financial support. Your purchasing organizations can no longer simply say “no” when your suppliers say “show me the money”. The business case is there – the future of our brands may depend on it.

Introduction

Every year during the North American Parts Benchmark (NAPB) Conference held in April, Carlisle discusses the top emerging trends that motor vehicle OEMs should prepare for and strategize on – Carlisle’s very own Crystal Ball Presentation.

Carlisle would like to provide a sneak peek into the upcoming Crystal Ball Presentation, offering some highlights of what’s to come. This year, Carlisle selected four key topics that OEMs need to address in the near term. All four have a unifying theme of “re-examining previously held ideas on what we deliver.”

Carlisle’s line-up for the upcoming 2021 NAPB Crystal Ball Presentation is:

• How Important is Fill, Really?
• Digital Ownership
• Point-of-Sale Financing
• Climate Change

How Important is Fill, Really?

We’ve always thought high facing fill on stock orders was the ultimate dealer demand. It’s the primary way OEMs measure the level of service their networks provide. However, Carlisle recently conducted focus groups that shook up these beliefs – some dealers were indifferent to facing fill for stock orders.

In this section of the Crystal Ball, Carlisle will examine whether dealers truly care about facing fill. To do this, Carlisle plans to conduct more targeted focus groups this year to learn exactly how dealers feel about facing fill, versus some other highly demanded “features” such as:

• Faster order response times
• Later cut-off times
• Better order transparency
• Higher dealer off-the-shelf fill

Depending on the results, Carlisle may also launch a conjoint survey to better quantify dealer opinions about fill.

Digital Ownership

We’ve always been satisfied with our existing method of service delivery. Particularly in the automotive sector, it’s very hard to sell parts without also selling service via the dealer channel. But as customer expectations continue to change, driven by an ever-rising bar set by innovative companies like Peloton, OEMs must re-examine their own method of service delivery to keep up.

Truthfully, Carlisle held its own preconceptions about delivering service… that “going online” was sufficient to both addressing the changing customer needs and competing with non-traditional players in the market (like Tesla and Carvana). To prove it, Carlisle launched the 2020 Consumer Sentiment Survey. The survey did confirm that customers want digital processes, yet the major takeaway was that the OEM and dealer’s version of “going online” was not cutting it for customers.

In this section of the Crystal Ball, Carlisle will examine how different players are attempting to convert their vehicle ownership experience to “online” and what actions need to be taken to truly digitize the experience.

Point-of-Sale Financing

We’ve always assumed we have done everything to get every dollar out of every customer. If the customer cannot afford genuine parts or dealer labor, OEMs have some clever ways to discount the products and services. But ultimately, that is a lost sale.

What if, rather than focusing on pricing, OEMs could focus instead on the customer’s ability to pay. How can they give the customer more money to buy products? Point-of-sale financing (think “Pay $32 a month for 24 months for this repair”) is extraordinarily popular in other sectors, but it’s relatively new in the motor vehicle space. By offering this financing, OEMs give customers access to money to buy what the dealer is selling.

Point-of-sale financing offers some intriguing benefits at a known cost, but most POS financing is for products, not services. Is there a way to overcome this challenge? Carlisle will look at the pros and cons to see whether this idea is worth exploring for OEMs interested in improving sales.

Climate Change

We’ve always focused on efficiency in the supply chain. However, the COVID-19 pandemic shined a light on the fact that maybe the focus should expand to resiliency. Climate change dynamics over the next 10+ years prove that OEMs need to focus on developing supply chains that can stand up to fires, floods, pandemics, and other climate effects.

The problem with covering a broad topic like climate change is that it is often hard to know where to start. Therefore, Carlisle developed a framework to categorize climate risks in a way that helps OEMs prepare for these changes. First, Carlisle will look at demand factors: Are people still going to want what OEMs are selling? Are OEMs legally allowed to sell it? Then, Carlisle will look at supply factors: Can OEMs still make the things they sell? Can OEMs get those things to customers? Finally, Carlisle will show a long list of potential mitigation strategies and remedies to some of the risks posed by climate change and help OEMs understand how to prioritize these initiatives. Ultimately, Carlisle will help guide OEMs to evaluate the different ways to make their supply chains more resilient.

Conclusion

At the end of the presentation, the audience will take away some new theories about what they always thought they knew. This presentation is supposed to be provocative, and in the end, the audience will need to decide how to go forward as a motor vehicle OEM in an ever-changing industry.