home Customer Experience, Digital, Features From despair to prosperity: Reimagining the future of Australia’s auto Industry

From despair to prosperity: Reimagining the future of Australia’s auto Industry

The COVID-19 pandemic has fundamentally changed the world. While many of the changes posed by this global crisis have never been seen before – others were predictable and perhaps, expected. The alarming pandemic has accelerated the rate of digital transformation in the Australian auto-industry, revolutionising the experience of purchasing and maintaining a new car.

With car sales soaring and new vehicles selling like hotcakes, the automotive industry is reversing the multi-year trend of declining car sales as we speak. This sudden turn of events, ironically, has a direct correlation with the global pandemic.

The Australian auto industry before COVID

In the last few years, according to FCAI (Federal Chamber of Automotive Industries), the Australian Automotive Industry had witnessed a significant drop in car sales, with 2019 being particularly devastating – the sales slumped by 7.8% into the lowest levels since 2011.

Moreover, the future sales projection was indisputably gloomy. With the rise of environmental awareness and the government incentivising people to give up personal vehicles to opt for public transportation (in efforts to reduce air pollution and traffics jams) the industry had anticipated the demand for new car sales to continue the decline. The FCAI report, released at the start of 2020, revealed that the number of Australians planning to buy a new vehicle in the next four years was down 19.1% compared to the previous year.

The novel COVID-19 pandemic, however, has completely shuffled the cards.

All over the world, including Australia, car sales went through the roof beginning in November 2020 and continued to grow for the following five consecutive months. Car dealers have seen an increase of 10.6 % in new vehicles, compared to previous years, and this has been reflected with strong growth in NSW, Queensland, Western Australia, South Australia, and the Northern Territory.

Initially, experts assumed that Australians were merely treating themselves to a new vehicle to compensate for the dreary COVID-19-imposed restrictions and would soon get back to normal.

The new data from Google Trends & Insights and Global research agencies, however, show that we will be facing a completely different reality in the next decade. This new reality, of the soaring demand for personal vehicles, is mostly shaped by the two newly emerging customer segments: ‘car rebels’ and ‘back yard explorers. These two segments are already storming the personal vehicle space and will make a tremendous impact on the way automotive manufacturers design and sell cars in the coming decades.

So, who are these people, and how will they impact the state of the automotive industry?

1.         ‘Car rebels‘

For decades, there were two key segments dominating the automotive industry scene:

First, the suburban segment – people who live outside capital cities, in areas of lower residential density and usually underdeveloped transportation systems. This segment has been, historically, heavily reliant on personal vehicles.

The second segment, the modern urban segment, is largely comprised of millennials and Gen Z and is characterised by a desire to live in the city centres: in close proximity to shopping, entertainment and public institutions.

A large percentage of the urban segment has traditionally chosen to give up on personal vehicles, due to a combination of high car ownership costs, sufficient public transportation, and, in recent years, a higher environmental awareness.  Sydney (the ‘heart’ of the Modern Urban segment), not surprisingly, has the lowest level of car ownership (55.3 cars per 100 persons), followed by Melbourne and Brisbane. While more rural Tasmania and Western Australis areas are seeing the highest level of ownership (62-65 motor vehicles per 100 persons).

Following the pandemic, the modern urban segment has experienced a major shift in mindset. Very much similar to consumers all around the world, these consumers now exhibit a greater desire for personal space where they can find comfort and safety. The need to feel more confident in the level of hygiene has led to an increasing number of ‘urbans’ purchasing a personal vehicle while avoiding public transportation. As reported in a recent Cars.com survey, more than 20% of respondents who didn’t own their own car are now considering purchasing one.

The Modern Urban segment has also experienced a major lifestyle shift. As a result of greater work flexibility and an option for remote work, a significant number of Modern Urbans (and especially families with children), are choosing to move to rural areas.

A recent realestate.com report proves that sales volumes in regional Australia increased by 20% in 2020 and house prices across the region surged by 40% – at “more than three times the pace of capital cities.”

Following the relocation to rural areas that typically have less developed public transportation networks, Modern Urban families will be facing the need to purchase additional vehicles.

While some consumers from the ‘Urban segment’ will be purchasing new vehicles, others (namely the younger, Gen Z), are comparatively less financially stable and aren’t always able to afford a new vehicle. These consumers, consequently, are refocusing on the preowned market. As a direct result of this trend, there has been a soaring demand for used cars in Australia in recent months.

At the beginning of 2021, Gumtree witnessed the lowest number of automotive listings in history, according to a JP Morgan report, while prices are heading in the opposite direction. This meaning that the used car supply is falling short across the board while the demand climbs. Overall, the Modern Urban segment is expected to contribute around 30% of the growing demand for a new and second-hand vehicle that we will see in the coming years.

2.         ‘Back Yard Explorers’

While governments all over the world put an excremental effort to overcome the pandemic, most experts agree that COVID-19 will stay among us for at least a few years.

Some travel restrictions will be lifted eventually; however, there will still be significant concerns around international travel and aviation. This will result in more Australians planning to vacation domestically and explore the ‘back yard’. Consequently, family road trips will see a notable uptick in the next years, fuelling an appetite for upgrading family cars to more rugged, comfortable, adventurous vehicles.

Following this course, we are already witnessing a sharp jump in the ‘getaway cars’- utes, SUVs and four-wheel-drives cars demand, with brands announcing their best monthly sales results of all time. The Toyota HiLux was the Australia top-selling vehicle in 2021, Ford Ranger ranked second, and Nissan Patrol posted its strongest result since this model went on sale seven years ago.

Moreover, Caravan dealers are also seeing a growing interest in their products, mentioning that the last six months “it just went ballistic” and there is no sign of the industry slowing down – new customers may be waiting until February 2022 to take delivery of a new van.  Julian Barry, Chief Executive of Caravan Industry Association Western Australia (CIAWA), mentions that there is a huge shortage of second-hand vans following the pent-up demand. Caravaner demographics have also changed, with the grey nomads joined by younger groups choosing to holiday with a van.

The changes we can expect

With the non-traditional segments described above storming the automotive market, we will see a major change in the way customers choose and buy cars.

  1. Digital will become more important along the entire purchase journey, to satisfy the younger consumers’ demand, as less than a third of them prefer conducting sales in person at a dealership; ‘The ‘classic’ car sales funnel, with the exploratory journey happening online but the purchase itself still offline, will be completely redesigned: we will see much more of at-home test drives, operationalising home delivery and further digitising of the purchase process.
  2. Customers will use more nontraditional channels to research the car, such as YouTube, to experience digital test drives experience, video content of interior overviews, digital walkarounds to demonstrate the vehicle’s features, and online product reviews.
  3. For years, motor companies have been trying to reform their business models to be more sustainable. Following the discussed automotive trend, concern for the environment is increasing and the pressure to electrify is intensified.  The good news are that with the younger generations and Urban Moderns being more mindful of environmental issues, we are optimistic to see more openness to electric cars. According to McKenzie, an increasingly higher number of users have declared their intent to purchase an alternative fuel vehicle (BEV or PHEV) as their next vehicle is increasing, while the long-time preference for traditional powertrains is shrinking.
  4. Traditional used-car sales physical avenues will be witnessing a decline in listings, with less conventional outlets like Gumtree seeing a rise.
  5. And finally, the getaway cars’ (utes, SUVs and four-wheel-drives) will undergo a significant transformation and innovation, as richer functionality and advanced features will be introduced to cater for the needs of traveling families. Features such as digital dashboard displays with touchscreen, rear-seat entertainment systems, satellite radio and advanced safety features (including forward-collision warning and lane-keep assist) will provide a true competitive advantage as they will make family trips much more enjoyable and low risk.

As Australia and the global economy are still in the recovery stage, the full impact of the pandemic on the automotive industry will likely remain obscure for at least a few years. However, what is already very clear is the need for industry players to cater to the evolving set of consumer expectations such as contactless point of sales and enhanced digital experiences on one hand , as well as the transition to ecological fuel to minimise the harmful impact of the automotive industry on our planet on the other hand. We wish for the automotive engine to get back on track in the most user, societal and eco-friendly way possible.

Ayelet Mendel-Girin

Australia Customer & Partner Experience Manager at Microsoft. Using CX/UX Research & Innovation to delight People around the world