Like many industries, the automotive industry is experiencing tremendous disruption and transformation. It’s an interesting time to take a step back and view a few recent events that have impacted the industry. We’ve seen disruption ranging from sourcing to labor to distribution – not to mention the systems that make the autos move. Often, transformation follows, with the players on the field and the field itself shifting in unexpected directions, which is causing an extra layer of uncertainty for the executives, managers, and workers that are moving this industry forward.
There are really five things that have caused disintermediation in the established purchase funnel or consumers’ path to purchase:
- The impact of the supply chain created a brief ‘sellers’ market, where purchase intenders were forced to accept higher prices, reduced TRIM packages (like seat warming), and basically buy what was available or wait many months for delivery of their purchase.
- Although Tesla had its share of delivery delays, they have been right on trend with two major consumer trends: sustainability, and ecommerce (the convenience of shopping at home without sales pressure).
- Another trend coming is how Generative AI will impact the path to purchase, as search algorithms will be interrupted, and much of OEM’s shift to digital marketing will be bypassed entirely.
- When it comes to AI, much has been written about the benefits of the driving experience with this type of intelligence in the cabin, but dealers are struggling to keep up with the technology and infrastructure, leaving potential sales on the table.
- We also can’t ignore the impact that the UAW (The United Auto Workers) settlements will have on the sector. At the end of the day, someone will have to pay for the increased wages, and that will impact price to consumers further, and likely some developmental investments for the OEMs (Original Equipment Manufacturer), further slowing innovation and increasing vulnerability to offshore competitors.
Auto Shows and Super Bowl ads won’t be enough to build brands with today’s consumer, and with 40% of American car owners planning to buy a new vehicle in the next year, it’s time to rethink the importance of brand building in this sector.
The current state
Now is the time for auto manufacturers to rethink their focus to investing in brand building. There is so much fragmentation in the market that’s it is going to be next to impossible to support marketing efforts for each individual model under each make, often with multiple TRIMs and EV options, effectively. However, placing additional attention on the overall brand could have the desired effect of filling the top of the purchase funnel, then companies can use the advertising of specific models, variants, and incentives to convert purchases.
Kantar has done a lot of work on Performance vs. Equity advertising in this sector, and our data shows that you need both to drive consideration in the market. OEMs often sacrifice Equity advertising which is important to build long-term consideration for short-term activation tactics like retail ads, promotions, or new models.
Our BrandZ Auto research in the US shows us that:
- 47% of consideration is driven by being Meaningful; the extent to which brands build a clear and consistent emotional connection and deliver against consumer needs.
- 41% is driven by being Salient; The brand's mental availability represents how quickly and easily it comes to mind when making a purchase or usage decision.
- Just 12% is driven by being Different; The extent to which some brands offer something that others don’t and lead the way.
Tesla, as an example, is over 2X the category norm on Different, which has a significant impact on their ability to command a price premium, but they fall below the category average on being Meaningful and Salient with overall buyers - and that’s what will keep them out of the mainstream. Other manufacturers have an opportunity to shore-up their other brand fundamentals - which drive consideration at scale - to build consideration with a much larger pool of buyers.
We are also at crossroads on EV demand. We’re seeing reports in the media of a substantial increase in days of supply on lots, where there used to be a waiting list for these types of vehicles. It is commonly accepted that the two biggest barriers to EV adoption are price and range/infrastructure issues. Although incentives are helping to address the price issue to some extent, it will take years to flip automotive infrastructure to a point where charging is as fast and easy as filling up your tank with gas.
Some say that the electric vehicle market is plateauing because most early adopters who can purchase an EV have purchased an EV, and we know that almost 6 in 10 of those Americans who plan to buy a new car next year are planning on buying a gasoline powered car. Like any other innovation, as new models better address the barriers of adoption there will be a tipping point where they take over the market.
Again, the brand needs to establish itself as a house of offerings that meet the changing needs of its customers to capture consideration from a broader market.
What does the future hold?
Disruption will be the norm.
The impact of Gen AI will have a massive impact on how consumers interact with brands in the purchase funnel.
Manufacturing costs will soar, and the domestic innovation pipeline might suffer, opening the door for new competitors from outside of the US to flood the market with lower priced EVs (electric vehicles). Chinese Auto Manufactures have already started to build relation with Mexico.
Scarcity of minerals will further impact EV growth, while other hybrid and different fuel alternatives will battle for the minds of consumers and potentially create more confusion for intenders. In fact, we noted the interesting move this month by Exxon to enter the mining industry, hoping to tap into some significant lithium deposits in the US. Exxon is always a good bellwether brand to watch for long term bets, and they are betting that EV’s aren’t going away any time soon.
With prices going the direction they are, and disposable income under pressure by lower wage growth, there will be an increase in the desire for shared mobility. The concept of ownership is different for the new generations of potential car owners. Leases were previously an attempt to create affordability and loyalty, but tactics could branch out to include car sharing platforms to attract new consumers.
Marketing will need to change from big splash marketing and traditional digital spend, to really understanding what makes their brands meaningful, and using that as an umbrella over their house of models.
Finally, the elephant in the room is the future of the dealership model. As mentioned, this was disrupted by Tesla and others, but at some point, dealerships will need to rely less on state protection and more on creating on-brand customer experiences in sales and service to protect their channel. We just saw a new proof point of this with the announcement of a partnership between Hyundai and Amazon.
Explore the industry for free
If you want to learn more about brand equity in the US Auto market, I highly recommend you look at our BrandSnapshot data on Kantar Marketplace. It is free to access, and no strings attached. Find the database here.
Latest Profiles community report
Our Profiles team published their latest community report and the first of three supporting articles. Connecting with the Automotive Community: Global findings on how consumers are approaching car ownership and the desires and motivations of in-market buyers explores findings on: car ownership, Iin-market consumers, hybrid and EV sentiments and car sharing and cost savings. Click here to read our inspiration article.