In production engineering, it has long been established that error costs during ramp-up and production are predominantly caused at an early stage of product development. As with errors in production, the causes of carbon emissions are also determined at an early stage. Carbon emissions are no longer just socially and politically relevant. The European Union „internalizes“ the economic costs of carbon emissions through the EU Emissions Trading System (ETS) and the Carbon Border Adjustment Mechanism (CBAM). Carbon emissions particularly are turning into a direct cost factor. More and more economies are taking a similar approach. For this reason, it is imperative to generate an accurate picture of the emissions of your own products and their impact in relation to CO2 to be competitive in the long term.

Seeing the advantages of a higher influence on transaction prices we were wary of the lower selling power of an agency system. A dealer who is fully invested in a franchise and his new car inventory will fight harder to sell the last unit even if it goes to a customer from far away – with the transaction price as his ultimate tool and the year-end target bonus of the OEM as the justification.

Overall it seemed to us back then that an agency system is somewhat of a nice weather solution for an OEM, one that shines brightly in a powerpoint presentation but will show its shortcomings when the going gets tough.

The combination of the pandemic and the supply-chain crisis created such a nice weather period: production output was restricted, while demand remained surprisingly strong. Inventories fell to all-time lows and transaction prices rose to all-time highs for most brands and models, simply due to the lack of availability and choice. The still low interest rates of that time made the transfer of low inventories to the car makers’ balance sheet a minor issue.

As expected¹, even in that honeymoon period some agency transitions got off to a rocky start – too big are the fundamental changes in the underlying operational processes and supporting IT systems to not cause some disruption. And any new pricing function, be it human or big data / AI based will need time to hone its skills to the levels achieved by experienced sales managers over decades. But with a bit of goodwill and a few human work arounds the new systems were made to work and got better month by month. Nothing major happened that would have discouraged other brands from following. So, more announcements of agency transition plans were made.

But Covid inevitably ended, production constraints eased, and soon after the car supply again matched and quickly exceeded demand. New car inventories refilled quite quickly, and customers returned to long-learned behaviours, hunting for bargains and deals instead of patiently taking whatever car they could get and paying list price or above.

In an agency system this growing new car inventory sits on the balance sheet of the manufacturer and its National Sales Companies. And combined with the much higher interest rates now causes much more pain. There are also strong indications that our forecast was correct: agents will not and cannot fight for market share as effectively as dealers – their commission system does not reward it, and their lack of pricing authority severely curtails their ability to do so. Therefore, any temporary weakness of a brand which is proactively mitigated by dealers turns into a share decline quickly in an agency system, be it overambitious retail pricing or a less than perfect new model. A slowing order intake immediately reinforces the inventory problem. We have witnessed OEMs reacting by placing excessive demo fleets into agencies, but it is obvious that such actions are not a real cure of the root cause.

It is no surprise then that several brands have slowed down or halted their transition plans. Or even reversed their decisions, confirming our long-standing belief that there is a lot of remaining life in the dealer model and that it is not easy to find a better solution – after improving the dealer system over many decades.

However, if we conclude that the dealer model is here to stay, this is no justification for OEMs and dealers to sit on the status-quo. Quite the opposite – there is lots to do:

OEMs must guard and improve the financial viability of their franchises by systematically reducing its inherent cost, from dealer operating to facility and CI standards. The increasing digitalisation of the purchasing process and new tools and methods enable such structural cost reductions without a detrimental impact on selling power. Moreover, few brands have yet reached the optimal outlet and ownership structure yet.  

Dealers must continue to improve their operations, optimally integrate their processes into the brand’s omnichannel world – and get their teams to drop old counterproductive habits. We have seen that there is room for improvement in EVERY retail operation, but the improvement doesn’t happen without a dedicated push.

And OEMs and retail partners must work together to align their interests to free up energy to win over the real competition, other brands. From our client work we know that a jointly planned and consistently managed lead funnel with matching vehicle supply is on the very top of that list. Late corrections always cause extra incentive cost that can be saved in a properly demand-oriented sales channel. Oversupply creates excessive working capital between the two parties – and is best avoided in the first place. And lastly, a streamlined and optimised incentive system is another element of a better alignment and helps to ensure that both parties pull in the same direction.

Sustainability in the automotive industry involves reducing environmental impacts and improving resource efficiency to meet ESG regulations and satisfy growing consumer demand for eco-friendly vehicles and manufacturing practices.

Currently, most OEMs’ sustainability efforts are focused on cost reductions and regulatory compliance, with investment primarily targeting electric vehicles (EVs), fuel efficiency improvements, and reducing emissions from traditional combustion engines. What is often missing is a comprehensive vision for topline growth delivered by sustainable product lines that appeal to environmentally conscious consumers.

The growing presence of Chinese OEMs in the European market

Faced with overcapacity, price competition, and market saturation at home, the most successful Chinese OEMs aim to grow abroad. In 2024, Geely, BYD, and SAIC sold over 1 million EVs outside China, a 40% increase. Exporting is for many Chinese brands more profitable due to higher prices, despite tariffs and higher marketing and distribution costs.

Led by brands such as BYD, XPeng, and Geely, Chinese automakers are pushing the boundaries of technology and affordability and challenging the dominance of international OEMs and suppliers.

Market dynamics have shifted, with declining market shares for foreign players, as Chinese companies dominate the electric New Energy Vehicle (NEV) segment and introduce features tailored to domestic preferences. These developments pose critical questions for international OEMs’ head offices about how to adapt, compete, and remain relevant in the world’s largest automotive market, where domestic NEV players are already designing, building and selling a new generation of intelligent and connected vehicles (ICVs).

This report explores the strategies that foreign automakers and suppliers must consider to navigate these challenges and maintain their footing in China’s increasingly localized and innovation-driven landscape.

In the midst of transformation, OEMs and suppliers are under intense pressure to steer through fundamental changes in strategy, structure, culture and leadership.

Whether or not these changes can have the intended impact depends on the commitment and capabilities of their people. This raises critical questions for top management: What talent to retain, how to encourage them to stay, and how to develop them to thrive?

In this environment, it is imperative for marketing employees to generate powerful content at pace by improving their internal processes and tools, to drive sales more efficiently. Raising the pressure further, automotive manufacturers also face growing demand for content that appeals to different stakeholders, from customers, suppliers and dealers to their own employees. To meet these needs, OEMs are increasingly reliant on online platforms to engage with customers, streamline operations, and drive growth.

Waymo showcased its latest self-driving minivans equipped with advanced LIDAR and AI-driven systems; BMW unveiled the BMW Panoramic iDrive; Zeekr, Great Wall Motors, Honda, etc. brought their new models… There are so many things to write about, but I’d like to share my three observations:

Rising costs, shrinking margins, and the transition to electric vehicles (EVs) are significant challenges that also require immediate attention. And increasingly, these economic factors are deeply tied to the responsibilities of the Chief Technology Officer (CTO).