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The automotive supply chain in Europe

Affinity
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June 21, 2018

As the automotive technology advances, the insurance offered by the manufacturer or dealer should be seen as an integral part of the innovation being sold to the customer.

Automotive technology is evolving, while manufacturers and dealers are adjusting to a push for cleaner cars on our roads. They are tasked with steering a gradual transformation from the ageing car parc of today, to the clean and clever vehicles of the future. The weight of an increasing regulatory burden will make it more difficult to deliver long-term profitability, creating an environment where top-quality added-value products could make all the difference to the bottom line.

Paul Monks | Global Head of Affinity, Willis Towers Watson

The European automotive industry has suffered from underlying soft demand in key markets over the past few years, while struggling to manage the fallout from the ‘dieselgate’ scandal in 2015. Faith in the industry has been damaged, and manufacturers have been left with a headache as they adapt to a drop in demand for diesel models1.

Once heralded as a cleaner alternative, diesel’s fall from grace has had far-reaching implications, from potential threats to the economic stability of car-producing nations2, to studies linking the cover-up to pollution-related deaths3.

The automotive supply chain needs to set a course towards becoming an industry that people can trust again, with clear commitments to clean and sustainable alternatives. Since this depends on something of a rebirth for the industry, profitability is far from assured, and manufacturers will need to provide appealing incentives and extras if they are to keep things moving on the forecourts of Europe.

Photo of a car production line with workers

The clean way or the highway

As the industry looks to the future, the glare of the regulatory spotlight will be difficult to avoid. The EU Commission is committed to reducing emissions, and through its 2020 climate and energy package4, has set clear targets for the industry to hit.

Meanwhile, rules and regulations are set to tighten in the wake of the ‘dieselgate’ scandal. The European Parliament, the Commission, and the Council have agreed to impose stricter rules aimed at ensuring safer and cleaner cars on the roads from 2020, including new checks at Member State- and EU-level5. Already one of the most regulated industries in Europe, automotive production will feel the pinch as the increasing cost of compliance bites.

Manufacturers must meet the challenge of convincing drivers to make the switch to alternative fuel sources if they are to progress towards these emissions targets. The average age of cars in the EU has edged up, from less than nine years in 2007 to more than ten years in 20156. An ageing car parc means that, while people had a mind to hang onto their older vehicles during tougher economic conditions, there are now opportunities to encourage overdue upgrades.

While drivers are beginning to show more of an interest in hybrid and electric options, the barriers to ownership can be significant. Potential buyers worry about the true cost-effectiveness and practicalities of running a car with an alternative fuel source. Manufacturers and dealers will have to present a compelling offer at the point of sale if they are to encourage uptake.

Technology could help turn the tables

Self-driving cars are part of an enduring vision of the futuristic civilisation we might one day inhabit. While full automation still represents a huge leap in thinking for many prospective car buyers, it is becoming the norm to get some assistance with the safety and practicalities of driving. Simpler modifications, like reversing cameras and parking sensors, have helped promote the value of in-car technology, preparing people for a longer road towards a fully hands-free experience.

The European automotive industry already invests more than 5% of total turnover into research and development7. Manufacturers must weigh the cost of developing each innovation against the potential benefits to customers. Technology that improves safety or enhances the driving experience should directly improve the appeal of newly kitted-out vehicles, yet the impact these changes have on the final purchasing decision could prove to be negligible if sellers don’t consider the wider proposition.

To this end, as automotive technology advances, the insurance offered by the manufacturer or dealer should be seen as an integral part of the innovation being sold to the customer. The interplay between the insurance and the technology should be seamless, offering a safer vehicle with a fair insurance premium to match.

Clean, smart, and under control

Adapting to technological advancements while shouldering a growing regulatory burden is likely to weigh on profit, but cars that are both cleaner and more intelligent could be the best way to convince prospective buyers and increase sales.

Most dealers and manufacturer brands offer insurance or extended warranties, but it is becoming more important to provide more than just a standard policy, which could easily be bested on the wider market. Willis Towers Watson Affinity consults with manufacturers and dealers to help transform their insurance offering into a strategic asset that enhances appeal and drives growth.

Sources

  1. The Guardian, ‘Air pollution fears see demand for diesel cars fall by fifth’, published 5 Jun 2017
  2. The Independent, ‘Volkswagen's emissions scandal and Brexit 'threatens' German economy’, published 21 Aug 2017 
  3. Phys.org, 5,000 ‘Dieselgate’ deaths in Europe per year: study, published 18 Sep 2017 
  4. EU Commission, 2020 Climate and Energy Package, accessed Dec 2017
  5. EU Commission Press Release, agreement on Commission proposal to tighten rules for safer and cleaner cars, published 7 Dec 2017
  6. ACEA, The Automobile Industry Pocket Guide, 2017/2018
  7. ACEA, Research and Innovation, accessed December 2017
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