12 April 2023
2022 was a difficult time for the automobile industry. Chinese growth was muted; supply chain shocks, particularly for semiconductors remained an issue; electric vehicles continued to grow in importance both politically and among consumers, putting traditional OEMs under significant pressure; and the business model continued to shift fitfully towards one led more by digital services than drive trains and chassis. So, what does the immediate future for car brands look like?
Automobile brands in trouble
All this contributed to a rather disappointing outlook for automobile brand values in 2023. For the first time since 2017 – when Brand Finance first created a dedicated Automobile brand value ranking – aggregate brand values have fallen from $611 billion to $600 billion USD. Across the table, this meant that 68 brands out of 2022’s top 100 automobile brands ranking fell in value.
This fall in value highlights a trend for automobile brands that may be worrying for those looking after brands in the industry. This is the falling importance of automobile brands in the global brand ecosystem. Despite massive falls in the value of Tech brands and an overall fall in value for our Global 500 top most valuable brands ranking, automobile brands continue to fall in aggregate terms in overall value terms.
What you can see from the graph above is that this fall is relative to a peak in 2021, which occurred just as government COVID relief payments had made their way to consumers, leading to strong growth in demand for physical products that people could enjoy despite social distancing rules. It remains to be seen whether this trend will continue, but there are some reasons to think that headwinds for the industry will continue in the medium term.
Rising costs, a warming planet and cooling interest among the young
As The Economist reported in a recent article, the young in many parts of the rich world are falling out of love with cars[1]. As the article points out, in the USA, one fifth of Americans between the age of 20 to 24 do not have a license up from one twelfth in 1983 with journeys travelled also down significantly.
Rising concerns around climate change and the corresponding support for alternative modes of transport are putting pressure on demand. On the other hand, inflation, rising interest rates for car finance, volatile fuel prices and expensive electric models mean that costs remain high and unpredictable for consumers.
In order to complete our valuation analysis, every year we research the perceptions of around 150,000 respondents on 4,000 brands in over 35 markets across over 30 sectors within our Brand Finance Global Brand Equity Monitor study.
Within this study, you can see these cost pressures starting to affect consumer sentiment. Whereas last year, an average of 26.1% of respondents believed each brand represented “Great Value for Money”, this has dropped 15% in relative terms to 22.3% this year. It is clear that consumers are feeling the pinch.
Additional to rising costs, there is also a sense that cars may be losing their ‘cool’ factor. Steven Bartlett – known for his company Social Chain, which made him a multi-millionaire, being the youngest CEO on the UK’s Dragon’s Den (equivalent of Shark Tank) and now running a successful interview-based podcast series – was asked by guest Louis Theroux on a recent episode whether he owned a Bugatti. Steven’s response was that he didn’t own a car at all, a response that was met with no surprise by Theroux. This passing comment belies a growing truth for many young people. This is that cars are less aspirational for many compared to what they once were.
Automobile brands are not getting the promotional support they used to
This is not helped by a continuous decline in the amount spent on automobile brand promotion.
True to longer term trend, total marketing sales and related administrative costs continue to fall from 8.0% in 2016 to 6.0% in 2021.
This drop has come due to increased demands on Research and Development and CAPEX – as most OEM’s invest heavily in the Electric Vehicle transition. Pulling back from promotional spend could though be sacrificing a long-term benefit for the category on the altar of short-term cost-saving.
As Mark Ritson, the online marketing professor, pointed out in an article on Tesla’s recent need to discount[2], you need considerable amounts of advertising spend to reach the whole market (i.e. not only those who will soon buy a car) in order to continue growing after you reach a certain scale. Tesla was fortunate to have a very timely and innovative product proposition, strong ‘word of mouth’ approbation by influencers, and the unlimited PR value of a charismatic and often controversial CEO who is happy to be in the spotlight of world attention. For almost everyone else this fortune is not bestowed on all brands.
Importantly, marketing spend builds brand familiarity and salience which Brand Finance’s simple BrandBeta® model highlights is an important predictor of sales growth.
Derived from our Global Brand Equity Monitor, the model is called BrandBeta® and is calculated as a combination of brand familiarity and consideration conversion, being the proportion of people familiar with a brand who are willing to consider it. The BrandBeta® model is highly predictive of share.
The graph below shows the results of all automobile brands in the US car market according to our BrandBeta score compared against their market share in the relevant year over the last five years.
The R2 figure shows the fit of the results to the trendline with a number closer to 1 indicating a perfect fit. The figure is above 0.9 indicating a very strong relationship.
What is particularly interesting with this is that there appears to be a double jeopardy rule. In other words, the higher a brand’s familiarity and consideration the more their market share will grow per additional combined unit of familiarity and consideration (i.e. continuous economies of scale).
While this can partly be explained by the propensity for customers of larger brands to be more loyal, it also highlights another fact. The fact that not only is general familiarity important but depth of familiarity too.
Those brands with higher general familiarity (encompassing knowing the brand “a little” up to knowing the brand “very well”) have a much higher level of those respondents knowing the brand “very well”. For these respondents, the brand is (one of) the first to mind and therefore a much likelier purchase choice.
This strength of relationship is, of course, driven by experience but promotion is also key and reducing marketing spend will make this relationship harder to maintain and improve.
But consumer interest and government support show potential for a turnaround.
Despite this immediate gloom, there are reasons to be cheery. The passing of the USA’s Inflation Reduction Act paves the way for significant support for the transition to electric vehicles. As do the measures taken by other countries, particularly in Europe.
Electric vehicle (EV) focussed OEMs are storming up Brand Finance’s Top 100 Auto brands ranking: Tesla is now the most valuable automobile brand in the world for the first time; BYD was the fastest growing brand in the whole of Brand Finance’s top 500 most valuable Global brands ranking across all sectors and countries; Polestar, Rivian and other EV brands have made their way into and rocketed up within our table over the last couple of years.
And we appear to be close to an inflection point where costs of EV’s reach parity with traditional models as economies of scale work through.
As well as being pushed by governments, this trend is being pulled by consumers interested in buying more products that help them live more sustainable lives.
That needs to be borne in mind by OEMs. In the short run, the drive train is key, but in the longer-term there will be more comparison of the credentials of the full production process – from the use of rare minerals to the recycling of materials.
So, what does this mean for brands?
Much of what we highlighted last year remains true.
Cleaning up the production process of EVs and communicating that as a benefit will be key for the brands that are able to differentiate on this attribute. Careful coordination needs to be taken to avoid overclaiming while maintaining a perceived advantage over competitors. Brand Finance’s sustainability strategy team has put together a series of approaches explaining how this can be done effectively.
From a branding point of view, models need to avoid becoming copy-cats of others. As cars become integrated digital products, there has been a tendency to use nomenclature which references the digital aspect of the product for example with the prefix “ i ”. This approach could end up making it more difficult to make these models distinctive and differentiated compared to the other brands.
Finally, it is important to track both brand equity and brand value. The market for cars is changing in all markets quickly – from model types to sales channel and more. Keeping an eye on what attributes are important and where your brand stands from a brand equity point of view is key. Tracking brand value over time is also vital because it helps to highlight the need for long-term and effective marketing spend to support long-term demand. As pressures on marketing spend mount in the sector, assessing both equity dimensions and value will be vital to meet evolving consumer demands and to sustainable growth.
[1] “Driven away: Throughout the rich world, the young are falling out of love with cars”, The Economist, February 2023
[2] Tesla is about to experience the seven perils of discounting, Mark Ritson, 19 January 2023, Marketing Week, https://www.marketingweek.com/tesla-seven-perils-of-discounting/
FAQs
What are the trends shaping the auto industry in 2023? ›
In 2023, 19% of new passenger car registrations will be electric – battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) – up from 14% in 2022. China will continue to be the largest market for EVs in 2023 with 62% of global registrations, followed by 21% in Europe and 10% in the US.
What are the challenges of the auto industry in 2023? ›As OEMs and suppliers head into 2023, they will likely continue to face macroeconomic challenges, including stubborn inflation, rising interest rates, unpredictable fuel and commodity pricing, ongoing supply chain constraints, and labor and talent shortages.
What are the future trends in the automobile industry? ›Digitization, increasing automation, and new business models have revolutionized other industries, and automotive will be no exception. These forces are giving rise to four disruptive technology-driven trends in the automotive sector: diverse mobility, autonomous driving, electrification, and connectivity.
Will there be a car recession in 2023? ›In the U.S., the Manheim Used Vehicle Value Index — which measures the prices dealerships pay for used cars at auctions — hit a high of 257.7 in January 2022 and has since fallen to 222.5 in January 2023. Overall, J.P. Morgan Research predicts used car prices will decline by roughly 10% in 2023.
What are the four trends in automotive? ›“When we think about the future of mobility, we have to think broadly about everything transportation encompasses, and what we're really seeing is the emergence of four major trends in the future of how people get around – that's mobility, electrification, connectivity and autonomous vehicles – MECA for short.”
What are future changes in automobile technology? ›Future changes in automobile technology are likely to include: Increased sophistication of controls and instruments, many of which will contribute to safety. All of these choices are correct. Improved safety through engineering research and development (both vehicle and road)
What is the outlook for the auto repair industry in 2023? ›The outlook for the automotive repair industry is strong. The auto mechanic industry is forecast to generate $80.5 billion in 2023, according to IBISWorld. Evolving technology and a rise in the number of electric vehicles on the road are reshaping the automotive repair industry.
Why is the car industry struggling? ›Despite advancements, chip shortages and supply chain problems still exist. Moreover, inflation is hitting the brakes on consumption. And there's also the issue of changing consumer habits that give automakers and dealers additional headaches.
What is the future scope of automated cars? ›Autonomous driving's future: Convenient and connected. By 2035, autonomous driving could create $300 billion to $400 billion in revenue. New research reveals what's needed to win in the fast-changing passenger car market.
Which 4 innovation fields are defining the future of the car industry? ›The future of automotive innovation will hinge on four major technologies: automation, connectivity, electric power, and the shared economy.
What drives innovation in automotive industry? ›
Automobile Innovations
Today's evolving automotive market is being driven by several key areas, most notably connectivity, electrification and autonomous driving. People are attracted and eager to have these features and functionality, so let's take a little closer look at this trend.
High interest rates, supply chain problems and recessionary fears were among the major challenges for the global automotive industry in 2022. Those issues aren't expected to be resolved quickly.
What happens to the auto industry in a recession? ›How does a recession affect the car industry? During a recession, auto sales typically fall, often significantly. Many buyers will back out of the market until the economy recovers.
Will car prices go down if there is a recession? ›Do Car Prices Go Down In A Recession? Car prices typically go down when supply exceeds demand. However, unlike in past recessions, some automakers are making permanent changes to how they do business.
What will happen in 2023 economy? ›Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023. In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.5 percent in 2023 with advanced economy growth falling below 1 percent.
What are the three C's in the automotive industry? ›When it comes to finding a reliable auto repair shop, what matters most? According to a recent AAA survey, people said they look for the 3 C's – confidence, cost and convenience – when deciding where to go for routine car maintenance.
What are the key factors affecting the automotive industry? ›- Political Considerations when Investing. Automobile companies can be heavily influenced and even limited by the global political climate. ...
- Technological Considerations when Investing. ...
- Legal Considerations. ...
- Environmental Influence. ...
- Technological Shifts to Look Forward To.
Among the most important success factors in the automotive sector today are ecology and innovation.
What are the megatrends in the automotive industry? ›Electromobility, autonomous and connected driving, as well as sustainability are influencing market developments in the automotive industry and are considered to be the current megatrends. They will revolutionize individual mobility in the future.
How technology will change the automotive industry? ›Modern car technology trends like artificial intelligence, machine learning, and neural networks make the manufacturing of autonomous vehicles possible. They need no human intervention, even in complicated traffic situations. It leads to the growth of new application scenarios.
What is the outlook for car parts? ›
Adjusted for inflation, consumer spending on auto parts and accessories in the first four months of 2022 is up 2% over 2021. That is actually a fairly normal trend if you look at the decade prior to the pandemic.
Will auto shortage continue? ›The Auto Chip Shortage Remains, But It May Be Improving
Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions, told reporters that he believes the industry will see 2-3 million units cut from production in 2023.
The worldwide semiconductor shortage that began in 2021 has continued to be one of the biggest stories in the automotive industry. Automakers have faced slashed production schedules and staggering revenue losses since the shortage of computer chips began.
Why is the car industry so bad right now? ›Demand for new cars recovered as the economy recovered and government programs injected new money into it. But a global microchip shortage kept production low. “As a result, new-vehicle inventories plummeted from 3.8 million in the spring of 2020 to a mere 820,000 by the fall of 2021,” Finkelmeyer explains.
Is the car industry getting worse? ›The U.S. auto industry posted its worst sales year in more than a decade in 2022 as supply-chain snarls and poorly stocked dealerships dented results for many car companies.
Is the Lidar a future for autonomous vehicles? ›Lidar has evolved rapidly and significantly, with more compact hardware and more advanced technology, to become an important advancement in the automotive industry's quest for autonomous vehicle safety.
What is the future of AI in car manufacturing? ›The Big Role of AI in the Automotive Industry
AI can help to enhance the driving experience by providing warnings about potential collisions or helping to plan routes. AI is also being used to improve vehicle operations' efficiency and help drivers avoid traffic congestion.
- Product innovation. ...
- Service innovation. ...
- Process innovation. ...
- Technological innovation. ...
- Business model innovation. ...
- Marketing innovation. ...
- Architectural innovation. ...
- Social innovation.
The starting point is vehicle demand given economic and employment growth, interest rates and performance of the stock market (wealth factor). The result is expected demand of 16.1 million in 2023—a million units below last year.
What is the new key to automotive success? ›The new key to automotive success: Put customer experience in the driver's seat. Customer experience has replaced hardware engineering prowess as carmakers' critical battleground. Here's how incumbent brands can effect a bold, fast transformation.
What are the challenges of innovation in the automotive industry? ›
Topping the list of challenges facing the automotive industry are the shift from predominantly mechanical to software-driven vehicles, the quickening pace of product development, and the increasingly prominent role of tier one suppliers in innovation and technological development.
What are the biggest drivers of innovation? ›The drivers of innovations are customers, product and service.
How is the automotive industry growing? ›Global automobile sales started recovering from the drop they recorded during the pandemic, reaching 66.7 million units sold in 2021. This sales volume is forecast to keep increasing in 2022, though the 2023 sales volume is expected to still be below 2019.
What industries do worse in a recession? ›Retail, restaurants, and hotels aren't the only businesses often hurt during a recession. Automotive, oil and gas, sports, real estate, and many others see heavy declines during times like these.
What industries fail in a recession? ›...
5 of the riskiest industries to work in during a recession, according to economists
- Real estate.
- Construction.
- Manufacturing.
- Retail.
- Leisure and hospitality.
Defensive Industries
Historically, the industries considered to be the most defensive and better placed to fare reasonably during recessions are utilities, health care, and consumer staples.
Americans planning to shop for a new car in 2023 might find slightly better prices than during the past two years, though auto industry analysts say it is likely better to wait until the fall. Since mid-2021, car buyers have been frustrated by rising prices, skimpy selection and long waits for deliveries.
How much will car prices drop in 2023? ›Prices could drop up 5% for new vehicles and 10% to 20% for used vehicles in 2023, according to a report in November from J.P. Morgan. The basis for the prediction is that demand has stabilized and vehicle inventory is improving.
How long do recessions last? ›Recessions over the last half a century have ranged from 18 months to just two months. Federal Reserve economists believe the next downturn may stick around for longer than usual.
What are economists saying about 2023? ›A majority of economists forecast a recession for the U.S. in 2023 – 58 percent, according to a survey from the National Association for Business Economics (NABE) released earlier this week on March 27.
What are the top economic concerns for 2023? ›
- An imminent recession. ...
- Stubborn inflation. ...
- China's COVID chaos. ...
- An energy crisis. ...
- Geopolitical tensions, technology war.
The bottom line. Signs point to a recession in 2023, not just in the U.S. but globally, though many experts remain hopeful it will not be too severe. This is good news for everyone, as it could mean fewer people lose their jobs, and household financial impacts will be mild.
What is predicted to happen to used car prices in 2023? ›As a result, Cox Automotive has revised its 2023 forecast for the used-car market as showing a 1.6% average price increase by the end of the year, instead of its original prediction of a 4.0% decrease.
What is the North American automotive production forecast for 2023? ›Wards Intelligence partner LMC Automotive estimates North America light-vehicle production in 2023 will be negatively impacted by 957,000 units due to supply disruptions, still a significant amount but a sharp downturn from the 1.928 million units lost in 2022.”
Is the car industry slowing down? ›Industry estimates range from 13.7 million to 13.9 million new vehicles being sold last year in the U.S., a roughly 8% to 9% decline compared with 2021 and the lowest level since 2011 when sales were recovering from the Great Recession.
Is the US automotive industry growing? ›The US produced 9.2 million vehicles in 2021, a 4.5% increase from 2020. 923,000 Americans work in motor vehicles and parts manufacturing, and 1,251,600 are employed by automobile dealers. The revenue of United States motor vehicle and parts dealers was $1.53 trillion as of 2021.
Is the auto industry recovering? ›New-Car Supply Recovering; Future Cars Coming
In 2023, new vehicle inventories are recovering while demand headwinds rise. That is a reversal of 2022, when demand outpaced supply and partially built cars stockpiled in manufacturer parking lots waiting for chips and other vital parts.
“Higher sales have been boosted, in part, by improving inventory, which has been running at around 1.8 million or so for the past several weeks.” While inventory is up substantially from 2022 levels, it remains low by historical standards.
How does a recession affect the automotive industry? ›How does a recession affect the car industry? During a recession, auto sales typically fall, often significantly. Many buyers will back out of the market until the economy recovers.