The minefield just got more dangerous

In a previous contribution to Insight Quarterly at the end of 2024, I described my thoughts about managing in uncertain times under the title ‘Navigating through a minefield’.

If I knew then what I know now, I might have chosen a different title – something like ‘enjoying a walk in the park’. Who would have guessed that we would now look back at that with some longing…

I grew up in a world where globalisation seemed to be the ‘north star’ – a certain direction which guided businesses, politics and personal behaviour. The world was getting smaller, travel was easier and cheaper, war was consigned to the history books along with the plague and poverty. Now Ford and GM are in retreat. China is no longer the cash cow for the industry feeding 60%-70% of corporate profits. Tariff barriers block access to markets. Free movement of people is seen as a threat rather than an opportunity. Far from being ‘the most beautiful word in the dictionary’ tariffs are simply a tax-raising measure unless there is a genuine effort behind the tariff wall to level the playing field.

Geopolitics in general is a mess currently, largely but not solely driven by the occupant of the White House. Even in the Cold War we had some degree of certainty, and the switch to global supply chains with deindustrialisation of Europe was only in the early stages. As we are now discovering, we have many single points of failure in many supply chains. Given the complexity of cars then supply will almost certainly be affected by any extension of the current conflict in the Gulf if it continues, and definitely if President Xi of China decides that the 100^th anniversary of the foundation of the People’s Liberation Army is a good time to take back (as they would see it) Taiwan, the source of 20% of the world’s semi-conductors. Either way we are very likely to see similar disruption to supply that we saw after the pandemic.

Depending on your point of view, electrification has been either the biggest technical dead end or the greatest sell-out in history. There is clearly a natural demand for electric cars otherwise Tesla wouldn’t now exist, and Nissan and Renault would not have sold over a million Leafs and Zoes between them since 2010. The industry has collectively delivered in terms of product – every year, costs come down, performance goes up. But the issue is that production has been forced ahead of demand by legislators, and that is what has created most of the issues with product being forced into the market driving up variable marketing costs, depressing dealer profits and collapsing residual values. Most Governments have woken up to the consequences of their myopic focus on road transportation as the answer to the Net Zero aims. Manufacturers do not have access to a money tree that will subsidise Government policy objectives. So, the politicians vacillate and back pedal, creating uncertainty in the minds of consumers, which in turn forces adjustments to cycle plans and the write-offs that we have seen from several manufacturers including Ford, Honda, Porsche and Stellantis to name just a few.

Turning to new entrants, dealer groups have queued up to represent the new Chinese brands, and consumers have focused on the value proposition rather than questions of protecting European industry (however you define that) or human rights. The UK is second only to Norway in terms of the share of the market held by Chinese brands at just under 11% last year. Spain, Italy and Poland are not far behind at 8%-9%. This excludes cars from European brands but produced in China like the Dacia Spring, and cars from ‘European brands’ owned by the Chinese like Volvo. Their success represents both a threat and opportunity for anyone involved in the European industry.

What does this all mean for anyone in the distribution sector? I don’t believe that we will see a ratcheting up of tariffs or the introduction of new tariffs in Europe and the UK. However, the more that the new brands hit the headlines, the more consumers will be curious to learn more. Talk of tariffs without them being imposed might be good for footfall. Electrification targets that are misaligned with customer demand don’t help any manufacturer, but the Chinese have been faster in adapting their product offer to include plug-in hybrids, some of which are market-leading in terms of performance. Other brands need to catch up.  In all these areas, actions are available to manufacturers, dealers and other players that manage the risk or open new opportunities. The big one that is beyond our control is the potential impact of geopolitical events. Supply disruption across all brands is a real possibility, and it may be too late to take precautions. We are walking into a fog with a potential precipice ahead – and there is little that we can do to prepare other than lobby our political leaders to stop the madness.