It’s become an industry mantra: change is coming to the auto industry faster than at any time over the last century. Trying to figure out how to respond is a particularly big challenge. Nowhere is that more apparent than with the explosive growth in the use of onboard electronics. Some new vehicles, such as the Jaguar I-Pace EV, have more than 100 microprocessors onboard.
Complicating matters has been the unexpected shortage of microchips that has short-circuited the auto industry’s push to rebound from the COVID crisis. Yet there’s a plus side to these back-to-back dilemmas. They’re leading to the sort of changes the auto industry has needed to go through, says Joe Eberhardt, the CEO of Jaguar Land Rover North America.
During a visit to Detroit, the industry veteran discussed how shortages could pay off in the long term by changing just about everything we know about how to build and sell cars. He also talked with TheDetroitBureau.com about JLR’s aggressive plans to go all electric.
From the pandemic to a chip shortage
TheDetroitBureau: The good news seems to be a much-better-than-expected rebound in the new car market after last year’s pandemic meltdown. The bad news is the chip shortage.
Eberhardt: That’s as impactful as the (COVID pandemic) was. It’s just as unpredictable and we don’t know how long it’s going to last. We all screwed down our orders. We weren’t sure what our capacity requirements would be. You can’t just turn off the supply chain and turn it back on again. So, that’s a really big challenge.
TDB: Some of your competitors are down to barely a week’s supply of vehicles. How far down are you?
Eberhardt: From a retail level our inventories are down to the lowest levels I can remember, depending on the model anywhere from a 10- to a 25-day supply. (ED: the industry normally likes a dealer supply of around 60 to 70 days of vehicles.) And the cars coming off the trucks basically are sold within seven to 10 days. The positive is that customers are willing to wait. I don’t know if that’s because nobody else has cars or because they really want ours.
Changing how one buys a car
TDB: I’ve heard executives like GM CEO Mary Barra saying they never want to go back to the inventory levels of the past. Some see this as a really good thing, changing industry practices. Is there a good side to the current shortages?
Eberhardt: I think it requires a change across the entire (industry) value change, including a change in customer behavior. The historical pattern has been for a manufacturer to set a production target and then go to find a home for the cars. You can see this doesn’t work. If you’re a big manufacturer planning to sell 5 million cars but then sell only 4 (million), that’s a problem. At the retailer level, they have to start selling the benefit of the product and their service, not just sell it based on price. This is not a very efficient way of (doing things). Ultimately the customer should change, as well, demanding the car they want without making any compromises. But that means they may have to wait a little longer and pay a little more. The whole system has to be changed.
TDB: Dealers need some inventory. But how much?
Eberhardt: I would say you need 30 days. That should be enough to cover a month of sales. I would like to see 30, 40, even 50% of (retail) sales come from customer specified orders. Right now, it’s up to 30% on some cars. But others, we have almost nothing. Right now, the more desirable a car, the more willing a customer is to wait.
TDB: There are benefits for dealers and manufacturers?
Eberhardt: I don’t need to discount to the same degree. The whole conversation changes when it’s not about getting you the cheapest price.
TDB: How do you make American customers feel good about waiting? Normally, they expect to drive in with their old car and drive off with a new one. I know some dealers have made it possible for customers to place an order and then track where their vehicle is, from assembly line to delivery.
Eberhardt: With pizza chains you can do that, follow your order from the (start) to when it’s delivered. If you can do that with a pizza chain, maybe we ought to be able to do that, even though it’s a little more complicated. The goal should be a digitally enhanced and seamless customer journey. Today, we have a very disjointed customer journey. That’s the biggest challenge.
Meeting new sales challenges
TDB: Is there a downside to all this for you, as a manufacturer? Doesn’t this mean less stability if the factory is dependent on how orders come in?
Eberhardt: It does. I can’t speak for my production colleagues but it’s going to make life a little more difficult for them than in the past. We need more flexibility in the manufacturing system. It will put a lot of pressure on the sales side because we will have to better predict and plan, as well.
TDB: When they’re ordering cars that will sit on their lots and run up holding costs, dealers like to play it safe. They’re less likely to order unusual paint colors. Will this new approach encourage demand for more unusual colors and features as people custom order?
Eberhardt: Absolutely. Right now, a dealer who orders a white, black or silver car will never be stuck with it. That needs to change as we focus on what customers really want. AI and machine learning will help us learn what cars turn more quickly and where do we get more profitability.
Making the power move
TDB: Before we wrap up, let’s turn to Jaguar-Land Rover’s electrification strategy. The I-Pace hasn’t been big seller but JLR has laid out plans for making a major shift to plug-in hybrids and all-electric models.
Eberhardt: Well, we know Jaguar will be all-electric — BEVs — by 2025 and Land Rover will have six BEVs starting in 2024. We expect to be fully electric by 2035 and fully carbon neutral by 2039.
TDB: We’ve seen and heard a lot from various automakers — and from President Biden — pushing a shift to BEVs. If you think back 18 months ago, could you have imagined things have changed this much?
Eberhardt: Initially, we thought the change would happen quickly. Then we were surprised how long it would take. Now, we’re being surprised by the acceleration of the switch (to EVs). Still, a lot of things need to happen to get the large transformation to take place and it has to do with customer acceptance — which, to a large degree, is currently about reasons why they don’t want to buy an electric vehicle. We have to dispel that notion. With all the new products coming, like the Taycan, and Hummer and Rivian and Lightning, all (those concerns) will go away. People will want an electric vehicle because it is a better solution. We also need the infrastructure, which is still an issue. We also need costs to come down. But the solutions are all starting to align more quickly.