Mistrust of valuation forecasts, more vehicle recalls and the challenge of closing an ‘EV servicing gap’ will define Britain’s struggling automotive market in 2025.
That’s the view of data experts ADS, who identify three major areas where profit and efficiency are under mounting threat in the year ahead.
All three are a direct result of forcing the transition to electric faster than the market can handle without major disruption – but they also represent strategic opportunities for the smartest players, says ADS.
Taken together, collapsing confidence in EV future residual values, a loss of traditional car servicing revenues and technological ‘growing pains’ causing an increase in vehicle recalls will disrupt an already difficult market even further by increasing costs, reducing revenue and threatening fragile consumer confidence.
Valuation forecasts and car pricing
ADS says that last year’s collapse in confidence around future residual values for EVs will now result in increased leasing costs and higher retail car prices as fleets and manufacturers are forced to evolve pricing strategies to minimise future losses.
They describe contract and retail pricing this year as ‘a balancing act’ that may leave leasing or buying an EV even less affordable for many consumers without ever-higher subsidies from already hard-pressed manufacturers.
The problem of product pricing will come to a head in 2025 due to the Zero Emission Vehicle (ZEV) mandate, which requires an increasingly high proportion of EV sales and complex trading deals to avoid massive fines for failing to achieve government targets.
Profitable ICE (internal combustion engine) cars have historically subsidised sluggish EV sales. Now manufacturers, facing an EV sales proportion target of 28%, are likely to further increase petrol and diesel car prices to enable further EV discounts.
Because EV values have consistently undershot forecasts, causing millions in losses for leasing companies, customer contracts will almost certainly rise.
“Disruption of this kind – especially during a cost of living crisis – will make the market very difficult for everyone, including consumers, in 2025,” said Jon Sheard, Operations Director of ADS.
“Pricing will become a balancing act and data insights will be more important than ever in restoring confidence as new approaches to forecasting residual values become necessary.
“The resilience of the industry will be tested in a way we haven’t seen since the 2008 financial crisis”.
Increasing EV Recalls
ADS says that the pace of EV development is certain to mean more safety recalls, linked with such advanced engineering, new battery technologies and increasingly sophisticated software.
This will challenge those dealers who fail to keep track of customers – but also represent a major opportunity for those who maintain the most accurate customer databases.
As ADS revealed last year, already more than half of customer details kept by dealers contain inaccuracies.
With recalls growing in frequency, this will put pressure on dealers to clean up their databases so that customer confidence is maintained and new revenue opportunities can be secured.
Jon Sheard said: “Although recalls are a problem they also represent a major opportunity to those dealers who have maintained accurate contact information because every recall is a chance to sell additional services or even secure a further sale.
“Data-cleansing and even real-time customer detail updating will be more important than ever before as dealers face a market in flux.”
Revenue threat from the ‘EV Servicing Gap’
As EV sales mount, servicing revenue will decline, posing another threat to dealer revenues.
For many dealers the lions share of profit comes from aftersales and service work, so that the reduced servicing needs of EVs present a serious challenge to business viability.
The simplified mechanics and advanced onboard diagnostics of EVs mean cars often requiring little more than tyre replacements or brake checks in their first three years, leaving a hole in dealer profits.
ADS says that this ‘servicing gap’ will have to be plugged by focusing on customer retention and more focused engagement than the usual MoT and service reminders, which often fall into the void anyway due to inaccurate customer records.
As ADS has consistently proved, accurate customer records present a wealth of typically untapped profit potential from drivers of ICE cars, who remain a substantial majority.
Data cleansing and reconnecting with lapsed customers will provide a profit lifeline during the turbulence of the EV transition, which will only become more disruptive in 2025.