Navigating Unprecedented Disruption in Automotive: Lessons from Russia

Navigating Unprecedented Disruption in Automotive: Lessons from Russia  

Imagine a scenario where all the major US OEMs suddenly halt deliveries of cars, trucks, and parts to your local dealership. The challenges and uncertainties such a situation presents may seem purely hypothetical, but a personal account shared by a friend in Russia has shed light on the stark reality of this scenario. This account serves as a powerful reminder of the importance of adaptability, resilience, and innovative thinking in our rapidly evolving automotive industry. 

In the face of an abrupt disruption in the supply chain, dealerships in Russia were confronted with the very challenges we previously contemplated. At the beginning of 2022 there were about 60 automotive brands in Russia (which was a lot, considering that there are less than 50 major automotive brands in the USA), represented by about 3200 new car dealers. Due to geo-political tensions, most of these brands (some willingly, some reluctantly) left. By the end of 2022, there were about 15 automotive brands left – a 75% decrease! And even though the number of new car brands is expected to reach about 25 by the end of 2023 with Chinese brands wisely taking the opportunity to fill the void left by Western OEMs, there are plenty of new car showrooms absent of new cars. Unable to rely on new vehicle deliveries, these dealerships had to swiftly pivot their strategies to focus on selling used cars. With limited new vehicle supply, the demand for pre-owned vehicles surged, prompting dealerships to enhance their expertise in the used car market. By studying customer preferences, understanding market dynamics, and employing effective pricing strategies, dealerships, that have shown the ability to dynamically adapt to these unprecedented challenges, were able to successfully navigate the uncertain terrain. At the same time, several dealerships and dealer groups (including some major players) that did not have operational flexibility and held on to their old tactics started to experience severe financial stress and their eventual survival is far from certain.  

Furthermore, the scarcity of OEM (original equipment manufacturers) parts in Russia (considering that some of those OEMs that left abandoned not only their dealer-partners, but their loyal customers) forced dealerships to explore unconventional avenues to meet their customers' needs. Salvage yards and parts remanufacturing facilities emerged as valuable partners, offering a vast inventory of usable components that could be reconditioned or repurposed. Establishing strong relationships with alternative parts suppliers became crucial in maintaining uninterrupted service and repair operations. It is worth noting that this collaboration not only addressed the parts shortage but also fostered a sustainable circular economy approach, reducing waste and promoting environmental consciousness. 

Moreover, dealerships in Russia expanded their horizons by seeking out aftermarket suppliers from countries willing to assist in solving the parts shortage. By harnessing global connections and leveraging other nations' manufacturing capabilities, dealerships secured alternative parts sources. However, this endeavor required meticulous research and due diligence to ensure the quality, reliability, and compatibility of the aftermarket parts procured. 

The other aspect worth mentioning is that new car dealers in Russia suddenly experienced the drop in service business. It is well known (whether true or not is a different story) that customers perceive the service pricing at new car dealers to be higher than at independent repair stations. Prior to the OEM exodus, dealers in Russia justified pricing by being new car dealers, which many of them are no more. So, along with the loss of new car sales many dealers have experienced a sudden and significant drop in service attendance.  

However, just as with the adaptation to used car sales to compensate for the loss of new car sales, the flexible and smart dealers went after their often-extensive databases, which normally they did not use much – for the reasons there was enough business as it is. So, database segmentation and smart marketing to revive old customers suddenly came in handy.  

While these are, most certainly, trying times in Russian automotive retail – these are also times where true leaders will come out and will reshape the entire market. Those dealers that survive this crisis will come out of it stronger, more efficient and will provide better service to their customers.  

Another side effect of the current crisis in Russian automotive is an increasing penetration of customer convenience technologies, especially in service. While prior to this downturn it was low – again because there was really no need to win customers over, now dealers are implementing various solutions, like online service scheduling, text messaging and other tools to improve customers' experience. 

The dealer business models that will emerge from this crisis in Russia the strongest will likely be those that challenge their traditional operating methods and favor diversified portfolios of products and services. 

This personal account from Russia serves as a powerful reminder of the importance of adaptability, innovation, and resilience in the face of disruptive circumstances. The automotive industry is no stranger to unforeseen challenges, and success lies in the ability to proactively respond and seize opportunities amid uncertainty. 

As professionals in the automotive industry, we must learn from such experiences and equip ourselves with the knowledge and skills to navigate uncharted waters. Anticipating potential disruptions, exploring alternative solutions, and building robust networks become instrumental in mitigating risks and maintaining operational continuity. 

The personal account shared from Russia underscores the significance of remaining agile, forward-thinking, and responsive to change. It is a testament to the strength and ingenuity of the automotive community, highlighting our ability to adapt and thrive even amidst the most testing circumstances. 

Let us draw inspiration from these real-life experiences and continue to foster a culture of innovation, resilience, and collaboration within our industry. By doing so, we ensure that we are well-prepared to tackle any future challenges that may come our way. We live in peculiar times, times where the future is ever harder to predict. The last few years were record breaking in terms of profitability and some dealers became complacent. And there is danger in that. As they say - “The best time to repair the roof is when the sun is shining”. And this applies to automotive retail more than to most other businesses.  

 Co-Written by Sergey Naumovsky

#AutomotiveIndustry #Adaptability #Resilience #Innovation #ChangeManagement #RealLifeExperiences