More than one way to buy a car
The Covid-19 crisis has forced dealers faced with closure to adopt online sales and subscription models. Illya Verpraet finds out what this means for the logistics sector and looks at how start-up Lynk & Co is going all-in on it
At this year’s Automotive Logistics and Supply Chain Live conference, Martin Corner, vice-president of global supply chain management at Volvo Cars, said the Covid-19 crisis had “highlighted the ability to give the consumer a different way or a better experience to buy a car.”
Volvo and its sister brands under the Geely Group certainly seem driven to provide alternative and credible ways for consumers to buy their cars – electric vehicle (EV) maker Polestar is foregoing dealers for ‘spaces’, Lynk & Co intends for its ‘memberships’ to be the main way of acquiring its cars and Volvo has its own Care by Volvo plan. They are by no means the only ones to give this new world a shot, with other premium brands such as Jaguar Land Rover and Mercedes-Benz also joining in.
Europe first, America later
According to Isaac Abraham, principal consultant for automotive retail and business strategy at Frost & Sullivan, it will take some time for these new ownership models to gather momentum. That is particularly true in the US, where Abraham reckons it will be a “struggle for control” between dealers and OEMs, with such schemes being mainly dealer-led.
The main place for experimentation with subscription models by OEMs will therefore be Europe, Abraham added, while the Chinese market is open to innovative sales models as well, driven also by the e-commerce players like Alibaba.
That US subscription models and online sales are mainly dealer-led is confirmed by Chris Styles, senior director, logistics at Nissan North America, who said: “It seems like the dealers, more than anybody, have led that initiative. I see commercials all the time, whether it’s Nissan or Infiniti, or other brands where you can go online and order a vehicle and they’ll deliver it to your door. So they took the initiative even more than OEMs on how to make to make that work to maintain some stability on the sales side [during the Covid crisis].”
Agile supply chain
Corner said that Volvo is quite aggressively pursuing these business models but that it will require much greater agility in the supply chain to make them work. That is because the current distribution model of point-to-point flows and trucks filled to go to dealerships via some sort of storage location will not work when flexible subscriptions become commonplace.
He explained: “It’s very obvious that within two or three years we’re going to have to have some form of common pipeline with different business models having a different speed of service, with different requirements of service throughout the pipeline. I think the creativity of what we position where in the pipeline and how fast those different business models move is going to be quite crucial.”
As well as making sure that the platforms and partnerships are up to scratch, more flexible ways of selling cars will ask other questions of the supply chain, such as who will be responsible for pre-delivery inspections and services when cars are returned and when there may not be a traditional dealer to take care of these tasks.
Frank Schnelle, director of finished vehicle logistics at Glovis Europe, thinks that its business will not be fundamentally transformed when the sales channel is changed. However, he said the switch from dealer to customer as the point of handover will be interesting.
“Genesis, our Hyundai luxury brand, is going to enter [Europe] next year and they also have some ambitious ideas in terms of the experience of receiving a car,” he said.
Part of the solution, according to both Schnelle and Corner, would be regional compounds that could hand over cars, manage returning vehicles and service those on the road. They would also have the necessary infrastructure in place to manage EVs.
Dr Monica Schmickler, head of strategy, purchasing and quality for worldwide transport logistics at Daimler, added that the outbound supply chain would have to be “leaner and faster” and service areas could be moved into the metropolitan areas where they are required.
In at the deep end for Lynk & Co
It is one thing to gradually add different services to the existing offering of an established OEM, but the picture looks different when you build your entire brand on subscription models. Lynk & Co, the Geely brand, was launched in China in 2017. It is now moving into Europe, with its first ‘club’ opening in the Netherlands in October 2020. For the introduction in Europe it is very much profiling itself as a company offering mobility, rather than selling cars. It is possible to purchase the 01 SUV but its brand presentation does not shout about that fact.
The plug-in hybrid version costs €39,000 ($45,600) in the Netherlands, almost €4,000 less than the technically related Volvo XC40 but Lynk & Co’s CEO, Alain Visser, says that the maximum cost of membership will be €500. Customers have the choice of having their own car, which they can share with others to drive the cost down if they want, or to become a ‘free member’ and use cars occasionally.
In addition to the Netherlands, the brand will launch in Belgium, Sweden, Germany, France, Italy and Spain.
Lynk & Co also does away with traditional dealerships, instead establishing clubs, where product experts can give customers a tour but then direct them online to actually sign up. When customers order a car they can expect to have it within five days.
Although it sounds like a very big step for a start-up to do things so differently, Lynk & Co is not starting from zero. It is part of the Geely Group, like Volvo and Polestar, which is establishing ‘spaces’ with the same concept. Polestar maintains a closer link with Volvo, however, whereas Lynk & Co will go to great lengths to make sure that customers only have contact with Lynk & Co, rather than have to go to Volvo dealerships. While it grows its network of clubs, it will also deploy container-based pop-up stores which it calls “tour kits”.
Imports from China
Behind the scenes, however, Lynk & Co will still heavily depend on Volvo and the Geely group.
The 01 is built in Luqiao, China, alongside the Volvo XC40 and the Polestar 2. The cars for the European market were originally supposed to be built at the Volvo plant in Ghent, but as it needs the capacity to churn out the popular XC40 and the fully electric XC40 Recharge, as well as the V60, it was decided to build the Lynk & Co in China. It will be shipped to Europe through the port of Zeebrugge in cooperation with Geely, though Lynk & Co is keeping the option of using the rail connection from China to Poland and Belgium open.
Marc Platten, Lynk & Co’s vice-president of commercial operations, said that it is close to finalising the agreements to use the existing Volvo network for logistics and distribution once the cars arrive in Europe. The additional preparations to support the subscription services echo the comments from Volvo and Glovis, with regional, local and micro compounds to keep the stock close to where it is needed.
One important enabler for quick deliveries is that Lynk & Co only has four different model variations: a hybrid and a plug-in hybrid, and two colours. By way of comparison, a BMW 3 Series saloon can be ordered in around one billion variations, according to Matthias Schindler, cluster supervisor for Smart Data Analytics at the German carmaker.
Platten explained that the restraint on variation gave the company a huge advantage.
“We don't need to carry endless options in stock...[.] We will make sure that we have the right cars available in our inventory that we place strategically. We have our regional car compound and then we break it down, according to our forecasts, to our micro compounds. We believe we have the best possible number of cars available in the region to really serve it within three to five days.”
He added that that timeframe is not so much the result of the logistics as such, but rather the time it takes to register the cars to the person who will be the main keeper.
The last-mile services, as well as the regular maintenance on the cars, will be taken care of by the Volvo network and its dealers, but Platten stressed that “the customer will not know this. For the customer, it's all Lynk & Co.”
While the main topic of discussion with new business models is how to quickly get cars to customers who are used to Amazon parcels arriving within a few days, the other big
question is what happens to the cars when the customer cancels the subscription or wants to swap cars.
Lynk & Co plans to ‘infleet’ the cars. “We take the vehicle back and we want to use it because it's also linked to sustainability,” Platten said. “We want to use it and keep it in our ecosystem as long as possible. It might be that the next member takes it, or it might be that someone
is interested in a used car. We pretty much infleet it and try to use the asset within our ecosystem.”
Assessing the car is carried out by the Volvo dealer network, which will inspect and photograph it. Customers can book a pick-up online, on the phone, or drop the car off at a club location.
It is clear that some of the details have yet to be ironed out, however. Some of the agreements with the national Volvo dealer networks have yet to be finalised, and as with many start-ups, Lynk & Co is expecting a degree of trial and error. Platten said it was an unpredictable world.
As a result, it is key for the logistics team to be agile. “We live fail-fast, so you don't know what's going to happen tomorrow…[.] This is something we have to deal with as a company and something we will take care of.”
While it would be risky for a true start-up
that came out of nowhere to radically change the way of selling cars, having the safety
net of the Volvo network makes it a more practical endeavour. At the same time, Lynk & Co is undoubtedly a valuable test bed for the larger Geely Group, which needs to evolve as well.
Volvo’s Martin Corner said: “I recognise most of the OEMs are going to go through this at a different pace. I think Volvo, because of where we are today and our new business models that are coming, will be going through this transformation faster.”
He added that, when it comes to IT particularly, big OEMs have to become more agile and act a bit more like a start-up in some situations.
The current distribution model for all the OEMs is quite stone age and we have been doing the same thing for decades: point-to-point flows via a traditional method. The creativity of what we position where in the pipeline...is crucial
Martin Corner, Volvo
Genesis, our Hyundai luxury brand, is going to enter [Europe] next year and they also have some ambitious ideas in terms of the experience of receiving a car
Frank Schnelle, Glovis Europe
We don't need to carry endless options in stock...[.] We will make sure that we have the right cars available in our inventory that we place strategically
Mark Platten, Lynk & Co
We live fail-fast, so you don't know what's going to happen tomorrow…[.] This is something we have to deal with as a company and something we will take care of
Mark Platten, Lynk & Co