Navigating the inflation-driven slowdown while seizing opportunities on the horizon

This year could see the first inflation-driven global economic crisis for 40 years, as the combined impact of the COVID-19 pandemic and the war in Ukraine continues to disrupt supply chains and force up prices. The hopeful news is that most economists expect inflation rates worldwide to fall during 2023, as bottlenecks ease and energy prices come down. Nonetheless, even if a global recession is avoided, the cost of living will still be far higher for billions of consumers than before the pandemic struck.

Against this background, the automotive industry confronts a series of formidable challenges, all of which are exacerbated by inflation. Manufacturers and suppliers must cope with raw material shortages and price rises as they implement ambitious restructuring programs to keep pace with the transition to electric mobility. At the same time, the massive boost to online shopping triggered by COVID-19 lockdowns has created a new breed of digitally savvy but financially hard-pressed car buyers who are far choosier and less loyal to brands than before the pandemic.

Our report sets out how industry players can turn the current inflationary storm into an opportunity to gain a lead over competitors that cannot navigate the headwinds. The last global financial meltdown in 2008 and its aftermath offered agile, imaginative automotive companies precisely this kind of opening to seize the advantage. Consider, for instance, how Korea’s Hyundai Motor Group increased its North American market share from 5.3 percent in 2008 to 9.1 percent in 2011 by targeting customers who would not have considered buying a Hyundai or a Kia before the US subprime mortgage crisis.

The challenge today is to apply the same creative thinking in a market buffeted by inflation, where both consumer behavior and the automotive industry are evolving at unprecedented speed. After analyzing the industry’s response so far to the current inflation-driven slowdown, we make the following key recommendations for 2023 and beyond:

• Increase supply chain and manufacturing flexibility
• Adapt value propositions at speed to keep pace with changing customer expectations
• Enhance digital customer experience journeys and “moments”
• Review products against EV transformation and software-defined vehicle trends
• Recruit digital software talent, taking advantage of the ICT industry’s current attrition
• Develop M&A strategies to capitalize on higher valuations and lower financing costs after 2023

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