Kevin Davidson: BMW boss eyes up excess pandemic savings

The motor trade has reopened its glass palaces amid a revolution, not just in the cars it sells, but how they’re sold. The shift to electric vehicles is upending automakers, but it’s the rapid adoption of online sales and over-the-air vehicle updates that will disrupt the way cars are sold, serviced and even owned.

The Irish motor trade has coped surprisingly well with the pandemic. While the first lockdown saw new car sales initially collapse, the situation improved in the autumn with total sales for 2020 down 24.6 per cent on 2019. The market to the end of March was down just 3.5 per cent on last year (before lockdown struck) and 25 per cent on the first quarter of 2019.

Compared to other consumer sectors, the motor trade has survived the pandemic with only minor damage.

As the economy unlocks, many in the industry are now eyeing the so-called excess pandemic savings of consumers, estimated in a March economic letter by the Central Bank to be about €10 billion.

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BMW Ireland's Scottish-born managing director Kevin Davidson sees the potential for the brand to tap into that post-pandemic savings pot.

"Clearly in Ireland there are some sectors that have been very badly hit economically by Covid. But if you look at where a lot of our customer base is – they're probably working in financial services or technology, pharmaceuticals – they've been booming."

Davidson is full of praise for the way his dealers and their 600 staff adapted to the new, increasingly online, environment.

“What has impressed me is the speed of adaptation. And I think what helps them, as much as what helped us as BMW Ireland, was that working digitally forces you to think more digitally. It’s bizarre in a way, if you’re in that space, things become clearer. And you’re able to develop digital tools much quicker.”

Overinvestment

It begs the question as to whether too much investment and effort has been spent on the glass palace showrooms that adorn the outskirts of Irish towns rather than online solutions. After all, some 55,207 new cars were sold up to the end of April this year, all theoretically traded remotely without the need for shiny showrooms.

“There’s no doubt probably, going back maybe five to 10 years, we probably did overcook the physical investment. But that was all about the brand standards, it was done for good reason at the time. I think things have moved on,” he says. “Clearly, with the growth of digital, I think, probably the investment in physical facilities will be less, [but] I don’t think it will be nothing.”

Davidson says customers will still want to go for a test drive and will need to have their cars serviced or repaired in a workshop.

“Okay, in the future, when all cars are electric, are cars going to be needing to be serviced? Well, possibly not. But they’ll need tyres and they’ll need other replacement parts.

“You might have things like large used car centres and handover centres, so you might have fewer retailers, but you might have bigger used car supermarkets. If you look at what a lot of the big dealer groups are doing, they’ve developed their used car markets.”

Davidson points to a pilot scheme BMW is operating in South Africa, "where basically [the car maker] does the transaction with the customer – it's an online sale. The retailer gets a handling fee based on doing the test drive and handover. And it's going quite well.

“But I still think there a long way to go before we would say that’s a model you would roll out across the rest of the world.”

So will the current dealer franchise model survive into the next decade? “The customer may dictate that. Today, the retailer still is the one who has a relationship with the customer.”

As a further reassurance to dealers that the end is not near just yet, Davidson explains that today’s cars tend to stay on the road for up to 20 years. So, even if the manufacturers don’t produce any more new petrol and diesel models from 2040, that still means there will be vehicles on the road requiring traditional servicing and maintenance, probably up to 2060.

Ownership

However, in the interim, another feature of the motoring world may change: the nature of car ownership. Many car companies predict vehicles will be provided via subscription services rather than ownership within the next decade. Several already operate pilot schemes across Europe.

Davidson says that still seems some way off for Ireland, with buyers preferring the traditional ownership model right now. “But I think that will change, particularly as the younger generation seems to not really care about ownership; they’re probably fine with usership.

“We will see a subscription model in the future. If you think about it, because of remote vehicle diagnosis, there is the ability to turn [features or options] on and off. So technological options on cars can be bought online temporarily, which lends itself to a subscription model.

“But I think you have to step carefully through that. You have to try it with the consumer to see if it works. It’s what is working in other industries, why not automotive?” he says.

Back to the present and Davidson reckons the Government has coped well with the pandemic. “I would applaud the Government for the way they’ve managed the lockdown. I think they’ve done that pretty well.”

However, he doesn’t believe it is doing a good job managing the transition to electric vehicles.

Electric vehicles

According to Davidson, the commitment to having one million electric vehicles on the road by 2030 requires a solid partnership between car manufacturers and Government. The car companies are backing the move with billions of euro in investment, but the Government needs to create a roadmap to support the transition.

Uncertainty over changes to taxes and grants are very unwelcome amid this move to electric.

He was particularly irked by the announcement of cuts to the Sustainable Energy Authority of Ireland (SEAI) grants for plug-in hybrid electric cars from €5,000 to €2,500 and a cap on grants to all-electric cars priced over €60,000. Both are set to come into play from July 1st.

“I was very disappointed in that. I actually thought the model that we had in Ireland, the incentives that we had in place, were brilliant. They were encouraging people to move from internal combustion engine cars to electric cars.

“I accept all the arguments asking why should people get such a big grant if they are buying such an expensive car. I can get that, but we’ve got quite a big job to do. The Government have said that they want a million electric vehicles by 2030. But then at the same time, they’ve cut the grants. I would ask the Government, is that not a mixed message?”

Davidson has also been critical of the recent changes to Vehicle Registration Tax (VRT), which hit larger diesel engines in particular.

He wrote to Taoiseach Micheál Martin before last autumn's budget calling for the Government not to follow the proposals of the Tax Strategy Group when it came to adjusting the tax bands on diesel and petrol cars. Davidson told the Taoiseach that replacing older, more polluting cars with plug-in hybrids and fully-electric alternatives would be ideal, but some consumers will still want to replace these cars with cleaner petrol and diesel engines in the interim.

Despite these calls by the industry, the Tax Strategy Group recommendations were largely adopted in Budget 2021.

Targets

Davidson accepts that Europe’s politicians and their advisers probably have got electric car targets right. When EU governments talked about bans on non-electric car and van sales from 2030, auto makers initially said 2040 was the earliest realistic target date. Now several major brands are on track to meet the earlier 2030 target, at least for Europe.

"The Irish Government targets set around 2030 are ambitious," says Davidson. "The BMW Group is in a very good position to respect these targets. The most important basic requirement for the breakthrough will be expansion of public and private charging infrastructure across Ireland."

BMW says about 90 per cent of its market categories will have fully-electric models available by 2023.

A decade ago BMW seemed to have a lead over established premium rivals in terms of electric cars, with innovative models such as the i3 and i8. Then its new electric vehicle pipeline seemed to stall. Right now, the brand seems more of a follower in the all-electric market.

“I think it’s a fair critique. Maybe the company wasn’t 100 per cent clear on the direction,” he says. “But that’s changed. I listened to a broadcast the other day from some board members. And what they said was the greenest electric car on the planet will come from BMW.”

He also points to the high number of plug-in electric hybrids (PHEVs) in the current BMW fleet. “We were probably quicker out of the blocks with PHEVs. If you look at our mix, 38 per cent of sales this year is PHEV or [full electric“And the next three new cars we’re launching are all-electric cars. That’s really exciting. Since the BMW i3 and i8, we have increased the number of electrified vehicles (pure electric and plug-in hybrid) in our line-up to 13 models.

“Two key innovation flagships will be on the road this year: the BMW iX and the BMW i4. The BMW i4 will even be released three months earlier than originally planned.”

Restructuring

Davidson’s arrival in Ireland followed a restructuring of local operations. Employee numbers at the head office in Dublin have been cut from 25 to 11, although six UK-based staff are now working on the Irish operation as well.

“We had too many heads [employees] for the volume that we are delivering,” he explains. “I think we could go back to 25 heads, but we need to be selling 8,000 to 10,000 cars.” In 2019 BMW Ireland sold just over 4,500 new cars.

The German carmaker had taken direct control of its Irish operations in 2003, with the Irish division leaning heavily on its UK counterpart for support. Is it still worthwhile operating a wholly-owned company here rather than appointing a local distributor?

“I think there are huge advantages from being in the market, but the market has to be the right size. I think so long as [the new car market] is over 100,000, you’d have a national sales company,” he says.

Like many businesses, Davidson reckons remote working in some form is here to stay. BMW Ireland is moving to a smaller office space in the same building and Davidson will be commuting from the UK where his family lives. Due to the rules on self-isolation after travel, he currently spends five weeks in Ireland and five weeks in the UK office, but he foresees operating on a two-week basis – as he did pre-pandemic.

That said, he is also eager to enjoy some normal Irish lifestyle. “I did come to Ireland for the pubs as well. But due to the pandemic I have been in just three pubs in 15 months.”

As we part company, Davidson pulls up a photo on his phone, a picture of himself as a young boy with one of his toy cars in a 1960s sitting-room in Stirling in Scotland, his proud dad standing alongside. An avid collector of Matchbox toy cars, Davidson earned his pocket money on Saturdays working with his father who sold fruit from his vans direct to customers.

It also gave Davidson an insight to the circle of life in consumer markets. His dad’s business died on the back of a boom in corner shops. They in turn suffered at the hands of the high-street supermarkets. These then lost out to the out-of-town shopping centres. And now those are under threat from home delivery services, not far removed from the sort of service offered by his father.

While the motor trade is entering a new era, when it comes to customer service, he reckons we shouldn’t forget the lessons of the past.

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CV

Name: Kevin Davidson.

Position: Managing director, BMW Group Ireland.

Age: 54

Lives: Splits time between family home in UK and Irish residence in Malahide

Family: Three adult children and lives in UK with partner Donna, who works for the National Health Service.

Interests: An avid golfer and cyclist, he is also a big fan of horse racing, soccer and rugby.

Something you might expect: Davidson regards himself as both British and Scottish. He left Scotland when he was 23, so "I've been away longer than I was there". But he says, as with the Irish, you never really lose your roots. On the independence debate, he believes Scotland should remain part of UK.

Something you might not expect: Spent several years working for BMW Canada as head of its aftersales business. While there he got to visit a Presbyterian church opened by his grandfather in Saint Boniface, Winnipeg in 1898.