The automotive industry in the West is facing serious headwinds, that’s the main message of a recent article in The Economist (June 26, 2025). From faltering EV demand to margin pressures and supply chain shake-ups, things can be getting more complicated for Western vehicle OEMs, but there’s still time to redefine their strategies. Read the original article here.
Here’s my take on how these challenges are playing out for vehicle OEMs, parts suppliers, and dealerships:
Parts suppliers: Vehicle components headed towards commoditization
Parts suppliers are finding it harder to differentiate their products, and as that happens, margins naturally shrink. This puts pressure on suppliers while vehicle OEMs focus on vehicle profitability and benefit from long-term supply contracts. In response, more suppliers are looking to sell directly to dealer networks, as they protect margins while reducing OEM reliance and opening up to a more diversified customer base with dealerships.
Dealerships: Between OEM brand loyalty and market competitiveness
Dealerships depend on strong ties to vehicle brands to keep new and used car sales, which consequently bring the valuable aftersales business. But staying competitive means they can’t continue to rely on OEM-sourced parts alone. As a result, many dealerships are now building direct relationships with parts suppliers, giving them access to a broader range of parts, keeping prices sharp, and appealing to more customers across different brands.
Vehicle OEMs and dealerships: stepping up with software to drive competitiveness
Vehicle OEMs are pouring resources into in-house software solutions, not just to improve production efficiency, but to strengthen how they manage and support their dealer networks. These tools help create transparency around inventory, pricing, aftersales services, and incentives. By improving data flow between OEMs and dealers, they reduce friction, cut costs, and enable faster, more accurate decision-making across the network.
But it’s not just OEMs that need to step up. Dealerships also have to scale up their use of technology and software to stay dynamic and competitive. It’s no longer enough to rely on traditional sales and service models. Dealerships need tools that help them optimize their operations, manage inventory smartly, personalize offers, and crucially, to nurture customer relationships both inside the showroom and through digital channels. From CRM platforms to online service booking, financing apps, and connected vehicle support, the dealerships that embrace tech will be the ones that win customer trust and loyalty in a crowded market.
As competition intensifies and product differentiation becomes harder, these digital platforms are becoming a key battleground for both OEMs and dealers. They enable superior service levels, smoother experiences, and stronger customer ties — creating value that goes well beyond the vehicle itself. The players who view software as a strategic differentiator, not just a back-office tool, will lead the way. Those who lag risk being left behind by competitors offering smarter, more connected ecosystems.
The EV bet isn’t lost: OEMs and suppliers can still pivot and compete
Many parts suppliers and vehicle OEMs made heavy bets on EVs, and the EV sector’s apparent dynamism in recent years helped Chinese OEMs and suppliers expand their global presence and place their brands into several markets like Europe. But this doesn’t mean the opportunity is lost for European and American brands that made similarly bold investments on EV technology. The players that will remain competitive are those that can adapt quickly to market demands, offering combustion and hybrid parts and vehicles to meet today’s demand while staying ready to scale EV production as the market evolves. In this shifting landscape, flexibility will be just as important as vision.