Disruption in the Automotive Industry – Part 1

December 11, 2020

Disruption in the Automotive Industry – Part 1

Disruption in the Automotive Industry – Part 2

Disruption in the Automotive Industry – Part 3

The Covid pandemic has changed the way consumers shop for goods and services. When businesses closed to ensure the safety of workers, survival required an alternate sales methodology. The logical solution involved digital sales; the savviest companies already had a prominent internet sales presence, and the online shift created less of a disruption. Auto dealerships, however, thrived on in-person transactions. Seeing and test driving the vehicle were all seemingly essential to the buying process.

Yet, closed dealerships needed to thrive and survive, too. Digital sales cruised into the fast lane of the auto industry, because, like the retail sector, dealerships were forced to evolve and embrace the digital sales revolution to stay afloat. The biggest unknown for dealerships, however, was the uncertainty of how consumers would react or respond to the idea of purchasing a vehicle in a digital realm.

With no other option than buying online, consumers who needed a new car did adopt this new digital normalcy. As the pandemic continued to disrupt daily life, digital auto sales have seemingly become a new buying standard.

The Rise of E-Commerce Auto Sales

Covid has been a worldwide threat. The pandemic left few countries unaffected, so the pivot to digital sales was a global trend. Many companies likely began to tailor their online sites to meet their customer’s shopping experience demands; digital experiences had to now be extraordinarily competitive to convert browsing to sales.

Retail businesses might have benefitted from additional online features that simplified the buying process; stores that offered virtual fitting rooms or ‘try on’ features gave customers a new way to preview products before buying. In many ways, businesses had to adapt their online presence to better mimic an in-person experience.

While not all businesses might have revamped their site—or could revamp their site—those who could expand virtual experiences or who already offered such features were likely in a better position than their competitors.

Before Covid, most dealership websites offered basic features online. Buyers could see the inventory on the dealership’s lot and maybe preview current sales. Some dealerships might have offered virtual showrooms that allowed customers to see inside the vehicles.

During Covid, dealerships were in a position where their online presence needed to be comprehensive and offer similar shopping experiences as an in-person dealership visit. The challenge? Most car shoppers took advantage of test drives to gain a better feel for the car’s mechanics. And buyers were accustomed to being able to open doors, sit in the car and check out all the features.

Duplicating these experiences was a challenge but not impossible. Dealerships included virtual showrooms to their sites. These showrooms allowed the dealership to showcase their full inventory. Virtual showrooms often captured the car in 360 degrees.

Many virtual experiences allowed shoppers to peek inside the car to view the interior and features. Shoppers could rotate the vehicle, seeing it from all angles. Dealerships that couldn’t offer their own digital showrooms used apps like RelayCars, which offers digital experiences for many makes/models. Shoppers could change the vehicle’s paint hue and even switch out other features.

But what about test drives? This part of the car shopping experience was likely the hardest for dealerships to replicate in the digital realm. Some offered videos of test drives, and the shopper was given the vantage point of the driver.

Other dealerships or manufacturers offered virtual test drives via mobile devices; these experiences were a bit like a game, with shoppers tilting the device to navigate the car. Dealerships also allowed potential buyers to book a test drive virtually. The car was delivered to the home, and the test drive could be personalized.

Hitting Buy! Would Buyers Complete the Transaction Online?

There is a huge difference between a consumer previewing cars online or even test driving a car via a device and completing a large financial transaction online. Perhaps one of the biggest hurdles for the industry was the financial transaction…or, rather, the completion of the transaction.

Retail purchases online are nothing new, and these purchases tend to be nominal when compared to purchasing a vehicle. During Covid, dealerships had to bank on a buyer feeling comfortable with applying for financing and completing a five-figure (or more!) transaction online.

However, many dealerships made these transactions as easy—and, of course, safe—as possible. Buyers likely had access to customer sales associates or loan officers who could answer questions or concerns either online or via phone.

Some buyers also probably shopped around for a loan. Maybe they secured financing at their local bank or credit union. One problem with online financial dealings, according to a report by Deloitte (in the UK) is that “…getting the balance right between ensuring point-of-sale compliance and creating an engaging customer experience has been difficult to achieve.”

While online sales and financing helped many dealerships survive, the blunt impact of Covid couldn’t be ignored. In a report, McKinsey noted that sales dropped nearly 50 percent in April. Europe, meanwhile, saw an 80 percent hit.

Interestingly, though, McKinsey’s report noted that the majority of younger people preferred buying cars online. Specifically, the report stated that “…less than a third of younger consumers prefer conducting car sales & aftersales in person at a dealership….”

This statistic shouldn’t be surprising as younger generations may be more comfortable with the online buying process. Gen Z has never known a time without the internet, and familiarity often brings comfort. The younger generations also likely prefer online to in-person as it removes the sales pressure and allows them to conduct their own research related to purchase decisions.

Is Online Car Buying Here to Stay?

While the limitations on businesses related to capacity or other mandates during Covid may continue to push consumers to focus their shopping online, the post-Covid digital sales predictions may be an unknown….especially for car shopping.

After Covid, will in-person shopping dominate once again? Or will consumers simply be in the habit of buying everything online? Convenience may be a key factor. Online purchases also may be higher among the younger generations, who are already comfortable with this type of transaction.

Digital sales in the automotive sector may be a big question mark. Many consumers like seeing the car in person, they want to test drive the vehicle. They want that physical experience. While a virtual reality platform can come close to duplicating in-person shopping, it can’t fully replicate it.

Virtual platforms and showrooms cannot fully incorporate that tactile experience. Buyers can’t feel the upholstery on the seats. They don’t smell the newness of the car online. Colors of paint may appear different because of the screen view. The experience online can come close to the dealership experience, but will ‘close’ be enough for consumers to keep buying online?

Statista reported that post-Covid 19, about a third of respondents in the UK would head online for a car purchase. Almost half of those surveyed in China reported the same.

The flexibility of online sales is part of its allure. Perhaps the issue of convenience could drive online sales after pandemic. With online buying, consumers can take as much time as they need before a purchase, whether that purchase is a lipstick hue, a shirt, or a car.

Sales pressure, again, is nonexistent. When a buyer is online, it’s easy to ignore that pesky little digital customer service rep that pops onto the screen. Just click the ‘x,’ and you’re back in control. But if you need assistance, that screen—that assistant—is accessible on demand.

Buyers also don’t have to drive from dealership to dealership to hunt down the best deals. Researching prices and financing requires a mere click to access another dealership site. Consumers don’t have to carve out an entire Saturday to hunt for a car. They can browse, at their leisure, over the course of a few days, a few weeks, or maybe a couple of months.

CNBC’s story on digital sales in the auto industry quoted stats from Group 1 Automotive, which has groups of dealerships across the country. The company’s director of retail strategy told CNBC that, in April, “online-generated sales” tripled.

While experts can only speculate what will happen with online car sales in the future after Covid, right now, many dealerships may be faced with a situation that was all too familiar in the spring of 2020. In some parts of the world, lockdowns are happening yet again. In the U.S., Covid is surging, and states and cities are reacting with various restrictions.

Of course, the holidays also are around the corner. Digital sales across industries may be surging, too, as consumers flock online to purchase presents for friends and loved ones. Those in the market for a new car may take the opportunity to check out dealership offers and peruse inventory.

Dealerships may be positioning their online presence to be more competitive in an online-buying world. The future may be digital. Covid and the restrictions that are set to keep the public safe may change buying forever…and online sales may hold the keys to the ignition of dealership’s survival. Then again, the old ways could creep in.

Older generations who are used to shopping in the dealership may continue to shop in-person. The younger generations, though, could pivot to online experiences. The future of auto sales may be an interesting hybrid of in-person and online interactions and transactions. Of course, no one will know for sure until the pandemic clears and a new normal emerges yet again.