British car buyers are adapting to new sales practices faster than many predicted. And the pace of change is likely to continue.
Automotive sales have remained relatively unchanged by the rise of online shopping. The internet provides peer reviews, showroom locations and negotiation advice but the final purchase is almost universally in person.
COVID-19 opened Pandora’s box
Before lockdown, remote delivery or dropping off cars for test drives was reserved for longstanding customers, or used to make up for gaps in the relationship between the dealer and original equipment manufacturer (OEM). Suddenly, contact was minimised: brands delivered keys by drone; trained workshop mechanics via video; and online product reveals were commonplace. Dealers were relieved to reopen in June but protective screens and capacity limitations to prevent virus transmission may unsettle buyers.
Car brands are now taking digital transactions seriously – one forecasts that 25% of sales will be online-only by 2025 – and admit that dealers are likely to lose market share. 1 Volumes and profits are already under pressure: matchmaking websites extract commissions for linking new car buyers with dealers, while rental innovations diminish retail demand. Car sharing promises hourly billing, simple sign-up procedures, and vehicles located close to customers that can be driven away in minutes. Anyone wanting longer-term exclusive use can purchase monthly all-inclusive subscriptions with frequent opportunities to change car.
Expanding customer choice, shrinking physical footprint
Increased online sales, reduced ownership and declining physical servicing volumes make reductions in showroom and workshop space inevitable. Some brands are rejecting traditional sites because they are expensive – commonly over £2 million to furnish – and lack passing trade. The recent trend is to bring cars closer to the customer: smaller showrooms, with room for a couple of vehicles and product experts, are placed in shopping centres, creating an atmosphere focused on information rather than outright sale. New players are experimenting with brand stores that reserve space for lifestyle activities and coffee bars. Dealers are less keen than manufacturers, seeing such locations as marketing assets for the good of the brand, rather than contributing to local sales performance.
Additional pressure to downsize comes from well-funded asset-light used vehicle traders. They use algorithms to minimise inventory and save money on salespeople and showrooms. Customers can finalise and finance purchases from home then have the vehicle delivered to them and collected without fuss if they change their mind. UK dealers may need to adopt some of these practices, and shrink used car lots, to compete.
Technology will reduce servicing volumes: OEMs say all-electric models, forecast to make up almost 30% of European sales in 2030, will require less service and maintenance, while vehicles with the latest safety systems need fewer crash repairs. The end result is likely to be lower revenue in the service lane. Connected vehicles detect and report problems early – although recently entering the mainstream, their popularity is predicted to grow by circa 20% CAGR.
Software delivered over the air will fix many concerns – cheaper for manufacturers, simpler for customers but lowering revenue for dealers. In 90% of cases, one brand’s mechanics know in advance which tools and parts are needed and can often fix the issue at the customer’s location in a specially equipped van instead of a workshop visit.2
Dealers and manufacturers must jointly agree how to adjust their footprint and deploy new assets. Physical sites will remain significant – an EY study found that 58% of German buyers still intend to purchase cars in person by 2025. 3 Dealers must decide between remaining focused on completing sales, and making greater cuts, or becoming more involved in the consideration process, and learning new competences. Some advocate for OEMs to take complete control but experience with in-house dealer groups has demonstrated the value of independent dealers’ specialisation and capital.
Selling cars seamlessly
British buyers generally struggle to order new cars online. After creating their ideal car on the brand website, they are quoted the list price, often without the discounts they suspect are available, and get referred to a dealer – instant purchase options are rare. Dealers have reason to dislike online transactions: they prefer selling from inventory to tailored orders; accurately valuing a trade-in without seeing it is tricky; and financiers often confirm high-value leasing contracts only after personal records are submitted. However, challengers now provide levels of speed and convenience to buyers that dealers must match: online businesses buy used cars instantly, at a discount and subject to a final inspection; FinTech companies, some backed by car makers, offer on-the-spot leasing deals.
The sales system must become entirely electronic, enabling customers to move between home and showroom without having to restart the process or undergo lengthy login procedures. An integrated “digical” platform will ensure consistent quality on and offline. 4 Traditional roles, where manufacturers controlled prices and advertising, while dealers sold cars and cared for customers, will blur. For some customers, the entire sale will be completed on the OEM’s website.
A sustainable model for brand-led sales already exists: around half of UK registrations are to fleets. They normally buy directly from the manufacturer and dealers receive a fixed fee to arrange delivery. OEMs are updating dealer contracts with a similar philosophy for internet sales, motivated by the additional challenge of selling electric vehicles alongside an ecosystem of services. But this still implies customers can be neatly filtered into online and offline streams – many will want to use both. There are several sales channels where dealers and manufacturers can find key enablers of seamless digital retail. User choosers, those enrolled in OEM management car schemes and commercial vehicle customers, can configure and order the precise vehicle they want, normally online. Daily rental companies select suitable vehicles directly from stock. Fleets receive targeted discounts through automated systems. The most challenging problem is reducing the wait times for vehicles built to order.
Customers can quickly buy from dealer stock but, with hundreds of potential variants, they often get a close (rather than exact) match. Building to order is possible but patience is required because production schedules are frozen weeks ahead. Designing more options that dealers could fit would help. Some brands make a virtue of the wait, providing photographs from the factory so that owners can watch their “baby being born.”
Digital tools used in a contactless vehicle sales process