UK: Online auto sales to soar by 2020 - Frost & Sullivan
Automakers will increasingly apply an 'Omni' channel strategy to market and sell cars to customers with about 4%, or about 4.5m units, sold completely on line by 2020, predicted Frost & Sullivan global practice director Sarwant Singh. That compares to 5,000 new cars sold solely on-line in 2011, he added.
New cars will be sold via a number of channels, leveraging the existing dealer network and new flagship stores, but also through online and mobile channels, with sales staff even travelling to customers to showcase the vehicles digitally.
[That would be an update on the tradition in Japan for many years where cars were often sold by a travelling salesman from a catalogue 'on the doorstep' and few buyers bothered with a test drive - ed]
Singh said, in 2009, only 4% of all retail sales globally were on-line; a trend which accelerated to about 11% of all sales in 2011. In certain industries, like publishing and entertainment, the leading retailers already collect over 50% of their revenues on-line which has forced the shut down of major brick and mortar stores like Borders in the US which have failed to follow the trend. In the UK, Best Buy opened 11 new megastores which were selling everything from GBP10 kettles to GBP100,000 Tesla cars but had to shut them within 18 months of opening the first as it had not appreciated one in four UK customers were buying electronic products online and used mega stores only for browsing. Could this happen to car dealerships in future?
Dealerships, therfore, need to innovate, Singh said. The good news is that most OEMs are already experimenting or planning to get onto the on-line bandwagon.
Ford's UK unit sells new cars through its website and Renault's newly launched Dacia has entered the UK market primarily with online sales channels with dealerships for back up.
The upcoming shop-click-drive website is General Motors' new initiative to sell cars on-line in association with participating Chevrolet dealers. New car OEMs like Tesla (for Model S, X) and Fisker (for Model Atlantic) are already facilitating the complete car buying process online with assistance to its customers in different geographies. The short-term success of Subaru, Fiat, Smart and Volkswagen with online auto channels like eBay, Taobao, Jindong, Alibaba and Gilt.com is expected to pave the future to possibly also using other independent platforms for marketing their products.
Car companies are also planning to use fashion merchandising online in the future eg the recent Fiat 500 by Gucci and Fiat 500 by Diesel models. Jaguar sold its first 30 units of the XJL Ultimate online.
OEMs will choose either an evolutionary approach or a completely revolutionary, omni channel approach, Singh predicted. The evolutionary method will see a bricks and clicks approach; car retailers are expected to operate both bricks and mortar dealerships and online/mobile showrooms. The key aim is to replace the salesman in the dealership store with an online system. Delivery will be at dealerships.
The revolutionary omni-channel approach will operate one unified integrated channel of bricks and clicks where the entire new car buying process is carried out online (mobile and non-mobile) including finance and insurance deals, with minimal involvement of - or even no need for - brick and mortar dealerships in the future.
However, there are two important dimensions to the new car buying process - the emotional and the physical touch - that need to be mastered to create a winning click business. In the emotional dimension customers typically need to be able to have empathy with the brand and the vehicle, and it needs to be able to infuse emotions. Then the physical part involves the touch and feel of the metal, the interior materials and the drivability, handling and steering feel of the car.
Both these dimensions can be enhanced, and not diminished, by the online channel and OEMs are developing new, creative ways of digitally enhancing the emotional feel of the vehicle through simulations, augmented reality and showing how the car is born and delivered through cameras on the shop floor. For the test drive, OEMs such as BMW are creating new solutions like 'BMW on demand' where one can rent, if not afford to buy, high end models by the hour at realistic prices. Car companies are also working with car sharing and rental companies to provide test drive experiences.
The future will see car companies pushing real estate price by opening flagship digital stores in expensive streets in major cities of the world like Audi and its Audi city. BMW plans to use flagship stores like the one in London's prestigous Park Lane, with dedicated staff providing information and marketing for the new i brand.
One of the key macro to micro implications of this mega trend is that we will see shrinkage of dealership space by about 20% and it will pave way for digitalisation of the dealership stores, with interactivity with the customer as a key focus. The role of the salesman will have to change to be more of a facilitator, and training the sales force will need to evolve. OEMs will have to also invest in an integrated channel strategy and IT platform which will need to be able to scale up their offering to country-wide solutions from day one as internet buyers can be ordering from anywhere in the country.
Car retailers will have to look towards futuristic technologies such as augmented reality and gamification into training for their dealership staff in order to motivate and inspire sales staff. Premium automotive OEMs are taking guidance from leaders in the consumer industry especially in luxury (Burberry) and electronic retail (Apple) to understand the implications to their retail strategy.
By 2020 China and Europe will be the key markets to promote the growth of new car e-retailing followed by the US, Singh said. The US currently faces large scale hurdles in implementing online new car retailing due to state franchise laws and universal opposition by evolutionary new car dealers.
- Sarwant Singh heads Frost & Sullivan’s Automotive & Transportation Practice, and these findings are based on two recent studies on Brick and Click in Retailing and the Future of New Car eRetailing in the Automotive Industry.