According to new research from market analysis firm Datamonitor, over half of Internet car retailers operating in the UK will fail. Those that succeed will need to focus on the fleet sector to counter the small size of the potential retail customer base in the short-term.
According to Datamonitor’s new report, The Future of eBusiness in the Automotive Market:
The potential UK market for online retailing of new cars is currently tiny – representing less than 2% of the overall new car market
Targeting the small fleet sector will be crucial for the success of online car retailers
On 16th February 2000, Direct Line announced its intention to sell new cars over the web in the UK, adding its voice to that of Virgin, P&O, and numerous start-ups. The Internet has given these companies the opportunity to establish a presence without many of the high costs traditionally associated with car retailing. However, according to Datamonitor, this flood of new competitors should not be taken as a sign that the UK car market is an easy target.
Michael Wood, automotive e-commerce analyst for Datamonitor, believes, ‘over 50% of the present crop of online car retailers will fail to establish a long-term presence in the market. Those that do succeed will either have to cater for the multiple sectors of the car market, or become small niche players.’
These new retailers hope to take advantage of the British public’s dissatisfaction with both the car-buying process and current car prices. If the British public can be persuaded to buy their cars online, these ventures have an opportunity to grab a sizeable share of a market worth £22 billion in 1999.
To enter the market, each of these new competitors is in the process of building its brand to appeal to the car-buying public. For Internet start-ups such as Autobytel and OneSwoop, this means significant advertising and marketing spend, whilst for Direct Line and Virgin it means convincing consumers that their brand values can be applied to the new-car market.
However, appealing to the consumer is only half the battle. Of the 2.1 million cars expected to be sold in the UK this year, 1.2 million will be company cars, and a further 290,000 rental cars. This means that by positioning themselves towards the consumer, these new car retailers will only be targeting 28.8% of the total market.
Moreover, when the proportion of the British population online, and the number with confidence to buy a vehicle over the Internet is taken into account, the potential for these companies is minute, probably less than 2% of the total market. The conclusion to this analysis is that unless these new players broaden their appeal to the business sectors of the market, they will struggle to compete.
Fleet market key to success
Autobytel and Virgin have publicly accepted that they will need to appeal to business as well as to consumers. But how easy will this be to achieve?
The company car market can be segmented into small fleets, which require a more commoditized service, and large fleets, for which service rather than price is the key factor.
The range of services required by larger fleets will create high barriers for entry for these new competitors. However the small fleet sector may present significant opportunities for the new e-tailers. The small fleet sector encompasses large numbers of sole-traders, many of whom purchase their vehicles through the same mechanisms as the general public. The lower margins available on small fleets also render the advisory services which larger companies expect less viable. The result is that the small fleet sector is similar to the retail market and hence more open to retail vendors.
Wood says, ‘eTailers, such as Virgin, will be well positioned to target the small fleet market as their customer-focused brands will compare favourably against the reputations of dealerships. If they can forge the industry alliances necessary to give business customers the services they require – such as a range of acquisition methods, maintenance management and insurance – then they should be able to capture market share.’