Are Online Automotive Sales A Viable Option For Dealers?

UPDATE (May 2, 2020): Our friends from Autodeal has just introduced a new feature that enables customers to buy their dream vehicle online. This article has been updated to reflect the change.

The global COVID-19 pandemic has slowed automotive sales around the world. Stay at home orders have prevented customers from entering dealerships, while some nations–including the Philippines, have ordered automotive dealers to close during the enhanced community quarantine (ECQ). As a consequence, dealers around the Philippines have experienced lost sales and lower revenues.

Auto Sales Expected To Plummet

The Philippine Automotive Dealers Association (PADA)–a group representing 200 car dealerships around the country, has sent a letter to the Department of Trade & Industry (DTI) asking for permission to “operate on a skeletal workforce basis on or before April 20, 2020.” What this means its that dealers will re-open on a “by appointment” basis whilst implementing strict social distancing measures that include:

• Only 50% of the regular service staff will report to work and they will be on a rotation basis
• Each technician will work one bay apart
• Strict sanitation measures such as applying protective equipment to cars, use of protective gear by technicians, mandatory mask-wearing, and temperature checks to customers, along with the placement of a plastic barrier in the dealer’s reception area.

PADA believes that auto dealerships should be considered as essential services, particularly its aftersales and repair services. Dealerships across the country have received calls for repairs from frontliners and customers. However, due to the guidelines set by the ECQ, dealerships have declined these customers.

In the United States, some auto dealers kept its doors open to sales and aftersales services, according to USA Today. To prevent the spread of the coronavirus, dealers in the US have implemented social distancing measures, solo test drives, reduced person-to-person transactions, and home delivery services for purchased vehicles.

“You have millions of workers who still have to get to their jobs in health care and all types of industries like that, and they need their vehicles,” said Marc Cannon, chief marketing officer of AutoNation, the country’s largest dealer network.

The main consequence of dealer closures around the world is, of course, lost automotive sales. IHS Markit released a report on April 21, 2020, indicating that global passenger car sales will fall to 70.3 million units by the end of this year, representing a 22% decline. With this in mind, automakers around the world are finding ways to keep vehicle sales afloat amid the COVID-19 pandemic.

While most of the changes brought by the coronavirus have been negative to the automotive industry, this had led some automakers and dealers–especially in the US, to resort to a growing trend in vehicle sales: online automotive sales.

Buying A Car Online

Online automotive sales is not an entirely new concept. American electric vehicle manufacturer Tesla has long pioneered online sales. In the US, all Tesla dealers are owned by the automaker itself and not through by a third-party acquiring a franchise. This sales model gives Tesla total control over all of its dealerships’ marketing and sales strategy in the same way that Apple does to its company-owned retail stores.

As the coronavirus continues to negatively affect the automotive industry, online platforms have become a medium for automakers in the US to continue selling its cars. According to a report by Reuters, Ford’s US sales chief Mark LaNeve thinks that “a big chunk” of sales will continue to happen online after the pandemic. He also says that around 93% of Ford’s 3,100 U.S. dealers are currently doing some or all aspects of sales online, from virtual tours to financing and home delivery, as the pandemic has shuttered showrooms in a growing number of states.

As of this writing, Malaysian automotive website Paultan.org has reported that BMW Malaysia and Mini Malaysia have just launched two new online platforms to let owners shop for new cars from the comfort of their own homes.

BMW Shop Online currently has a catalog of four models: 530e Sport, 530e M Sport, X6 xDrive40i, and 840i M Sport Gran Coupe. On top of this, BMW Malaysia is also offering a set of generous cash rebates and freebies, such as a complimentary ChargeNow card that allows customers to use any of its charging stations in Malaysia for free valid for one year. Customers who purchase a brand-new BMW through the BMW Shop Online will also have the chance to win a brand-new BMW i8 hybrid sports car.

On the other hand, the Mini eShop is also offering generous cash rebates for its Countryman S E All4 plug-in hybrid, along with a complimentary ChargeNow card which allows for free charging for a year at any of ChargeNow’s stations. Lastly, the MINIMISE campaign is also aimed at offering various deals such as an interest rate starting at 0% and low downpayment promos.

Are Online Auto Sales Enough To Attract Buyers?

It’s hard to predict whether the shift to online automotive sales will be permanent or widespread in a post-coronavirus world. At the same time, it is also hard to predict if the growing number of online automotive stores in some markets around the world is enough to sustainably attract car buyers during a pandemic.

Rhett Ricart, CEO of Ricart Automotive Group in Columbus, Ohio, and chairman of the National Auto Dealers Association told USA Today that the pandemic is going to fundamentally change how people view buying a car.

“By the end of this year, you’re going to see 80%-90% of U.S. new car dealers with full e-commerce capability in their shops” to handle everything online but the test drive and – maybe – the final signature, he said. Online deals at Ricart’s domestic dealerships have doubled during the last six weeks, he said.

Meanwhile, in Australia, a Ford Australia spokesperson has told CarAdvice that the shift to online transactions won’t be permanent.

“While customers carry out the majority of their research into a new vehicle purchase well before stepping into a showroom, the final decision still isn’t made until they (test drive) the vehicle. For that reason, we don’t see a permanent shift to online sales just yet.”

Because of the health crisis, consumers originally planning to purchase a brand-new vehicle might defer their plans to another date as they fear the loss of their jobs or the threat of facing huge medical bills if–in the worst-case scenario, they get infected by the coronavirus. At the same time, there may be consumers who might be interested in buying a car because of the higher risk of contracting the disease when using public transportation.

Another factor to consider when selling cars online are test drives. Automakers in certain countries implementing an online dealership system are delivering their test units to their customers’ homes for them to take on a test drive. Of course, sales agents are implementing social distancing measures as their customers drive around with their test units.

Online platforms, however, will only reduce the amount of human-to-human interactions a customer will make when purchasing a vehicle. In most cases, the online business model currently employed in various markets lets customers pay a deposit or reservation fee for the vehicle they wish to purchase. Once the reservation fee or deposit has been paid, the customer can head to the dealer and complete the remaining steps in acquiring their dream car. As for the vehicle handover, most dealers in the US deliver the vehicle to the customer’s own home.

As of May 2020, there is one online automotive marketplace in the Philippines that has adopted this exact model seen in other countries: AutoDeal. AutoDeal’s new “buy online” feature lets customers reserve their brand-new vehicle from their smartphones or computers. Payment is made through online methods such as PayPal, MasterCard, GCash, among others–though more payment options are being added in the coming weeks. Once the reservation is complete, customers simply need to visit the dealer to complete the remaining steps such as opting for cash or financing, signing of papers, and then being able to go home with a brand-new vehicle.

As social distancing measures are expected to be the norm in the coming months, online automotive sales are seen as a safe alternative for customers wishing to purchase their dream rides. For now, the ECQ–which has been extended to May 15, 2020 in most of Luzon, has kept automotive dealers from opening its doors. Meanwhile, areas that are transitioning towards general community quarantine (GCQ), also known as the “new normal” will finally allow dealers to operate in those areas as long as strict health standards are followed. Once the ECQ has been totally lifted, it will be interesting to see if automakers in the Philippines will continue to utilize online platforms in order to sell their vehicles.