Shopping online has become the norm in almost every area of life and across all types of consumer goods – books, tourism, food, clothing and footwear, electronics, and more. However, until recently, the vehicle sales sector had not really joined the trend of online shopping. In most cases, anyone who wanted to buy a car had to physically visit a dealership, talk to a sales representative, and “close” the deal. Consumers may have used the internet to learn about and research their next vehicle, but they still went to the dealership to make the purchase.
Until the pandemic broke out, even the options for buying cars online were limited, with some exceptions like the vehicles of Tesla, which currently leads the online car sales market in Europe and North America. Customers who want to purchase electric cars from Tesla can order a personalized vehicle online, receive financing, and pay for the cars online. The cars are shipped directly to the customers’ homes. Other companies that offered online car purchases without the option for personalized orders experienced relatively low sales rates.
The Product Reaches the Customer
The COVID-19 pandemic brought with it a new reality in which car dealerships were forced to close their doors, and buyers – secluded in their homes. With the onset of the pandemic, online orders became nearly the only way to purchase any product, and even more than before, customers became accustomed to the idea that products are delivered to their homes, rather than them going to the products. Car manufacturers discovered that cars can and should be sold online, and moreover – that many consumers expect it.
Online Car Sales Are Gaining Momentum
According to data recently published by research firm Frost & Sullivan, in 2019, around 825,000 vehicles were sold online worldwide. In about 66% of these sales, the full payment for the car was made online, and in 34% of the sales, an order fee was also paid. They estimate that by 2025, around 6 million vehicles will be sold online worldwide.
In the United States, according to data from General Motors, since the pandemic began, 750 of its dealerships joined the company’s e-commerce system, called Shop Click Drive, and today, over 85% of the company’s dealerships are already using the system. The American network Auto Nation, which consists of about 325 car dealerships, also reported a surge in online sales in March and April 2020.
At the Paragon dealership in New York City, which sells Honda vehicles, they reported that until March 2020, only about 70 out of 1,300 cars sold per month were sold online. However, with the outbreak of the pandemic and the lockdown guidelines, the dealership transitioned many of its sales staff to online sales, and by April, nearly 400 cars were sold online, with the upward trend continuing. The advantage of this dealership was that it already had a system in place where customers could schedule repairs, pick up cars, and pay for services, as well as a fleet of experienced drivers who took and returned the cars to the customers.
The Shift to Online Car Sales – The Challenges
The transition from sales primarily based on physical dealerships to online car sales systems that generate significant sales is not simple. Several challenges lie in the path to this transition:
- It’s Not Just About the Price – Personalization of the Sales Process
The shift from an automated sales process to a personalized one tailored to the customer is critical for increasing online sales. The value for the customer is not necessarily reflected in the lowest price, as evidenced by over 100 million Amazon customers who pay $119 per year for the Amazon Prime service. These customers, on average, make purchases totaling about $1,300 per year, more than double what an average customer who doesn’t pay for the service spends.
Furthermore, the European company Carwow, which has already begun the process of personalization and providing personalized responses to online customers in the UK and Europe, reports that over 75% of its customers close car purchase deals at a price that is not necessarily the cheapest, and in fact, it is about $850 more expensive on average than the price of the car purchased at physical dealerships.
- Pricing of Replacement Parts for Upsell and Upgraded Car Sales
According to research, the availability of accessories and upgrade options for the car is critical to the success of an online car sales platform. It is estimated that for every 100,000 inquiries about price online, about 5% of the inquiries will register as customers, and 0.5% will continue with the online financing process.
The study also found that crediting replaced components with upgraded accessories 2-3% higher than their actual price encourages customers to continue the purchase process, knowing that they are getting the best value on the online platform. The 2-3% loss is not really a loss – it makes the customer trust the online platform and eventually purchase an upgraded car, and also recommend the fair process to their friends.
- The Gap Between the List Price and the Final Price
One characteristic of physical car dealerships is the gap between the list price displayed at the dealership and the final price paid by the customer. Manufacturers offer discounts and incentives, and as a result, the final price of the car often changes. The intense competition also forces dealerships to sometimes lower the price. As such, part of the buying experience is haggling over the price since consumers know that the price at which they will eventually buy the car will be significantly lower than the list price.
The problem is that some manufacturers do not allow dealerships to publish the final sale price on their online car sales platforms. For example, the car manufacturer Honda only allows the list price to be published, without the discounts and without taking into account the incentives. As a result, the price published on the website is much higher than the price the consumer will ultimately pay, a gap that can amount to thousands of dollars. This greatly complicates the sale.
Honda claims the reason for this is to maintain the brand’s value, and therefore online systems should only display the sale price once customers provide personal details and express interest in a specific vehicle available at the dealership.
- Proximity to the Physical Dealership In the UK, Hyundai recognized that even for online sales, the physical proximity of the customer to the physical dealership is still very important. 95% of customers who ultimately purchased a car via the digital platform lived within a 16-kilometer driving distance from the physical dealership.
What Do Customers Say?
Opinions are still divided. Some customers express satisfaction with the process and the time-saving aspect, as there is no need to spend hours at the dealership to “close the deal”. Other customers are still afraid of making such a large purchase online and prefer to see the car in person, and perhaps even take it for a test drive before finalizing the deal.
What Does the Future Hold?
It is probably too early to completely write off physical car dealerships, and in the future, we will likely see a combination of the physical dealership and the digital customer journey. Even when the purchase is made online, the physical dealership will still be an experiential place where customers can take the car for a test drive and where they will go to pick up the car purchased online, buy parts, and receive service.
Although physical car dealerships are unlikely to disappear, what Tesla understood several years ago is now also understood by other car manufacturers – it is essential to invest in online car purchasing systems. For such a system to succeed, it must be dynamic, providing value to the customer through personalization, a user-friendly customer experience, and personal attention, flexibility, and a large selection of replacement parts and car upgrade accessories. Additionally, there is a better chance of selling cars online to customers who live a short distance from the physical dealership. A system that can provide customers with the right experience has a higher chance of success.
And What About Our Tiny Country? Check Out the E-Commerce Sites We Developed for Champion Motors, the importer of Audi, Volkswagen, Seat and Skoda, choose a model, color, finish, customize and upgrade your car with extras according to your needs, order and plan the payment using the financing calculator on the site.
If You Want to Sell Online – Contact Us.