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New car online sales channels – will they become part of the ‘new normal’?

Image Source: https://www.hyundai.com/it/Acquisto/click-to-buy/click-to-buy.html

Online sales channels are not new, they existed decades ago, remember the Vauxhall online sales channel back in 1999?  Driven by rapid digitalisation and the ongoing shift to selling different types of products and new services online, this has accelerated the use of OEM, dealers and third parties’ online sales channels and they all have a much richer functionality.  This trend has intensified during the COVID-19 pandemic, where channels provide an alternative to the physical showroom experience and the option to buy which can result in “lost sales”.  But will online channels last in the long-term, and if yes, what role will they take?

Earlier this year ICDP presented an update on OEM online sales channels for new cars.  Our research showed that the most channels are offered in the UK, and that numbers have grown massively – even over the short time horizon since summer 2017.  This evolution and broadening of features of these channels is happening steadily, and potentially accelerating since COVID-19.  The German market has changed more radically than others where we have seen the launch of new channels from Audi, Citroen, Hyundai, KIA, Opel, Porsche, Toyota and the new entrant brand, Aiways.  Clearly, these operate different business models, resulting in different channels (offer type, models affected, payment modes…), including differences in dealer involvement and integration into the broader network.  In principle, selling from stock seems the most common thus not requiring deep integration with supply systems. 

In parallel, and apart from some initiatives by third-parties, dealers have been actively accelerating digital transformation at retail level.  On the whole, the financially-robust and largest national groups have started to operate online sales channels, particularly covering nearly new cars from stock, used cars, service booking and spare parts – and some provide multiple facilities.  Again, in the UK, there seems to be the most channels, and these typically offer zero km used cars - these can be transacted by placing a deposit before purchasing. 

From the discussions that ICDP has had with different players in the industry, we get the feeling that online sales have accelerated recently, but remained at low levels overall.  Given the potential of online sales by manufacturers even for complex, high-involvement products, this provides an indication that traditional physical dealers remain crucially relevant to consumers (this is backed by ICDP consumer research which includes data on dealers visited and dealer visits), whilst increasing consumer appetite for buying online is not yet adequately reflected in the processes and systems provided by the online channel offer.  

This also raises the question about the role of online sales channels.  Due to existing price differences between online and offline, the number of sales through online channels remains constrained.  Therefore, wouldn’t it be more appropriate to consider further KPIs for measuring added value, referring to process steps initiated on the channel, but completed elsewhere in the network, such as generated leads for test-drives or for sale?  However this “customer tracking process” would only work if the online sales channel was not standalone, but instead part of an omni-channel network with process and systems integration.  But even then, inconsistent prices related to oversupply, volume incentives and growing out of market area sales would remain, and this could actually lead to intrabrand competition driving prices downwards.  One possibility, which would have to be evaluated strategically and financially, would be to offer an online sales channel as part of an omni-channel system, whilst the retail partners could be switched to agents, in which case the prices are “fixed” at any touchpoint within the network.  But this option takes time and resources and comes with a variety of opportunities and challenges for the different player types of a retail system, including risks for the OEM itself.

Even if the developments don’t go in that direction for all brands, it is extremely unlikely that OEM online channels will vanish again.  This is related to the OEMs desire to be closer to the final customer, whilst these demand progress in digitalisation and omni-channel retailing to satisfy their needs.  The push towards online sales is likely to progress even more strongly in current times of uncertainty and lockdowns, when nobody knows when “a return to normal”, including regular sales via the physical dealer network, will return.

Clearly, it is unrealistic to expect that during the pandemic all relevant OEMS will have come up with a precisely defined online sales offer and omni-channel strategy.  However they have realised its significance and are putting plans in place, some may consider switching the business model to agency.  The customer will be the biggest winner, and will (in the final stage) be able to conduct a seamless buying journey within the entire brand’s retail network, with no interruptions and maximum transparency.  Once the existing obstacles have been overcome, this could be the “new normal”, with online sales channels playing a central role in a broader system rather than in isolation – but this will probably take more time.

Jane Trace