Car dealerships are reopening but the pivot to online sales has begun

Car dealerships are among the next establishments to reopen in England from June 1. It’s welcome news to an industry that suffered an enormous drop in sales following the nationwide lockdown that started on March 30. New car registrations in Britain were down 97% in April 2020 compared to April 2019.

Coronavirus hit at an already tough time for the car industry. Competition from disruptors like car sharing companies had seen new UK car registrations drop by 5.8% in January and February 2020, with diesel sales especially hard hit.

One company that’s particularly well placed to meet the challenge ahead of reviving sales is Volkswagen. The dieselgate emissions scandal cast a long shadow over VW, but the German car maker is going to great lengths to reposition itself at the front of the electric vehicle market.

To make this process more smooth, it recently announced that all its dealerships have signed up to a new click and pay sales model which will link its online sales with local retailers from June 2020 across Europe. Instead of going to a dealer, buyers now make purchases directly from VW online and dealers act as agents that organise the test drive, process the transaction and deal with enquiries. The agreed upon price of the electric vehicle and the dealership’s commission will be fixed.

2020 vs 2019 sales (March is normally a big month as new new plates are released). SMMT

While initially only for new electric vehicles, this will make buying VW’s new electric range much easier, by combining the convenience of online sales with the benefits of having a local dealer point of contact. It heralds a strategic shift away from dealers that are highly incentivised by the commission they get from sales to a focus on service. And, at a time where retailers must implement social distancing, this slicker sales processes could help VW speed up its recovery.

Old fashioned showroom charade

Of course, finance friendly ways of purchasing a new car – like personal hire purchase (PHP) leasing where you lease a car for a long period of time, making fixed monthly payments instead of buying it outright – have seen the automotive sector already embrace a strong service quality ethos. The regular payment model also locks in customer loyalty. Plus, car makers frequently measure the quality of service offered by their franchisees using independent surveys of customers. There are substantial penalties for below target performance metrics, such as the loss of the franchise.

But purchasing a car is often still a very old fashioned experience, in a sector that is still recognised as one of the most sexist industries to work in. Buying can be a painfully slow charade that involves awkward conversations in a sterile, panoramic glass illuminated sofa and coffee area. Research shows that ethnic minorities are more likely to end up paying more when buying a car in real life than online, notably due to a sales push on more expensive finance options and add-ons. It’s a similar story for women, who dislike experiencing patronising sales patter and uncomfortable price negotiations.

Online car model design platforms have also been around for some time, allowing virtual shoppers to click through a multitude of options from engine size and paint colour to sound systems and even mud flaps. But the list price is often uncomfortable.

Hence, the importance of human interaction with junior sales reps, but which often leads to customers getting lured into making different purchases to their initial intentions. With VW’s new system of purchasing electric cars online, sustainability minded consumers will no longer be tempted by deals on combustion engine vehicles, as is common.

A smoother process

This more efficient click and pay model should positively lubricate the buying process. It will help remove people’s fears of overpaying and not getting a good enough “deal” by eliminating the messy race-to-the-bottom price competition between micro-monopoly physical dealerships. It may also take some of the wind out of online new car price comparison sites, who create value by aggregating national dealerships’ pricing and highlighting any variations to buyers.

There will remain an important role for local showrooms, however. As online behemoth Amazon has acknowledged with its high street store concepts and rumoured interest in purchasing the iconic but failing department store JC Penny for its 860 store footprint, real life retail stokes brand awareness. It also helps people make their product choices. So VW will need to pedal hard to keep its franchise partners afloat and happy.

But seismic restructuring of the sector is already unstoppably in train, with personal mobility as a service using autonomous vehicles on the horizon, and the likes of Zipcar, Hiyacar and easycar already well established in larger cities. Debt laden and Uber-savvy Gen Z’s and millennials are increasingly pondering the economic argument for owning a high value lump of steel that rapidly depreciates in value, while spending most of its time on an expensive parking spot.

The prominent, physical car dealership was once crucial for new sales, but its future is far from guaranteed. Moves like VW’s to integrate them with more centralised online sales will simply be the first step of many in that direction.