Retail Bottoms Out While The Automotive Industry Fast Tracks

Retail Bottoms Out While The Automotive Industry Fast Tracks

Why have the auto industry and dealerships been able to pivot and retail has not?

Thinking back to before COVID-19, I think it’s safe to say that car-buying was maybe one of the most archaic experiences around. 

While much of retail became more digital in the last two decades, with the exception of being able to search for cars online, car buying for the most part was still largely done “old school:” in-person, from shopping to test-driving to financing.

At the onset of the pandemic, many car dealerships closed and car buying went on a hiatus, forcing the hand of many dealers who had been slow to integrate digital options for customers. A McKinsey report found that in April, in the U.S., car buying plummeted 47 percent. 

However, in the months that followed, cars began to matter even more to consumers than they did pre-COVID-19, as drivers reported extending their use to traveling in order to “connect with the outside world in a safe way,” according to the study. 

AXIOS reported that U.S. factory orders rose 6.2% in June, after gaining 7.7% in May, more than expected and boosted by a surge in demand for motor vehicles. Used car sales also boomed, with J.D. Power reporting auto dealers sold 2.1 million used vehicles in May and June, 9 percent more than they did in those same two months in 2019. Edmunds found franchised car dealers sold 1.2 million used cars and trucks in June alone, which was more than in any month since 2007.

The nature of consumer expectations in the pandemic world drove dealerships to embrace a digital, socially distanced, contact-free approach fast in order to not only survive, but thrive. In this second in the series of articles looking at how COVID-19 has powered innovations, I’ll look at the approaches taken by online and brick-and-mortar car dealers in order to shed light on what retailers need to do better. 

In my last article, I noted that despite similar surging demand in digital retail during COVID-19, there has been very little innovation when it comes to targeting and personalizing experiences for customers who were driven online by necessity. By contrast, car dealerships and online car sales websites have embraced the new kind of buyer, and found ways to meet their expectations in the near- and long-term.

Paul Hennessy, CEO of Vroom, an online car selling platform, captured it best when he said that serving consumers digitally goes beyond just having a website, and that car dealers have to “break out of their old paradigm of thinking first about their profitability and instead start by understanding their customers’ end-to-end omnichannel journeys to purchasing cars.”

Investing in Upgrading Online Search

The Coronavirus has fueled a shift in desire to purchase vehicles online. While online sales still only account for around 1% of the roughly $840 billion Americans spend annually on used cars, an April survey by CarGurus Inc , an online marketplace for new and used cars, found 61% of people shopping for cars were open to buying online. That compares with 32% before the pandemic. According to 82% of car shoppers engage with search results on a dealership’s website.

In response to the changing consumer needs due to the pandemic, online marketplaces invested in making the process faster, easier and more intuitive, while expanding inventory. recently announced an upgraded search experience which better guides shoppers through inventory with auto-complete suggestions, larger photos, responsive listings and customized page views, ultimately making it easier for shoppers to find the car they’re looking for – from any device, anywhere. Rival Vroom announced it had spent around $1 billion on its online platform and inventory so far, and plans to sell auto parts or insurance, or to serve as a marketplace for smaller auto retailers. Carvana has spent $2 billion since 2013 rolling out its digital network which includes technology to evaluate trade-in vehicles, financing for car loans, switching car titles across U.S. states, storage, and delivery of thousands of vehicles to customers’ homes.

Using Data to Personalize Experiences

Personalization is the future of not only auto retail but also retail as a whole. A key UNLOCK is involving the customers in your entire product lifecycle – from creation to cash. Matthew Gold, Chief Strategy Officer of noted in an interview with McKinsey that as the industry moves forward over the next 10 years, the amount of time customers spend car-buying will decrease, with algorithms doing much of the searching for them, based on data provided by the customer. This will inspire better recommendations from search engines and the experience will be customized to an individual buyer.

Customer Service Moves to AI Chat

With many dealers cutting back on staff, chatbots are beginning to pick up steam. noted in a recent release that Dealer Inspire saw significant increases in its AI-powered chat tool, Conversations. According to the piece, the chatbot answers basic questions such as whether a dealership is open, how to schedule an appointment and even offers vehicle trade-in values before turning the conversation over to a dealership employee for more in-depth information. Month-over-month, online chat conversations between shoppers and dealers increased 23% in April and 38% in May, and the company expects increased shopper demand for instant, real-time communication tools that allow them to collect necessary information at home and move quicker and deeper into the purchase process in a streamlined, friction-free way. The key takeaway now is to ELEVATE your employees by leveraging technology to do the repetitive heavy lifting.

Test Drives at a Social Distance

Cars became another form of P.P.E., enabling owners to be able to get out of the house safely. However, that meant finding new ways to give shoppers a positive experience while meeting demands for safety. According to this CNBC story, dealers have begun bringing cars to the potential buyer for no cost so they can do a test drive from their home, cleaning the car before the driver enters and social distancing. CarMax, the No.1 used car retail chain, launched “contactless” curbside pickup during the pandemic, a popular choice for online customers. It also offers free home delivery up to 60 miles (97 km) from a dealership. But home delivery can be expensive, and some state regulations don’t allow it, according to CarMax.

This may be why more dealers have begun to offer online virtual tours and test drives. According to Automotive News, through virtual tours and test drives, dealerships are embracing a unique connection point to shoppers, adding an interactive element to online research. Panoramic videos allow viewers to look around the cabins on their mobile devices or computers during the presentations and get a firsthand glimpse at how technologies such as adaptive cruise control work in real-world conditions.

Making An Offer and Online Financing

The pandemic has also changed the sale process for buying a car. What was once an in-person process beginning with haggling on price, and ending with a lengthy financing conversation, endless paperwork, and approvals that could keep you at the dealer for hours, is all moving online. 

Karl Brauer, executive publisher for Autotrader and Kelley Blue Book, recently explained to CNBC that once a car shopper has the market value range in mind, it’s completely possible to reach out to dealerships that have the car you’re interested in and offer the price they want. “As long as you are clear about the price you want to pay, it doesn’t really matter how you communicate: You could email them, you could text them, you could call them.” Your conversation can be as simple as: “I know the market value on this car is $28,700. I’m talking to a few dealers. I’m willing to pay $27,000,” he explains.

He noted that when it comes to actually buying the car, much of the transaction, if not all of it, can be done online. A buyer is now able to apply for financing online and even go through the trade-in process online, if they plan to trade in their old car. Depending on state laws, you may still need to physically sign some paperwork, but since a car can be delivered straight to a buyer’s home, the paperwork can be completed at that moment, as needed.

The car-buying experience is still very much a retail experience defined by touchpoints. Unlike traditional retailers, the pandemic lockdowns forced car dealers to adapt to convenience, speed, safety and personalization of the car-buying experience, integrating new digital technologies. 

Similar to auto retailers, retailers as a whole must understand customer expectations for the buying experience and invest in new technologies that empower them with greater control in a convenient, intuitive, frictionless and, for the foreseeable future, safer, way.

Source Article