The popularity and success of digital retailing isn’t a new story in most consumer industries, but it’s certainly one that many in the automotive industry have been observing from the sidelines. Until 2020.
Many consumers have long been comfortable purchasing goods online – books, clothes, groceries, airline tickets, home goods – so a logical assumption is they should be comfortable buying everything online.
Carvana recognized the opportunity when it opened in 2012. The car retailer has experienced success, going public in 2017. More recently, Carvana announced plans to open its 27th car vending machine, saw a 39% year-over-year increase in retail sales in the third quarter and will offer vehicle delivery in 263 U.S. cities.
Despite Carvana’s success, the market for a completely digital car-buying experience has remained relatively small. There’s a noticeable difference between purchasing weekly home necessities and a significantly larger investment such as a vehicle.
As a result, the J.D. Power 2019 Sales Satisfaction Index (SSI) study, which provides automakers an objective measure of the overall sales satisfaction levels among new-vehicle buyers, showed 90% of them still visited their selling dealer in-person after researching their preferred vehicle, citing specific reasons including the desire to view inventory and receive explanations of vehicle technology.
However, 2020 paints a different picture.
Countrywide shutdowns which were in place throughout much of the spring forced in-market shoppers to adjust their thinking and caused dealers to make their sales processes more responsive for customers no longer able to visit in person.
J.D. Power responded to the market as well. The redesigned 2020 SSI Study places a greater emphasis on digital retail and remote buying, and has uncovered some interesting findings, which are categorized below as pre-pandemic (January-February); COVID-19 peak (March-April); and post-peak (May-June).
Despite the loosening of sales restrictions in the summer months, visits to showrooms didn’t recover to pre-pandemic levels. During the pandemic’s peak in April, 20% of vehicle transactions occurred outside of the dealership.
This was up about 10 percentage points pre-pandemic. This may not seem large, but when looking through the lens of total retail sales, it’s quite significant. After the spring, dealership visits increased only one percentage point.
Visits to selling dealers’ websites increased three percentage points from pre-pandemic to the peak and remained steady post-peak. For shoppers, the ability to select a vehicle from online inventory is a critical element in the purchase process.
This activity alone grew 15 percentage points to 45% from the pre-pandemic to post-peak timeframes. Other digital retail activities measured such as receiving credit approval, reviewing F&I products, agreeing to purchase price and completing purchase paperwork are still up 50% since January.
Additionally, selling dealers have seen a continued increase in remote communications such as phone calls, emails and texts. These communication methods grew more common even as restrictions lifted, which illustrates the lasting effect the pandemic will have on the vehicle sales process.
While digital and online processes were important before, social distancing has critically increased the urgency for dealers to adopt remote selling capabilities.
Successful dealers need to have the foresight to consider their customers’ unanticipated needs or wants, and they should be ready to easily adapt. For example, buyers who completed most of their paperwork online and/or had more virtual communication, are more satisfied customers. Who would have thought that a year ago?
Digital automotive retail processes aren’t going away; rather, they will become more streamlined as time goes on for the simple reason that buyers have flat out said they plan to keep using them.
The ability to bring the showroom experience to shoppers in the comfort of their living rooms can be a game-changer for dealers, if properly executed. Once shoppers have experienced the full vehicle purchase journey online – provided it’s a positive one – many may favor this method rather than going into a dealership.
While a relative few have completed the deal in this manner, digital automotive retail is a new reality that has been a long time coming. Dealers who haven’t yet adjusted to this new variable in the automotive retail landscape run the risk of being left out in the cold.
Chris Sutton (above, left) is vice president of automotive retail at J.D. Power. Jon Sederstrom (left) is managing director of strategic initiatives at J.D. Power.