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The future of Automotive Retailing

COVID-19 has prompted many people to assess whether they should return to using public transit or consider driving instead. According to BCG research, 8% of European consumers say they are more likely to buy a car because of the pandemic. That number is 16% in the US and 60% in China.

E-commerce can address these concerns, but very few cars are currently bought online. Indeed, autos represent one of the last bastions of almost exclusively physical sales. Most consumers prefer to see, touch, and drive a car before buying. Automakers and dealers therefore need to step up their collaboration in order to provide the contactless test drives and online pricing and financing tools needed to launch digital sales.

The companies and brands that move fastest could gain a competitive advantage, improving market share and profit margins by culling digital data that can be used to create targeted offers and reduce incentive spending. The payoff will be big. Incentives accounted for 11.1% of average US new-vehicle transaction prices in 2019, or about $65 billion, according to auto price information company Kelley Blue Book. Just a 1% reduction in incentive spending would add $650 million to the bottom line of automakers.

The auto industry is unlike furniture and appliances, however, in the significant differences between two product segments: new and used cars. Used cars are ahead of new cars in the transition to online sales, largely because they don’t require coordination between franchised dealers and automakers. Used cars also don’t have the same high depreciation challenge as new vehicles. That facilitates online sales by allowing for marketing initiatives such as a seven-day return policy. Used-car retailers can offer that benefit without much risk of a large depreciation hit, and it reassures online buyers. Online-only used-vehicle dealers like Carvana and Vroom are leading this transition. In the new-car segment, Tesla’s use of e-commerce and pilot programs from other automakers present a promising picture of the digital sales channel’s potential.

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