Automotive Online Sales: The direct route to the customer

Customers want to buy cars online. Direct sales is now on the agenda of OEMs. A piece of Capgemini Consulting research.

Executive Summary

Disruptive changes in the automotive industry are currently occurring on several fronts. Besides the development of electric vehicles, connected car technologies, mobility services, and autonomous driving, new business models around selling cars online are on the agenda of automotive companies. This report looks at the opportunity ecommerce presents for the automotive industry, the challenges to adoption, and recommendations on what to do next.


An appetite for online sales

With nearly 75% of customers saying they would be willing to buy a car online, are OEMs taking the necessary steps in order to fend off competition from new players and seize these new opportunities?

While online sales are expected as standard in many other industries, selling cars online directly to customers has not been a top item on the agenda of automotive OEMs until relatively recently. Digital initiatives have existed mostly in regards to brand awareness, seasonal offers, and car configuration, whereas sales models have remained traditional. The online channel is mainly used to gather information during the buying cycle: a customer configures a car online, and then the local dealer picks up the configuration and concludes the sale. There have been a few pilots for online sales (Tesla, Volvo, BMW in the UK and Japan, Mercedes-Benz in Germany, FCA in Italy, SAIC and Changan in China), but on a limited scale. With almost 75% of the customers expressing a willingness to purchase a vehicle online, it is clear that there is a huge untapped interest in a radically different kind of car sale and thus new business models. Responding to this appetite will be a crucial part of the customer offer within a short period of time. Put simply, OEMs must do more to satisfy the expectations of the digitally savvy customer. Everyone knows there are obstacles, but none of them is insuperable. What matters most is how to stimulate this new digital channel for car sales.

"We think the opportunity provided by online sales is big—some of our initial experiments have given impressive results." – Jakob Nyborg, Head of Marketing, Maserati (FCA)
 

An era of disruption

This large desire for online purchasing power is evident across all respondent markets. 72% of customers surveyed indicated a willingness to buy a new car online. This ever-increasing hunger for a completely digital purchasing cycle continues to disrupt manufacturers, and we believe we are on the edge of a major change in the industry. OEMs should strive towards digital mastery and embrace changing business models. This will facilitate a closer connection with their increasingly internet-savvy customers. A more direct customer relationship can push forward an increase in retention rates. Given that so many customers have a hunger for a holistic online purchasing experience, including finance contracts, inspection packages, insurance, other add-ons, and less paperwork, this begs the following question: when will this become just another channel to market, a mainstream way of selling cars? Some OEMs have already realized that seizing the opportunity to digitally transform is crucial, and that this will decide whether or not they will be able to survive in a changing market. In the future, it won’t be enough to only produce vehicles and offer them through the dealer network. Car manufacturers will have to transform their business models to become completely customer-centric and to deliver on online sales expectations.
 

The rise of new players

Customers show willingness to purchase from the online platform of OEMs (57%); however, there is a keen interest in purchasing via new third party players, such as TrueCar In the USA or Tmall in China. Tmall is an offshoot of Taobao, which is operated by the Alibaba Group and is one of China’s largest B2C online marketplaces. Also, it currently cooperates with many OEMs for online car sales. Many customers stated that they would already be willing to purchase their car from one of these third party online platforms.

Currently, the data indicates that across all surveyed markets only 11% of respondents would prefer to purchase a car online from retailers such as Walmart, with up to 23% favoring pure-play online retailers such as Amazon. Such retailers have online sales infrastructure currently in place, and customers can already buy nearly all consumer products from them, so it is not unfeasible to imagine cars being purchased from them in the future. The willingness to buy from online-only companies like Amazon in China is higher, attaining almost 40%, which means that in the future, it cannot be ruled out that these retailers become important players in automotive e-commerce within particularly receptive markets. This, of course, would further increase pressure on OEMs to digitize their purchase process.

Although there is a slight interest in purchasing vehicles through third party technology company platforms (11%) like Google or Apple, this is greatly overshadowed by the preference for buying cars from the platforms of the more established automakers (57%) and automotive retailers.
 

Key takeaways:

1. Huge interest in buying online
Our survey demonstrates a huge appetite for new online car sales across different markets, with almost three quarters of respondents showing increasing interest in buying cars online.

2. Highest trust in automotive e-commerce lies with proprietary OEM offerings
Customers indicate a preference for purchasing new vehicles online directly from the vehicle’s manufacturer. Although tech companies are evolving, there is currently little trust in purchasing cars via tech company portals such as Google, or third party retailers such as Amazon.

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OEMs: There’s work to do to deliver on expectations

Groundbreaking innovators such as Amazon have completely changed customer buying expectations. From price benefits to customer-centric convenience, the auto industry needs to meet the demands of the 21st century shopper.

Customers have indicated that they are ready to buy cars online, however the industry has not yet seized the opportunity. OEMs realize that they need to harness digital channels to meet customer expectations. Barriers include a lack of clarity about the roles to be played by both OEMs and dealers, and the transformational change that would arise in terms of dealer footfall, cross-selling, and up-selling. Furthermore, there is a need for a legal and commercial framework for online sales, and a financial burden of creating necessary processes and IT changes. Customers do not want to wait any longer and expect convenience and timesavings (51%), price benefits (55%), and location independence when shopping for new cars (44%), not to mention avoiding sales pressure at the dealerships (41%). All of these requirements must and can be fulfilled. Future online car sales must aspire to be seen as no different from buying a book or flight ticket.
 

The Amazonification of the auto industry

Online platforms offer customers the ability to make swift purchases while benefiting from price transparency and convenience. Increasingly, those in the market for a new vehicle expect to be able to purchase a vehicle online as they would any other type of digital purchase. Currently, customers perceive that they can receive a more competitive price in-dealership than they would online. However, over half of those surveyed cite a low price guarantee as one of the main drivers behind their appetite for online purchasing. Furthermore, the modern, digitally-native customer expects to have the ability to shop for deals irrespective of location, just as they would when purchasing a new television (44%).

Moreover, as customers become increasingly shrewd, they expect to see what others have paid, to make sure they are getting a fair deal. So, they are seeking transparency when purchasing online. This is heightened now that customers often browse social networks and review sites when considering a new car purchase. Well-known platforms for used cars already offer transparency, and dealers are selling off their stock on these sites (truecar.com, mobile.de, autonation.com). If OEM´s do not move to offer this then others will. Also, customers cite low price guarantees as a key driver for direct sales; OEMs must address this by utilizing an array of solutions. These can include online sales auctions with or without dealer interaction, discounts for standard models, seasonal offers, special editions, and general negotiation options. Furthermore, a simplified and standardized product portfolio of preconfigured cars or even stock cars can result in simplified online process management and deliver significant cost benefits.
 

The evolving nature of car retail

Customers want to receive a tailored experience that they will enjoy in the dealer showroom. Manufacturers such as Mercedes-Benz, Audi, and Hyundai are addressing some of these customer expectations by opening physical showrooms with various digital elements. These stores include Mercedes Benz Me, Audi City, and Hyundai Rockar. These initiatives, as well as popup stores, deliver the brand to the customer at a convenient location and present a plethora of exciting digital features. Audi City in Beijing, an earlier example of these types of offerings, presents virtual vehicles that customers can experience and with which they may interact. This allows customers the opportunity to sample the portfolio, and can be used as a complement to online sales. Another example of forward thinking OEMs is Tesla. Its showrooms in prime big-city locations are optimized to convince potential customers of the brand’s appeal before they decide which car to buy next or even think about buying a new car. In contrast with the traditional scenario, where people only visit showrooms after deciding which brand to buy, Tesla intends to leave a lasting impression on the customer that he or she will recall when thinking about buying a new car, even if that is months or years after the initial showroom visit. On-site product experts (such as BMW’s Product Geniuses) in these hybrid showrooms, pop-up stores, and dealerships allow the customer to avoid unwelcome sales pressure. Tesla’s showrooms have no individual sales targets; they are all about lead generation through brand experience. As virtual technologies develop, we may approach a point where new vehicles are bought without being viewed in real life, as OEMs develop the ability to deliver the showroom experience entirely online.

"Online sales will be a game changer in terms of meeting the customer’s demands. This will include new sales models and also opportunities for our dealers."– Clemens Ollmert, Head of Digital Business Sales, Audi

Different challenges, new opportunities

The possible “Amazonification” of automotive sales raises both challenges and opportunities for the industry. Online retailers in other industries have had to respond to customer demands regarding convenient delivery options, while also factoring in what options they offer for returns and after-sales. Due to these e-commerce retailers leading the pack, customers have come to expect complete convenience. For the automotive industry, coping strategies could include initiatives such as home delivery for test drive (27% of customers surveyed expressed an interest), and pick-ups ordered online for vehicles requiring servicing or those with malfunctioning in-car technology.

 

Key takeaways:

1. Customers expect additional benefits from online sales
Obtaining price benefits, negotiation options, timesavings, and the ability to compare products and brands are key drivers for online sales.

2. Benefits of traditional points of sale must be made available online
Most customers say that direct sales by OEMs do not yet meet customer expectations in regards to product experience. Two major obstacles mentioned were a lack of product advice and limited price negotiation.

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OEMs: Overcoming obstacles

While E-Commerce has been the standard in retail for years, the car industry has been slower to adapt. However, from virtual reality test drives to omnichannel brand experiences, challenges to transformation can be overcome.

There are certain hurdles the industry must overcome to deliver the customer experience that customers demand. These include personal contact and test drive fulfillment options. Other services customers want available online include product bundles and price negotiation. An acceptable substitute for in-person test drives and physical experiences is not yet being offered. Augmented Reality and Virtual Reality solutions, for example, are only beginning to be implemented by some OEMs in pilot markets. Concerns, such as data security—especially for financial transactions alongside confidentiality—must be addressed in the future by creating trust through new technologies.

One customer, multiple channels

Customers expect personal interaction and support in the online sales process. Echoing the findings of our other research in recent years, they expect a seamless experience, throughout the customer lifecycle. Respondents cite the ability to contact a real person for guidance and support questions as one of the biggest barriers in current new car online sales processes (52% across all markets). OEMs need to ensure live chat support via their sales portals as a business standard practice going forward. Our research shows that test drives remain a key barrier, with 82% of respondents across all three markets highlighting it as a major hurdle to completing the purchase online. However, there is a willingness to test drive via third party platforms, particularly in the Chinese market1.

Some automakers are expecting a rapid shift in the way cars are bought, thinking forward to a time when a visit to the showroom is no longer required for some customer groups. Volvo is one of the first brands to develop a virtual reality test drive experience via a mobile application.

 

Negotiation remains key

Although avoiding negotiation is cited as a driver for online sales, customers want the ability to discuss price and haggle. Customers highlighted the lack of an ability to discuss the best deal for their new cars and product bundles online as a significant pain point (55%), which is something that needs to be addressed by OEMs.
 

Providing data security is crucial

Aside from test drives and the personal experience, there remain other hurdles for OEMs to overcome. Data security comes next after physical product experience and negotiation in terms of barriers, with 36% of customers citing it as a key factor in the prevention of a 100% online purchase. This concern was higher in growth markets (50%). This indicates that OEMs must respond if they want to channel more customers through their sales portals.

As of today, most OEMs have not yet established the credit approval and the payment process online. Furthermore, ensuring payment security is key for all respondents, particularly in the Chinese market, with half of the respondents presenting it as a barrier for online purchase. Strategies to solve this may include promising a more secure data environment to allay existing concerns, or new investment in technologies that will, in turn, increase customer trust such as further integration with online banking platforms.
 

New technology to drive online sales

Current payment security standards used in e-commerce may not be sufficient for high-value purchases such as cars; therefore OEMs must be provided with solutions to address the requirements. A consistent communications message across all touchpoints is required, and the questions regarding data and payment security will need to be addressed in order to build trust in the online platform. Moreover, customers want the ability to deal with paperwork, such as signing contracts and confirming direct debit authorization, virtually. Solutions need to be implemented that allow for a seamless online process that both reduces the paperwork and allows the customer to sign documentation digitally. Technologies such as video identification and voice recognition can also be introduced to assist with the implementation of online sales.
 

Key takeaways:

1. Integrating the physical and online sales experience is key
The physical experience of seeing a car in real life and performing test drives cannot be fully replaced by digital channels. However, for those customer groups with a strong interest in buying cars online new technologies come very close to a similar experience. Customers' value augmented reality or virtual reality solutions, as well as the ability to speak with online agents.

2. Improving the seamless online sales experience with additional features can significantly increase customer willingness to buy online
Data security and bank cooperation, price transparency, and a reduction in paperwork increase the enthusiasm of customers to purchase vehicles online.

 

1 73% of Chinese customers surveyed reacted positively to the statement "I would trust a 3rd party test drive platform and do a test drive there instead of a test drive at the dealer."

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Think wider, think customer

Selling cars online won’t be enough to satisfy the demands of today’s car buyer. Additional products and services need to be made available online just as they would be in the dealership.

OEMs need to expand their horizons to include attractive end-to-end offers. At the very least, customers expect the same virtual product portfolio as they are used to from physical dealerships. These products include financing and insurance offers, as well as parts, accessories, and maintenance packages. Customers also have an ever-growing expectation of access to connected services in their cars, with 51% of Chinese respondents citing it as an influence for purchasing online, and 36% across all surveyed markets. There certainly exists a latent hunger for product bundles, which could for example combine the vehicle with connected car services and a maintenance packages. More action needs to be taken by OEMs to ensure that customers can purchase add-ons in all phases of the customer lifecycle online, and also from within the vehicle. 56% of customers stated a willingness to purchase parts and accessories from their dashboard. It has never been clearer that the industry has an opportunity to deliver tailored services to their customers online.

"OEMs selling directly have a competitive advantage over pure play online retailers because they can deliver a consistent omnichannel experience. They can offer all car models online, as well as servicing and warranty. They can also provide a complete offer including the vehicle, financing and insurance." – Dr. Rainer Feurer, Senior Vice President Sales Strategy and Steering
 

Connected vehicle, connected customer

With the Internet of Things on the rise, customers increasingly expect their car to be an extension of their home or office space. The car becomes a vehicle with far more capabilities than moving from point A to point B. The industry is rapidly developing and adopting a wide range of new technologies. Paying bills, buying fuel, ordering food, and organizing leisure activities must be actionable from within the vehicle. Digital services offered by OEMs range from safety features such as traffic information and driving behavior recommendations, to aftersales services such as service booking. Notably, over half of respondents (rising to almost three quarters in the Chinese market) expressed an interest in buying parts and accessories online from their car’s dashboard. In the truly connected vehicle, onboard telematics will inform OEMs about a vehicle’s current condition, and then the manufacturer will be able to offer the customer the appropriate products and solutions straight to their dashboard. This will become an increasingly important part of the customer offer in the age of autonomous driving.

36% of those surveyed overall would consider purchasing infotainment products, however customers are generally satisfied with the services currently offered by providers such as Google and Apple. This does not mean, however, that OEMs cannot push towards further integration with these technology providers. We may see such a push with the launch of Android N. Google intends its in-car infotainment system to be open source, allowing automakers to customize it themselves. This enables them to control their own in-car experience as an extension of their brand.

 

Key Takeaways:

1. In addition to car sales, customers expect a huge variety of add-on products and services online.
Customers are open to cross-selling and up-selling. Parts and accessories, insurances, service bundles, connect, and lifestyle services are expected as part of an end-to-end customer offer. They expect a wider product and services portfolio online than they would otherwise receive at their chosen dealer.

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Don’t just sell cars, sell mobility

Car buying in the future is going to look different, as the younger generation of consumers look toward flexible ownership and new models of mobility. The role of the OEM in the coming years may shift towards becoming an overall mobility provider, rather than simply a car manufacturer.

Increasingly, digital natives are looking beyond individual car ownership, and are exploring new models of mobility. These new mobility models include car and ride sharing, ride hailing, and packages where customers can drive more than a single vehicle over the course of a year. Looking ahead, we may see autonomous mobility solutions, such as robo-taxis for example. These pose a disruptive threat to the traditional auto market, while also opening up new potential revenue streams. Half of survey respondents reacted positively to the statement: “I would be more willing to buy a car online in combination with a flexible ownership model such as a car, or ride sharing, or pay-per-use.” Chinese customers expressed the highest amount of interest, with over 70% of those surveyed answering positively.

OEMs must be more proactive in offering more services and packages for mobility solutions in conjunction with online car sales. This would include wider transportation subscription packages that cover different means such as car and ride sharing, bicycle rental, and public transport for events where the car ownership model is not suitable.

With the eventual implementation of autonomous driving, the line between public and private transportation will become less distinct. OEMs must begin to plan for such large-scale disruption and start to provide end-to-end intermodal mobility solutions online as an alternative revenue stream in preparation for when their main product will have fully lost its differentiating potential.

Accordingly, it becomes crucial that OEMs transform from a traditional car manufacturer towards a mobility provider, to offer customers the mobility options that they expect, and to put the customer at the center of the business.

 

Key Takeaways:

1. New business models surrounding ownership and mobility are in high demand
Customers are constantly requesting innovative mobility concepts and different use models such as pay-per-use. In order to build new revenue streams, mobility solutions need to be added to an OEM’s online sales portfolio

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OEMs: What happens now?

The need to transform digitally has has never been clearer. Here are the key takeaways and recommendations going forward.

Understanding and responding to the demand for online sales will be the key driver for automotive companies. This will help them develop new business models that allow customers to buy new vehicles completely online. Driving online sales is a must-do for OEMs in order to increase both profitability and customer retention. Based on our study, six key recommendations have been derived to ensure increased online sales.

1. Integrate the physical and online sales experience
OEMs must do more to merge and improve both the physical and digital channels. Options must cut across people, processes, and technology: technologies such as Augmented Reality and Virtual Reality solutions; convenient test drive offers; customer queries answered either in-showroom by product experts or via online live agents on OEM sales platforms; and a way to ensure the online and offline experiences blend into each other so that customers can enter either channel at any stage of the process.

2. Simplify and standardize your online product portfolio
Using existing customer insight, manufacturers should consider standardized vehicles that meet customer demand, while allowing more individualized customization for premium models. Also, have models available only online, or at a special price for a short period of time.

3. Price benefits and negotiation options
OEMs have to offer customers low price guarantees online. This demand may be sated by the creation of integrated price negotiation modules within an OEM’s or a dealership sales platform. Automakers need to ensure they offer pricing transparency so that customers are reassured of best price.

4. End-to-end portfolio options
Automakers have to integrate their complete offline portfolio online, and vice versa to create a seamless customer experience. This can be achieved by offering bundled product portfolios online, including financial services and after sales support. OEMs can also offer on-demand functionalities and connected vehicle products in an in-car store.

5. Building trust and secure data environments
OEMs need to provide best-in-class security solutions in relation to fraud, data protection and online payments. Solutions include further integration with existing high-trust banking platforms. Communicate these solutions to customers to build trust in the brand in regards to online security.

6. Launching mobility options to complement traditional car sales
To open up new revenue streams, automakers must look to an alternative mobility solution that they can offer in addition to selling cars. Customers demand car sharing, pay-per-use, and other flexible ownership models.

"One of the key lessons we have learned already is that we cannot just rebuild the current processes online. We have to learn from other industries and transform our business to digital.” – Jakob Nyborg, Head of Marketing, Maserati (FCA)

Automakers must grasp the opportunities that selling online holds for them, and they have every possibility to do so. However, to ensure effective transformation, we have shown that there needs to be more than just the vehicle made available for online purchase. OEMs and dealers need to match customer expectations in the digital age, and therefore must continue to adapt their collaboration and business model to effectively establish online sales.

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Meet the authors of the report

Markus Winkler
Global Head of Automotive
Capgemini Consulting
Nick Gill
Chairman of Global Automotive Sector
Capgemini

 

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Customers expect to be able to buy cars online so direct sales is now on the agenda of OEMs.

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