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TalkAUTO 2020: Current State of Digital Retail

Jon Sederstrom presented a fascinating analysis on automotive digital retailing during TalkAUTO Canada on November 19, 2020. Photo: J.D. Power

While significant progress has been made, we’re still a long way off from delivering a truly seamless, end-to-end online automotive sales experience.

Since COVID-19 became a global concern in March 2020, there’s been a lot of discussion around the concept of digital retailing. With dealership showrooms closed for much of the spring last year, how to facilitate vehicle sales transactions became a critical focal point for dealers.

Even prior to the pandemic, we were already seeing a growing trend toward the digitalization of the vehicle sales process. At the TalkAUTO event this past November, Jon Sederstrom, Managing Director of Strategic Initiatives at J.D. Power provided some fascinating and extremely relevant insight into how digital retailing has and is continuing to evolve in the automotive space.

Sederstrom highlighted different models currently available to consumers, along with the pros and cons of each. Yet a key point for consideration is that up until now, digital retailing in the automotive sector has tended to lag behind other industries.

He noted that in the automotive sector, the transaction process is “still designed to require an in-person transaction and there isn’t a customer champion.”

Left on their own

Instead, says Sederstrom, the shopper is often left on their own to negotiate with multiple people in the dealership, meaning not only is there potential for friction and confusion, but also that information is not shared freely and openly.

Additionally, despite the growing number of online tools available to vehicle shoppers, no matter how much time they spend browsing at home comparing vehicles, building and pricing, or even investigating payment and trade-in pricing, they still, by and large, have to spend four hours or so at the dealership for the sale to be finalized and closed.

“This is a real hassle,” says Sederstrom, “and due to the unpleasantness of that experience we have seen consumers increasingly say they would like to buy a car online.” In fact, prior to COVID, J.D. Power conducted a U.S. shopper study which found that 43 percent of consumers said they wanted to perform the entire vehicle transaction process online.

Yet in reality, the number of consumers actually taking those steps to do the entire purchase online is still small. J.D. Power reported that pre COVID, only five percent of consumers were not actually physically visiting the dealership to complete the sales process.

So why such a huge gap?

Three primary factors

Sederstrom says there are three primary reasons for that. Firstly, it comes down to the dealers themselves. “I would say dealers are the biggest contributing factor here, because they have the most control over the process.” Sederstrom also notes that dealers have also invested a lot of time and energy in their business models which emphasize face-to-face contact and have proven hugely profitable for them. “They have not wanted to put that profitability at risk,” he says, “and up until COVID they didn’t have a compelling reason to really test out digital retailing.”

The second aspect concerns the tools available in the digital retailing realm, which traditionally in most cases have been created to satisfy the needs of the customer. For many platforms, the customer has actually been dealers themselves, not the end user. And, relating to the first point, there has not been much of an incentive for dealers to embrace a true, fully-digital retail experience for their end user customers.

Thirdly, online purchasing options haven’t usually been marketed very well, meaning that consumers often don’t know what exactly is available to them, or how to use it.

Since COVID hit in March last year however, things have significantly changed. During the initial round of government lockdowns and stay-at-home orders, the percentage of consumers that conducted at least part of the vehicle sales transaction online climbed to 62 percent in the U.S. according to J.D. Power.

A lot of this revolved around the ability to build and price a vehicle online, browse existing inventory, select a vehicle, agreeing on a purchase price as well as getting a trade-in value for their current vehicle; receiving a credit approval, reviewing available F&I products and going through paperwork.

In particular, inventory selection and reviewing paperwork saw notable increases in activity after the pandemic hit, based on research from both J.D. Power and Google. In fact, the Google research showed that as of March 2020, approximately 1 in 10 buyers would consider purchasing a vehicle online. Yet, to make the concept really feasible for most, there’s still a substantial amount of work that needs to be done.

Different options, different outcomes

During March and April 2020, J.D. Power did a deep dive and analyzed the different platforms currently available—OEMs, Dealers and Third-Party websites. They looked at the pros and cons of each and took a look at which ones were likely the most effective for creating an end-to-end digital retail experience.

They did this in three different phases. First, was to visit the home page of each platform and actually review the capability and functions that were advertised. Second, was to use these platforms as mystery shoppers to get a full understanding of what consumers experienced when using these sites and third—for dealer tools specifically—which could be activated and used by the customer and which were controlled by the dealer and did not demonstrate their full capability offered by the technology partner.

“In those cases,” says Sederstrom. “We had live demonstrations, led by the platform to see what the full gamut might be, and we had 2-3 people conduct those steps for every single platform in order to make sure we remained objective and consistent.”

When it comes to purchasing a vehicle online, customers need to know the real price, have a guaranteed trade-in value for their existing vehicle and a real financing and lease offer, not something that’s just theoretical.

According to Sederstrom, J.D. Power’s research showed that out of all the platforms surveyed, most had some of the items in place to perform a true online sales transaction, but not all of them. Major stumbling blocks included credit applications and the ability to offer e-signatures for the actual sales contract, as well as test drives and vehicle deliveries.

Since that time, the number of digital retail solutions has increased in the marketplace, but not a ton has changed in terms of functionality. While stay-at-home orders did result in e-signatures becoming a more viable option for the sales process in order to maintain social distancing measures, there were and still remain significant hurdles in creating a seamless, end-to-end digital sales experience.

Most effective

Analyzing OEM Tier 1 websites, Tier 2 dealer sites and Tier 3 third party solutions, Sederstrom said that in terms of overall functionality, the Tier 3 solutions were the most effective in delivering a true, online sales process.

He noted that these websites were either, conceived for selling used cars online—or, designed to help dealers sell both new and used vehicles. As a result, they either own the inventory themselves or have new and used vehicles in inventory that are offered by the dealer. And because there is a singular focus on the actual transaction, due to owning the inventory and revenue being generated coming from the actual vehicles they sell, these third-party sites are better positioned to offer a true online retail experience.

By contrast, Tier 1 sites, which are OEM affiliated tend to still be largely lead generation based, with much of the actual transaction still requiring the shopper to contact and or visit the dealer to close the sale, even if there is a call to action on the website. The Tier 2 dealer solutions, while tending to be more advanced in offering financing or credit applications, as well as service contracts and accessory options, tend to fall short in that not all these features are readily available, because again, the dealer is essentially controlling the process and ultimately still wants the customer to engage in that face-to-face transaction.

Sederstrom says that when it comes to digital retailing, different consumers want different things and it’s highly unlikely we will ever reach a situation where every vehicle sale is conducted entirely online.

He also notes that while currently, the Tier 3 solutions appear to have the edge on OEM and dealer platforms, there is a way the latter can narrow the gap by defining what the intended customer brand experience is actually meant to be and identifying the best and most capable platforms that can facilitate this experience.

“The important part,” says Sederstrom, “is that OEMs and dealers work together to make those decisions to solve those complexities.”

 

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