Not so long ago many of us would have thought flying across the country for a two-hour meeting was the best way to close a deal. COVID-19 has made us challenge that assumption. Using video conferencing tools such as Zoom has turned out to be an effective way to do business. You can get real-time feedback and even read body language. Most of us will likely travel a lot less in the future for a simple meeting.
People say they won’t do something – such as close a big deal without a face-to-face meeting – until, bang, they do it. They realize it wasn’t so bad. Indeed it might even be preferred given the convenience. Or consider online banking. In the 1990’s, when banks first began to offer digital transactions, people were suspicious. Is this really secure? After all, this is my money! Today, how many times do you actually enter a bank branch to complete a transaction?
Apply this thinking to moving the entire dealership vehicle purchase process online. Consumers were already asking for a more digital experience. Now they want it more than ever. And just like using Zoom for meetings, we at The Presidio Group think that once consumers try the online purchase process, they are unlikely to want to buy a vehicle any other way.
A recent CarGurus survey of how consumer sentiment is being changed by COVID-19 drove home how quickly attitudes towards online purchase are changing. Before the pandemic, 32% of car buyers were “open” to buying online. Now 61% are. Before, 19% “preferred” buying online. Now 39% do. These are substantial changes in consumer behavior.
Crucially, despite the economic upheaval the pandemic has caused, people still intend to acquire vehicles. Indeed, the desire to avoid ride-sharing and public transportation has firmed their resolve. An April KPMG survey found that 64% of those who intended to buy a vehicle in the next six months said COVID-19 had “influenced their perspective,” and 47% of those who were influenced said it made them more likely to buy or lease in the next six months.
The survey also found an overwhelming preference to have that transaction occur outside a dealership. Of course that could also include having someone come to your home and deliver the car and have paperwork signed, and 28% of those surveyed liked this idea. But 30% preferred a “virtual” sales experience.
Dealerships were already facing a growing need to move ever-greater portions of the purchase process online. Consumers – especially younger ones – do hours of online shopping before walking into an ever-smaller number of dealerships. Now even dealerships that were already going digital face immense pressure to up their game.
It can mean the difference between making the sale or losing it. A May 2020 Cox Automotive survey found 88% of dealers were “going beyond just conducting business in their physical location.” Hopefully that means they were working on providing a completely digital experience because 2 out of 3 shoppers in the Cox survey said they were more likely to buy the vehicle if the purchase was completely online. According to Google’s automotive analysts, 18% of auto shoppers would buy a vehicle sooner if there was an online purchase option.
The good news is that dealerships are meeting the challenge head-on. For example in the San Francisco Bay area, where dealerships were banned from showroom sales beginning in mid-March, sales naturally swooned. But they quickly began to recover, says Tyson Jominy, vice president – data and analytics consulting at J.D. Power. From being basically non-existent in March, by the last week of April sales at dealerships in the Bay Area were off only 59%, he says. In Los Angeles, where dealerships went into lockdown a bit later, by the last week of April sales were down only 47%. Both areas lifted the restrictions in May. Those April sales likely occurred online, says Jominy. “Dealers have adapted pretty quickly and consumers have responded,” he says.
As dealerships are forced to accelerate their move to a fully digital process, not going back to the old ways of doing business will become the natural business decision. Going fully digital requires a significant investment. Once dealers get the hang of an online sales process, they will stick with it. They want a good return on that investment. We agree wholeheartedly with Jominy, who says, “There is not a group of business people in this country sharper or more savvy than car dealers. If they can make money (selling) digitally, that is what they are going to do.”
COVID-19 has accelerated changes in the wholesale segment of the purchase process, as well. Auctions are moving online and they, too, are unlikely to go back to the analog version. Manheim in June of 2019 created its first digital-only auction site, in Tucson. On March 10 of this year, in response to COVID-19, Manheim converted its Flint, MI Houston, TX auction sites to digital-only.
Clearly, the digital sales process is here to stay, both up- and down-stream.
The Presidio Group provides M&A advisory services through its wholly-owned investment bank, Presidio Merchant Partners LLC, Member FINRA and SIPC.