[Translate to English:] Klassiches Autohaus - Bildqulle: Erik Mclean on Unsplash

Game over for the dealership?

Customers looking to buy or lease a new car make their way diligently to the various brands’ dealerships. But will they soon be obsolete? Digital platforms and new business models are revolutionizing the way we buy and sell.

New era in vehicle trade

Nowadays we can buy almost any everyday product with a simple click. But for new cars, dealers and manufacturers have so far been rather more cautious with direct sales via the internet. Customers can indeed configure their desired vehicle any way they want, or scour the database of vehicles held in stock, but they still have to visit a dealership to sign the contract and pay for the vehicle. According to a forecast by the international consulting firm Bain, by 2025 a whole 37 percent of all new vehicles in Europe will be purchased on the internet. The authors of the study speak of a “new era in sales.” The forces driving the change are, first, customers who are digital natives, who regard shopping on the internet as perfectly normal and increasingly expand this to include buying cars. Already 81 percent of purchasers of new cars use the internet to conduct searches. And second, the manufacturers themselves also have an interest in creating digital distribution channels to reach their customers. Start-ups and internet corporations, too, are joining the competition for the car buyers of the future. The study “Autohaus 2025” by the Nuertingen-Geislingen University at the end of 2017 consequently drew a bleak picture for the automotive trade: “We expect the number of authorized dealers in Germany to fall from 6,900 in 2016 to 4,500 in 2020,” says author Willi Diez. The classical auto trade will become increasingly dislocated from consumers’ purchasing and information habits.

More of a living room and less of a dealership: the Audi City Paris that opened in 2016 - Picture: Audi AG

Car purchase per click

The digitization of the vehicle trade looks appealing, especially for the customers. Comparing offers and shopping on your home computer is all much more convenient than spending your Saturdays trekking round the showrooms on the outskirts of the city. Yet the greatest advantage of all may well be in the price. In 2018 customers who bought their car the classical way – through a dealer – paid an average of 31,130 euros, while online purchases averaged 26,870 euros. Digital platforms like AutoScout24 and Mobile.de for new and used cars are booming. Then there are also brokers such as Meinauto.de and the comparison website Carwow. Transparent ratings of dealers and products have boosted confidence in such marketplaces. And according to DAT, one out of ten new cars is already sold on the internet. But what about the disadvantages? “One the one hand, the new car platforms on the internet offer a solution for especially price-sensitive customers. On the other, they have a limited range because very frequently they only show vehicles that are already available, or ones with standard levels of trim, says DAT Managing Director Jens Nietzschmann. Half the vehicles are imports. German premium brands reach only ten percent in this target group.

Dealers’ network vs. digital direct sales

This development is also a cause of concern to the manufacturers. For their authorized dealers the topic of direct sales is like a red rag to a bull. After all, both sides form a partnership in which each party depends on the other. The dealers take care of sales and service, investing a great deal in their staff and in fitting out and digitizing their showrooms, and the automotive companies have a complete sales network that also secures the lucrative after-sales business. So far the internet and apps have mostly been used as additional extras for obtaining product information and initiating the sale. But when the Volkswagen Group introduced its ID.3 and the electric sports car Taycan from Porsche, for the first time it chose digital marketing, including reservations, although the vehicles are then sold in the traditional manner. Germany’s 88 Porsche dealers are now all undergoing a reform in sales: sports cars from the entire product portfolio have been available online since the end of October 2019.

Daimler also wishes to make its distribution more digital. The plan is that by 2025, one quarter of the vehicles from the company will be sold via the internet. The US electric car maker Tesla completely digitized its sales at the beginning of 2019. This has resulted in some stores around the world being either closed or converted into showrooms. Sales contracts can be concluded in a minute on the internet – a radical step for the industry. Newcomers such as the Volvo subsidiary Polestar and the Chinese firm Byton have also chosen to sell directly and therefore do not need a large network of dealers. Instead, they plan to run just a few flagship stores at prime inner-city locations.

Cars on subscription

But there’s another model that also has revolutionary potential. Not only could sales shift to the internet – they might vanish altogether. Cars have already been subject to the trend of “using instead of owning” for a long time. Some OEMs are therefore reacting with a new type of subscription as an alternative to leasing and financing. This is an option that goes down well with younger customers in particular – after all, they are familiar with the principle from streaming services such as Netflix and Spotify. The advertising stresses the flexibility and transparent costs of the flat rates for cars. The subscribers pay a fixed monthly fee covering items such as insurance, maintenance, repairs, tire changes and taxes – depending on the package – and they always drive a new vehicle model that is reserved on the internet, brought to their door, and collected again as and when repairs become necessary. Care by Volvo allows its subscribers to switch to a different car every three months.

Abo a Car von Volkswagen Financial offers mobility flat rates with a term of three, six or 12 months. Subscribers can choose from five packages with different vehicles from the Volkswagen, ŠKODA and SEAT brands. In addition, every month they can swap their vehicle for any other in the same package. In contrast to leasing, this system has no deposit and no final installment to pay. Furthermore, subscribers are not tied into a contract lasting several years. The monthly costs of this flexible subscription model tend to be slightly higher than those of a vehicle bought using a financing package or cash. It will be exciting to see how the bricks-and-mortar dealerships react to the digital developments. Transformation is essential. Otherwise the car trade will go the same way as classical retailing: customers will visit the showrooms for advice, but will make their purchases on their computers.

(Stagephoto © Erik Mclean on Unsplash)