2021 It's Digital or Decline The Future of the Automotive Industry Table of Contents Introduction 3 Section 1: Where We've Been 4 Brick-and-Mortar Rules 4 Digital in its Infancy 5 New Players Driving Change 6 Section 2: 2020, The Year of Digital Acceleration 7 Staying Alive During the Pandemic 7 Navigating the Digital Retailing Landscape 9 OEMs Jumping on Board 10 Section 3: Where We’re Going 11 Improving the Car-Buying Experience 12 The Technology to Support 12 Competing with New Players 14 Conclusion 15 Revolutionize Sales at your Dealership 16 Appendix 17 Introduction Buying a car used to be a long, drawn-out process. You would decide it’s time for a different vehicle, drive around the city to look at what was on the various lots and converse with the sales reps. After careful consideration, you would narrow down your list, take a few for a test drive, determine which car you wanted and the bells and whistles to be added. Once you haggled over the price and financing, you’d finally get the keys to your new car. It took weeks. Then came the online experience. You would spend an evening searching and comparing prices and specs before heading out to test drive a few vehicles. Then you would haggle over the overall cost and how to finance the purchase, before finally getting the keys to your vehicle. The process took days. Now, you jump online, compare and contrast vehicles within minutes and find the place nearby that has the vehicle. You take it for a test drive to make sure it’s the right fit, sort out the financing, and take the keys to your new - or new to you - car. It only takes several hours from start to finish. And with the rapid rate of innovation in the digital automotive industry, that several hours is sure to be cut down even further in the months and years ahead. The automotive industry But it took the onset of the COVID-19 has made a massive shift pandemic to thrust the industry into the to the digital realm, a shift digital age, where shoppers never have to that many experts have leave the comfort of their home to purchase the exact product they are looking for. been expecting for years. “Sales of other durable goods demonstrate how changing consumer preferences will push car buying online. About two decades ago, e-commerce had barely penetrated the furniture and appliance industries. But over the years, consumers easily transitioned from the online purchase of small items such as books to bulky, big-ticket goods, including consumer durables like technology- rich appliances. It is only a matter of time before online car purchases become just as common.” 1 With the rapid transformation now well underway, it’s vital for retailers to understand why the industry is changing, and how to evolve with it. 3 Section 1: Where We've Been The traditional method for purchasing a vehicle has remained relatively the same for decades, with slight change occurring with the inception of television advertising and online research capabilities. Despite decades of advancement in the technology behind the vehicles themselves, little has changed in the car-buying cycle. Brick-and-Mortar Rules The dealership used to be the temple. It’s the place where everyone had to go to walk the lot, see the vehicles inside-and- out, learn about the vehicle’s capabilities, go for a test drive and work out the financing details. The old, dealership-centric method of selling cars has its flaws. A study from Deloitte in the UK Going to a car lot used to be the consumer’s only choice. But suggested that: for most consumers, it wasn’t an enjoyable buying experience. “Purchasing a new car based on the traditional dealership model remains a low-trust, high- stress and low-transparency exercise. For many, a dealership is an intimidating place to visit. High staff turnover can make it difficult for a consumer to establish a relationship and build trust – especially in the case of repeat purchases. Also, the image of sales people has been tainted over time, and with retail space at a premium, there is often a sense that unnecessary costs have been added to the car, putting a further strain on the consumer/salesperson relationship.” 2 The team from online automotive news site MotorBiscuit in October 2019 even went so far as to publish an article, 10 Biggest Reasons Why People Hate Car Dealerships3, outlining the litany of reasons people dislike the traditional dealership model to purchase a vehicle. It was a necessary evil - with no other options to purchase a vehicle, people continued to make their way to the dealership in the hopes of finding their next car. 4 Digital in its Infancy The automotive industry has not experienced the same level of digital retailing as many other sectors have. Data from the International Organization of Motor Vehicle Manufacturers shows overall new vehicles sales of 91.36 million4 in 2019, with the online sales accounting for only 825,0005 - less than 1% overall. In the United States, digital That number grew exponentially transactions have jumped over the next two years, with 10% of considerably in the past car buyers saying they made their purchase online in March 2020.6 few years. Arguably the greatest value to car buyers, in terms of online resources, has been the research tools provided on OEM websites. Before heading to the dealership for a test drive, most people have accessed the online tools provided by manufacturers, including vehicle specs, available colors, available add-ons and buyer incentives. Armed with that information, potential buyers have been able to narrow down their vehicle choices before leaving home. Ford, like other OEMs, provides many opportunities to research their vehicles online. The archive of online tools, including consumer reports, have been beneficial to the used car buyer. They provide the same data as that of the OEMs, but years after the model is the newest, latest and greatest available. 5 New Players Driving Change The majority of attempts to increase digital retailing initiatives in the auto sector has come from non- traditional players in the industry. Hundreds of startups, covering all aspects of the online buying experience, have forged their way into the space, providing solutions for dealerships looking to future-proof their business. That includes tools for vehicle visualization, F&I technology, software solutions, customer retention systems and more. Virtually every aspect of the car-buying experience has been covered by multiple new companies trying to carve out their own niche in the sector. The same goes for new digital retailing platforms in the automotive sector. Companies like Carvana, CarMax and Vroom have established themselves as significant players in the industry, offering a variety of options for customers looking to make their next vehicle purchase entirely online. The automotive digital retailing world entered 2020 not nearly as robust as other product offerings that people had previously relied on brick-and-mortar stores for. 6 Section 2: 2020 The Year of Digital Acceleration When 2020 began, not even the experts could have predicted the digital acceleration that would occur in the automotive industry. The emergence of the COVID-19 pandemic changed that response in a matter of a few short months. Staying Alive During the Pandemic When the COVID-19 pandemic struck North America and began shutting down businesses as early as March, millions of people were forced out of jobs. Businesses were forced to close their doors for an undetermined amount of time. It left business-owners scrambling, especially those who had not yet embraced digital retailing solutions. Auto dealerships across the country were among those who had to quickly re-focus to save their businesses. Consumers expected to be able to go online to shop for cars, much as they had for other products before the pandemic struck. But, they were left disappointed in most cases, as many local dealerships were ill-prepared on the digital front. “From groceries to home cleaning supplies, consumers are accustomed to using the web to get everything they need without leaving their homes. Due to the rapid increase in online shopping, the industry is scrambling to find solutions to make it easier for consumers to complete 100% of the transaction on the web, without having to visit a dealership. The time to reinvent is now. Traditional thinking no longer works in this dynamically changing marketplace. Now is the time to think different, to completely rethink and reengineer business models and to reinvent retail.” 7 7 The impact that the digital transformation is having on smaller dealerships is already evident. According to a report on digital retailing released by the Advanced Interactive Media Group (AIM Group): “Carvana […] has just 2% share in its first market (Atlanta) after seven years. Its stated ambition is to sell 2 million cars per year in the U.S., i.e. just 5% share. In Atlanta, it’s reported that CarMax (>15% market share in used cars) isn’t losing business to Carvana. Small independent dealers who can’t compete effectively are the dealerships that are being hurt.” Third-party sites have become the greatest online resource used to shop for vehicles. According to Cox Automotive’s 2019 Car Buyer Journey Study, 80% of new and used car buyers visit third-party sites during the purchase process (65% went there first), with dealership sites trailing far behind at 46%, OEM sites at 27% and 27% conducting Google searches. On average, buyers visited 4.2 sites each.8 With a robust digital infrastructure in place, third-party sites are winning the digital-retailing war as dealerships and OEMs scramble to build a competitive online presence.