Coronavirus is Killing Retail, so how will Car Companies Adapt?

The Coronavirus has forced us to rethink our approach to all facets of our lives, including retail.

We've witnessed unprecedented responses in the car industry to COVID-19 aka the Coronavirus disease. Advertising messaging has changed from sales oriented to humanizing brands with empathy and support during these difficult times.

GM for example is offering flexible payment arrangements for existing customers, while prospective buyers are being offered interest-free financing for a mind-boggling 84 months.

They aren't the only ones.

To date, fifteen automotive manufacturers are offering some form of financial relief related to the Coronavirus.

In states whose car dealerships remain open, these tactics sound enticing in ensuring consumers continue to buy new vehicles. With the introduction of experiences that don't require contact, has the auto industry changed the way we shop for vehicles forever?

The Transition to e-Commerce

According to Wolf Street, e-commerce sales jumped over 16% YoY 2019 to over $187 billion, reaching $602 billion for the year.

At a seasonally adjusted rate, that translates to $155.4 billion in 2019, accounting for 11.4% of total retail sales.

You might say, "11% isn't doom and gloom, right?"

Wrong.

Of the remaining 89% of total retail sales, 55% can be attributed to gas stations, auto dealers, and groceries.

If e-commerce is the predominant way we shop, why is it that auto companies have resisted the chance to jump on the trend?

Most automotive manufacturers and dealers use their websites as a marketing and sales generation channel to drive car shoppers to showrooms where buyers completes their purchase.

But these days, consumers want more ecommerce options. According to a 2019 Digital Commerce 360 Online Vehicle Shopper 2019 Survey of 1,089 consumers, 49% of consumers already are willing to purchase a new vehicle entirely online.

Being The Exception to the Rule

In China, Geely has taken protecting its customers to a new level:

• Every new Geely vehicle will be disinfected, with keys delivered by drone for a complete, no-contact buying experience.
• Their latest SUV, the Icon, comes with an N95-rated filtration system.
• Over the last month, Geely has sold 10,000 vehicles online via their purchasing system.

This may not feel like a significant number, considering the population of China. Geely achieved its highest-ever November sales with 143,234 new cars sold in total, a monthly increase of around 10%. The Coronavirus is a threat to all automotive manufacturers and as Geely stays committed to e-commerce, online sales will grow with sales volume.

Barriers in the U.S. Market

Even before the pandemic, there have been signs that automotive franchise laws were beginning to show signs of changing. In January, Tesla won the right to sell and service cars in Michigan. There are 20 states that allow for the direct sale of vehicles to customers. This could pave the way for other auto manufacturers to set up direct sales models. Rivian, for example, taking significant investment from Amazon (and Ford Motor Company), could experiment like Tesla, in offering direct selling to consumers online.

To quote a 2015 article from Car and Driver:

"The idea behind the franchise -system is that third-party businesses can service customers better by fostering competition. A dealer who is independent of the automaker would, in theory, assure a broad inventory, provide competent repairs, and be an upstanding member of the local community, treating neighbors fairly and perhaps sponsoring beer-league softball or a kids’ soccer team. And customers can comparison-shop Chevy dealers easier than if they are taking on Chevrolet itself."

In 2020, consumers spend an exponential amount of time researching their purchases prior to walking into a dealership. Ten years ago, you would on average cross-shop four dealerships. Today that number is cut in half. Consumers have access to so much data, their greatest request is speed of completing a purchase.

Conclusions: What Happens Next?

I don't believe we'll ever go back to being normal. The introduction of actions such as "social distancing" and the looming threat of another global pandemic has driven us to behave differently. Working from home is the expectation and consumers are adjusting to the work-life balance of doing so. We may eventually revert back to open desk seating, kid soccer games, and hugging friends and neighbors but it's going to take a while to overcome the psychological effects of what we've all experienced these past few weeks.

Meanwhile, we've all felt the anxiety of attempting to find our basic needs fulfilled. Jim Cramer opined we may be left with three retailers when this is all said and done. Amazon, Walmart and Costco are thriving on a surge in demand from consumers who need the essentials to run their homes.

Getting deals done on a handshake are probably gone. For decades now, the auto industry has inched away from loyalty and retention in exchange for transactional 24 month leases. There are fewer dealerships that communities are built around and with the price of car ownership increasing, the number of families who can afford to purchase a new car is falling as well.

I can see a day where the dealership model transitions to service and maintenance with virtual product specialists guiding you through your purchase. With the coming wave of EV's and fewer parts to fix, maybe buying a car with your Prime account isn't so far fetched? 

I believe in the value of the dealership. I believe in the test drive and connecting with a sales associate who can take me through the unique features of a vehicle I may not know about or understand. Dealers need to adapt. They need to invest in training of their staff, especially as technology in vehicles becomes more complex and consumers are walking into their dealerships armed with a tremendous amount of information that may rival their own.

The post-sale matters, and if dealerships can crack the code, become knowledge hubs, keep consumers aware of trends and new features, they have an opportunity to remain as the foundational component to the auto buying process.