Are Digital Auto Sales The Shape Of The Future Or Just A Temporary Detour?

As the global pandemic closed U.S. businesses nationwide, car dealerships found themselves facing a crisis because consumers could no longer stop by the showroom for a quick test drive. That’s driven dealers and automakers to rewrite their business strategies with an eye toward creating new digital-sales tools that offer consumers more personalized, online services.

“For digital, this whole disruptive period with corona is an inflection point from which there’s no turning back,” Mike Jackson, chairman and CEO of No. 1 U.S. car retailer AutoNation, told investors during the chain’s recent earnings call.

Jackson said the pandemic accelerated changes that were already starting to appear in the industry, which had been one of the most resistant to digital disruption due to concerns that going online could disrupt profitable showroom operations. But closed showrooms obviously aren’t profitable, so dealers needed digital strategies to lure potential buyers in.

“I think the bar has now been raised for any company that wants to perform in this marketplace,” Jackson told investors. “You need first-class digital capability. You need a safe environment for your customers and a safe environment for your associates. That is the holy grail going forward.”

David Smith, CEO of Sonic Automotive — America’s fifth-largest auto-dealer chain — recently told CNBC many of his customers start the shopping process online with price and vehicle research. By the time they get to the dealership, they’re often just confirming they like a car via a test drive, he said.

But Bloomberg recently reported that traffic to dealerships is returning as businesses reopen, defying predictions that many car sales would permanently shift online.

California dealer Mike Sullivan told Bloomberg that while he saw a positive response to his eCommerce push during the pandemic, consumers are more or less coming back now that he’s reopened.

“The people that [bought online] thoroughly enjoyed it, but right after that, they went to the old way of doing business,” Sullivan said. “We’re going continue [pushing online sales] and I want to do it, but after the last week of April the story got watered down.”

So, were digital car sales just a short detour for the auto business? Do Americans like going to car dealerships more than they let on?

“It’s a slight evolution, not a revolution,” Kevin Tynan, an analyst for Bloomberg Intelligence noted. “What the crisis did was force dealership groups to improve the process.”

However, Americans’ poor views of car dealerships hasn’t changed. A recent Gallup poll found that only 9 percent of Americans rated car salespeople as honest and ethical. That’s dead last among 22 professions that Gallup asked about, ranking even lower than insurance salespeople and members of Congress.

CEO Ernie Garcia of online used car giant Carvana told Bloomberg he believes the pandemic will ultimately push a lot of potential car buyers to eCommerce. “When you have a moment like this where all of the sudden everyone is focused on this virus, customer behavior changes dramatically,” Garcia said. “A change that would have taken 10 or 15 years can happen in a couple of years.”

That would have played to Carvana’s advantage in the past as the main digital game in town —but in a post-pandemic world, the company is facing much more competition from traditional dealers.

Some 81 percent of franchised dealerships had a digital-buying option in place as of May 31 vs. just 66 percent as of early April, according to a Cox Automotive survey quoted by Bloomberg. The news service noted that many are also adding options for online scheduling of car servicing, which often generates more revenue for dealers than auto sales do.

The question now is whether dealers will keep their digital services in high gear now that coronavirus-related shutdowns are coming to an end. Cox Automotive found that only half of franchised dealers plan to do so, citing a lack of sufficient consumer interest.

But car dealer Mike Sullivan, whose 12 Los Angeles area dealerships are now fully digitally enabled, plans to keep such efforts going — not to replace to his showrooms, but to augment them. “I would consider doing a hybrid model — clean, simple, quick,” he told Bloomberg.