Understanding that retail automotive Dealers are operating in an increasingly disrupted environment, McKinsey spent five years working with US Dealer groups, individual dealerships, and OEMs to study the impact of disruptions on automotive retail and the traditional Dealer model, resulting in a report it released in January 2019, detailing its perspective on the space and its likely evolution.
Disruption meant Dealers were forced to review their own operating model, identify and unlock operational efficiencies, and discover new ways to operate in a digital, omnichannel environment.
According to McKinsey, third-party digital channels for research (carsales, Autotrader, CarGurus, Cars.com, and TrueCar) and digital vehicle purchases (Carvana, Shift, and Vroom) are increasing vehicle pricing transparency and enabling consumers to make product comparisons easier, thus limiting the ability of Dealers to capture margin on the vehicle and to influence customers’ buying behaviour.
“Likewise, used-car retailing is also digitising rapidly as disruptive new entrants (such as Carvana, Roadster, Shift, and Vroom) launch price-competitive business models that simplify the buying and selling experience for consumers,” the report says.
“Four automotive industry megatrends—autonomy, connectivity, electrification, and shared mobility (ACES)—will reshape the overall automotive ecosystem. At the same time, the digitisation of the customer experience and dealership franchise dynamics will cause changes to automotive distribution in the short to midterm. Influenced by evolving consumer expectations, these trends will occur in parallel and mutually reinforce one another.
“Automotive retailing’s continued digitisation and the growing importance of omnichannel marketing will put further pressure on margins. For example, we estimate the new car purchase journeys will shift to 10–25 per cent digital from 0 per cent today, with used cars increasing to 25–50 per cent digital from around 6 per cent today. Used-vehicle profits could suffer due to greater price transparency and vehicle availability across markets. However, these innovations could offer better ways to serve customers and extract more lifetime value via tailored F&I offerings or the up-sale of parts-and-service contracts during vehicle negotiations.”
McKinsey predicted that disruptive, more ‘nimble’ high-tech companies would introduce new business models quickly, further reinforcing disruptions in the automotive ecosystem.
“These disruptions will put additional pressure on industry earnings over the coming decade. For instance, in a ‘do nothing’ situation, dealerships could see their total operating profit as a percentage of total gross earnings decrease to –0.3 per cent due to shrinking traditional franchise dealership profit pools,” the report says.
“It makes sense to improve the in-store customer experience as rapidly as possible, introducing digitisation, making online and offline changes possible throughout the purchasing journey (a true omnichannel experience), and enabling flexible test-drive plans and other innovations.
“Potential midterm goals could include offering a seamless, digitised experience along the entire vehicle purchase and ownership experience to create stickiness and link shoppers to the dealership. Moving from a view based on vehicle or vehicle identification number to a customer-based view for marketing and creating more personalised customer outreach will further help dealerships grow share of wallet.”
The report found that Dealers who took an aggressive stance on operational efficiencies and redesign in-dealership operations to cater to a more digitised customer base often captured greater sales volumes and profitability (for example, capturing larger share in or beyond territory, up to 300 basis points higher return on sales than comparable dealers).
Examples of such approaches include:
- Extensive training regarding the management of digital leads. This includes the introduction of lead scoring, response-time optimisation (with best in class measured at less than ten minutes with a tailored, personalised response), and after-hours touch points.
- Rigorous, data-driven performance dialogues with sales consultants and managers. While this approach is often considered basic, many dealers miss opportunities to identify the specific problems of individual sales consultants by sales-funnel stage and lack targeted one-on-one coaching and training.
- Integration of the sales-manager and finance-manager roles and sales-consultant upskilling to manage more of the process. This will reduce head count, creating a more seamless customer experience with fewer handovers and ultimately resulting in a shorter overall sales process. Dealers that have implemented this approach successfully have maintained F&I attachment rates and front-end or back-end gross margins while reducing head count and process times, improving customer satisfaction, and increasing sales conversion.
- Digitisation of the in-dealership process. For example, this can be done with virtual trade-in appraisal, scanning of customer ID upon arrival for easy document preparation, and use of external data to create a more comprehensive view of customers. The dealership should put all available customer data at the fingertips of the sales consultants, including prior transactions and service histories, insights into sociodemographic elements, and so on, to enable a highly customised sales interaction. It also means using Dealer and third-party data to reach out proactively to customers with the right marketing offer at the right time.
The McKinsey report concluded that with the entry of new digital disruptors, customer expectations are rapidly changing.
“Dealers can no longer simply post their inventory online and hope for the best. Instead, they need to build the capabilities required to engage customers both online and offline via an omnichannel strategy. They must fine-tune their e-commerce solutions and enable customers to dig deeply into the offering online before coming into the dealership. Dealers should also think about their marketing spending efficiency including not just lead count but also lead quality, conversion, and customer insights provided by third parties. As the digital universe expands with online retailers and software offerings from established and newer players, dealers need to approach partnerships strategically to strengthen their digital presence and their omnichannel purchase path.”
Another report, prepared in 2018 by EY, titled Automotive retail 2030: Evolution of dealerships and potential new roles in retail, said that digitalisation is the prime driver of change in the vehicle distribution industry, impacting everything from customer acquisition and vehicle delivery to aftersales.
“From point of sale via digital tools (3-D screens, media walls, virtual and augmented reality, etc.) to customer data analytics, remote servicing and predictive maintenance — the way vehicles are purchased, distributed and serviced is changing dramatically,” the report states.
“Online presence is increasingly becoming critical to attract first-time customers. However, it continues to be a blind spot for traditional Dealers as most of them do not intend to increase online presence. Whereas, select OEMs, captives and brokers are offering sophisticated portals capable of performing entire customer journeys online.
“Dealers need to actively increase their online presence and optimise their efforts on traditional marketing channels. Digitalisation has reduced the need to contact the Dealer in the first instance. Customers are able to quickly interact and easily access information across media and devices. Over time, the average number of customer visits to dealers before buying a car has dropped considerably, as most customers now visit the dealership only to close the vehicle purchase.”
The EY study found that 70% of new car buyers said they intended to buy from the Dealer they first visit, while four out of five customers buy from the first salesperson they come into contact with (in-person, online or on-call).
“Sales representatives hold prominence for not only closing sales with willing customers but also persuading unwilling customers. As per our survey, lack of social skills in a salesperson is the biggest barrier to successful sales, followed by brand image and price. While visiting a dealership, customers consider service orientation and expertise of the salesperson as most critical,” the report writers noted.
“While some of the OEMs, captives, brokers or special concept companies are excelling at the online purchase journey, Dealers have not aligned resources in this direction yet. Today’s technology permits implementing the entire customer journey online, offering a faster and easier buying process while also enhancing trust and quality.”
EY found the following “first-class features” shared by leading online vehicle sales portals:
- Information phase: enhances the customer experience with digital tools to help select a product based on select requirements while providing product and sales process information via different channels such as videos, chats and texts
- Consideration phase: provides the customer an interactive 3-D view, 360-degree videos and a virtual reality experience; allows comparison of vehicle financing products and booking test drives, including “bring” services
- Purchase phase: provides flexibility and access to reserve a vehicle online (without any charges or with short-term online credit), allows for virtual documentation with e-signature, provides preferred mode of car delivery with real-time status.
Last year, digital business transformation company Publicis Sapient published a report, titled The Automotive Sales Model of the Future.
It concluded that an increasing focus on the customer was an “undeniable turn of events” in the evolution of the automotive landscape.
“Customer behaviour now stands at the centre of the transportation and mobility web influencing everything from design, engineering and innovation to relationships between original equipment manufacturers (OEMs), national sales companies (NSCs) and dealers,” their report states.
“The race is on as players across the automotive industry are striving (in some cases, scrambling) to incite long-term customer loyalty and value via more accessible, convenient, personalised and rich experiences.
“Leaders need to drive human-centric transformation, both internally and externally. Technology is not the sole driver of transformation. In fact, it should only exist to empower and enable those that are: one’s employees and customers. The understanding of these two cohorts is where every initiative should begin, thereby ensuring that whatever is designed and built is done with employees in mind and in customer-centric ways.”
According to Publicis Sapient, those looking to accurately serve existing and new customers must make better connections in order to inform, engage and wow the customer of the future.
“The loosely connected online and offline touch points that hinder today’s customer journey stand to transform into the seamless, consistent and multi-channel experiences that future generations of customers cannot live without,” the report says. “And, one-size-fits-all interactions are giving way to more personalised and relevant ones than ever before.”
The key to success will be combing new technologies and existing systems in a way that delivers a cohesive, enhanced customer experience, across departments.