Car retailing in South Africa as we know it has changed how we buy cars. I don’t have a crystal ball to tell you what’s going to change in the future, but I can tell you what’s not going to exist.
Two important factors that influence us as we buy cars:
- A car is a big asset and the second biggest purchase in a car buyers life.
- Fulfilment has to be done in the car dealership. Besides being the second biggest purchase, the car buyer is unlikely to buy a used car car fully online like a consumer good.
In the future when we buy cars, especially electric vehicles that may last a decade, things may change to a more consumer to consumer retail market but then again safety and crime concerns need to be addressed first.
Car dealerships are going nowhere
The other consideration in my assumption we will buy cars from car dealerships into the future is the complexity of the deal. Many moving parts like finance, insurance, trade in valuation, etc.
Currently, over 70% of South African consumers are over leveraged with most people buying cars on debt. The complexity of the car deal will continue to make the car dealership on the corner a central place of deal making.
However, there’s further complexity inside the deal and that is the rapid depreciation and creative ways in which our banks get people into debt such as balloon payments, causes a situation where the car depreciates faster than the debt comes down. This means that when we buy cars, we are almost always in the red. The car dealership is in this case further entrenched in the car deal as the car buyer is reliant on the dealer to get them out of a negative situation.
In many instances the car buyer has to rely on the “over-allowance” on the trade-in to get the deal done. In this scenario the price of the car the consumer is buying in many instances is inflated to cover for the inflated trade-in, all to cover the debt in the trade-in.
Therefore the banks are now locked into the car dealership and consumer as the bank’s source of revenue is the dealership. The car dealership’s source of revenue is the bank and the consumer. Just this one element of the car deal is an example of the complexity.
The only OEM in the world that has got it right to go direct, is a new entrant – Tesla. Though we are years away from adopting the Tesla model, I still think it’s possible for new cars. The path for OEMs to avoid disruption may be:
- Move from a franchised dealership model,
- to an agency model,
- then direct online purchases from the OEM in an electric car future.
The future of car dealership sales people
At the moment car dealership salespeople perform the role of deal making, besides product knowledge, they’re also selling admin in the deal. The future sales person will be employed to become more of a product specialist as Automotive Digital Retailing and online automation removes much of the operational admin tasks in the deal.
Right now the sales person is not enough of a product specialist because they more trying to structure the deal rather than sell the car – trying to solve the complexity of buying a big asset. This needs to be automated in the future through Automotive Digital Retailing.
We will begin to notice all these changes taking place when automotive digital retailing takes effect on the internal deal-making processes making the sales person inside the dealership a product specialist. Then, when we buy cars, we can go to the car dealership for the reason we got into buying the car in the first place i.e. to understand the car and not understand the deal. Most of the car buying pain would have been solved digitally from making my application for finance to getting insurance on the internet, to document signing.
When do customers visit the car dealership?
In the research online purchase offline world. But consumer behaviour is shifting in the consumer goods world to:
- Research offline anonymously, touch, feel and experience the product in the real world.
- Research online
- Purchase online
I could see this working in car retailing in the immediate future:
- Research offline – the car buyer goes to the car dealership/s and experiences the product anonymously
- Research online – more online research is conducted to answer questions the car buyer has
- Purchase offline – the car buyer finds the car online and goes to the dealership to fulfil
But traditionally it’s been research online and purchase offline. They make their shortlist and then go to the dealer right at the end when they’ve made the decision.
Automotive Digital Retailing that re-engineers the car dealerships back-end as well as front end could capture the attention and identity of the consumer early on in this journey.
Are car manufacturers, OEMs, and car dealerships ready?
I think the car retail industry has not been disrupted by digital automation or the internet yet. While the internet has disrupted the “advertising” and “brand building” world of car dealerships and car retail, automation of internal processes, digitising deal making and many other things both in dealership and online have not yet been addressed by en-large.
AutoTrader was a magazine business up to about 2008/2009. Facebook started in 2008 and we saw internet disruption in the future and it took us almost 10 years to become a fully digital business.
The only thing we did when we realised disruption was headed our way, was we made changes as we went along. It wasn’t an event, it was an evolution. We knew what the path and the target was – we wanted to close the magazine. We wanted to become an internet business.
The last two years in the automotive industry has been an eyeopener for me as I’m sure most of the car manufacturers and car dealerships have also experienced. OEMs have begun paying more attention to the changes happening around then which I think Tesla highlighted through their direct model, causing a lot of car manufacturers to rethink the future of car retail as well as electric vehicles.
Are virtual car dealerships a reality?
I think its a little too early for them. The examples like Carvana are no bigger than any dealer group in America but they’re growing. The one thing on the side of Carvana is the technology and digital adoption of the retail industry at scale in America. South Africa isn’t there yet.
Currently, there aren’t any signs of that kind of business model becoming the prevalent business model in South Africa for all of the reasons we spoke about the deal and the mechanics around the deal as well as digital technologies, systems automation and integration. Many talk a good game but behind the scenes manual processes, use of email and call centres are still the norm.
Building out a digital business is hard for car dealerships because by definition they are not tech businesses. They are car retail businesses. This creates opportunities for what I call “tech plug in businesses”.
So, should car retailers be thinking about virtual dealership right now, is it too early? We know what happens to those that are too early; ask Napster, My Space and Blackberry. This question will be answered over time.
Car dealerships, the way I see it, will become fulfilment or product specialist centres as opposed to deal making showrooms meaning we won’t have the Taj Mahal buildings anymore. The bricks and mortar showrooms may turn into a niche “coffee shops” for consumers that create an experience around the product they are there to buy and the dealership brand.
Use the internet in car retailing
Even though there are 26 touch points that car buying consumers engage with, it still feels like car manufacturers and car dealerships are not taking advantage of these to attract car buying consumers’ attention efficiently. OEMs are still in the world of traditional “above-the-line adverts”, TV, billboards, etc. Trouble is, TV and Radio are way too expensive in the face of the internet. Advertisers are also trying to “retail” on TV instead of only brand build.
Therein lies the achilles heel – trying to retail on TV means the competitive advantage is price reduction and you’ll be driven to have the lowest price. And when you have to be the lowest price, everyone races to the bottom. So the thing that missing in this formula, are marketing efforts, not advertising efforts, solve consumer’s problems, don’t try sell.
AutoTrader has done a brilliant job of capturing the attention of the in market car shopper. We have focused on the very bottom of the funnel for over 10 years in our marketing efforts. Nobody does it better, not TV, not Radio. Therefore, build a brand on these platforms to tie in to retail adverts on AutoTrader.
That being said, building a brand on the internet is as possible as building a brand on TV and Radio, just cheaper and more targeted. The only thing that changes is the creative, length of the “ad”. Test and learning on the internet becomes much cheaper than traditional spray and pray channels.
Everyone will end up losing if all we market is price discounts in retail messages. It will become a price race to the bottom.
I would encourage you all to become marketing companies that sell cars and not dealerships or OEMs that have to market to sell cars – there’s a subtle difference.