– Consumers want to switch between online and physical touchpoints: A recent What Car? study showed just 4.2% of buyers are planning to buy a car with a fully online sales experience, representing a dip since pandemic highs of 9.7%.
– A mixed picture for online marketplaces includes cost cutting as second-hand car demand softens, newer OEM-owned entrants, and growing auto parts marketplaces.
– Car subscription services continue to be refined, for the vehicles themselves and associated digital services, and represent a revenue opportunity.
The automotive sector has been through a challenging period, with supply chain shortages and rising inflation impacting sales of new and used cars. New car sales in the UK fell to their lowest level in 30 years last year according to the Society of Motor Manufacturers and Traders.
Following problems with supply, 2023 is predicted to see demand falling due to ongoing high interest rate levels. And for ecommerce specifically, Gartner suggested in February that “2023 will be a deceptive year for automotive online sales,” as lingering volatility leads automakers to put the brakes on digital retail investments. However, Gartner also suggests that the economic crisis presents an opportunity for automotive brands to sharpen their online capabilities, to ultimately reduce costs in the long-term and to gain market share.
So what does the picture look like for digital’s role in the purchase journey?
Online-only sales growth slows post-pandemic
The number of consumers looking to buy cars via an online-only sales journey has fallen in the past few months. According to a study by What Car?, just 4.2% of buyers are currently planning to buy a car without any physical element to their sales experience – down from 9.7% in June 2022.
As reported by Car Dealer, Auto Trader COO Catherine Faiers has seen this trend play out. Speaking at Car Dealer Live, Faiers said, “We did see significant growth during the pandemic, but that growth rate has slowed and stabilised in the last few months.”
However, Faiers also said that more customers are coming to the forecourt having already completed part of their journey online.
“Many of those consumers were highly informed and they were ready to buy, so they had spent a lot of time doing their research and narrowing down to a specific vehicle, understanding the finance options, and had been fully ready to buy by the time they arrived on the forecourt.”
Indeed, while most consumers still want to buy cars in person, research suggests that there is a growing acceptance of digital and omnichannel elements in automotive retail. This mirrors consumer behaviour across retail as a whole, with ecommerce sales plateauing over the past 12 months, while high street stores have recently seen positive growth.
A McKinsey survey of 4,000 European customers found that 3% of customers say they currently purchase vehicles fully online, a figure not dissimilar to the findings in the What Car? survey. However, McKinsey found that 29% of customers indicate that they want to buy their next car fully online, while a further 23% would like to order online but require physical touchpoints along the way. The difference between the desire to buy online and actually doing so is important to note, of course, as is the fact that nearly 90% of consumers still say they want to experience the car before they buy it.
One company facilitating omnichannel for automotive manufacturers is Drivvn, which provides a digital retail platform and works with a number of OEMs. According to the company, Drivvn saw its sales increase by 21% to reach £709 million in 2022, and expects to achieve sales worth £1bn this year. Commenting on the company’s recent growth, chief executive Peter Brown highlights the growing demand for omnichannel journeys: “It’s essential that consumers can switch their journey between the online store and physical dealership as easily as possible,” he said. “Customers gain from enhanced personalisation and a smooth transition from a website to a showroom.”
A mixed picture for marketplaces, with growth in auto parts
The Covid-19 pandemic led to a surge in used car sales, benefiting digital dealerships and online car marketplaces like Carvana and Cazoo. However, as many marketplaces seek profitability they are having to focus on cost-cutting as consumer demand has softened.
Some commentators have questioned the long-term viability of the online-only car market due to consumer demand for in-person elements in the purchase journey such as test drives and fulfilment from forecourts. Furthermore, the cost-saving from not having brick-and-mortar locations is balanced with high marketing investment by pureplays and low margins on used cars.
AIM’s ‘2022 Automotive Marketplaces Report‘ suggests that a growing number of marketplaces owned by auto manufacturers could threaten third-party online marketplaces like Auto Trader. AIM cites SpotiCar, which is owned by Stellantis and operates in 11 countries, as one example, and CarBravo, a nascent site owned and operated by General Motors as another.
But while consumers continue to look for a hybrid experience, online and off-, when buying cars, one area of automotive ecommerce that is generating growth is auto parts. Online revenue for automotive parts is predicted to reach $67 billion by 2030, while the overall global automotive aftermarket industry size is expected to reach $559.9 billion by 2030.
A16z’s ‘Marketplace 100’ list – which ranks global marketplaces based on estimated annual gross merchandise volume (or GMV) – saw an increase of 50% in the automotive category over the last year. Out of the six automotive marketplaces named in the list for 2023, the three that are new to the list – RockAuto (ranked number 7), PartsGeek (number 26), and CarID (number 27) – all sell car parts and accessories.
More consumers are looking to repair their existing vehicles rather than buying new. Indeed, automotive sales in the US in 2022 were the lowest in nearly a decade.
Another company benefitting from this trend is Genuine Parts Co, which reported a fourth-quarter FY22 sales growth of 15% year-on-year to reach $5.52 billion. In Q1 2022, the company also reported that its online sales channel had seen nearly a 50% increase since 2021, with double-digital growth in auto parts sales to commercial customers.
Unsurprisingly, Amazon is also keen to increase market share in auto parts, recently launching a new OEM Automotive Parts Shop, which builds on its Amazon Garage offering to connect consumers to automakers and local dealership parts departments.
Speaking to Car and Driver, Ernie Linsay, Amazon’s director of automotive stated: “Since 2020, we’ve seen an average 20% increase annually in the number of vehicles U.S. customers have saved in the Amazon Garage, showing a clear customer interest in shopping for parts and accessories for their vehicles similar to the way they shop for other consumer products.”
Vehicle and software subscriptions are on the rise, as automotive brands find new revenue streams
While car subscriptions have been around for a while, recent economic pressures and the rising cost of living has spurred on interest in the model, which can enable consumers to access cars without committing to long-term finance agreements. According to McKinsey’s survey, 33% of respondents are now open to trying a vehicle subscription in the future.
This interest is being reflected in renewed investment from automotive brands. Jaguar Land Rover launched its ‘Own. Subscribe. Rent’ program in 2022, enabling consumers to choose between three ways of experiencing its vehicles. Elsewhere, Volvo has reintroduced its ‘Care by Volvo’ subscription program to the state of California, which is says is “a response to consumers’ increasing desire for simplicity and flexibility when it comes to ownership, whether it’s a mobile device, streaming channels, or a car.” The subscription plan – which has been around in the UK since 2020 – delivered 2,500 cars to customers in its first year, accounting for 15% of all its UK retail sales during this period.
As well as automotive brands building their own in-house subscription services, third-party providers like Wagonex are also gaining traction. Wagonex – a platform that enables vehicle suppliers to offer subscription options direct to consumers – has seen a 120% year-on-year growth rate of its consumer-facing subscription offer.
In an interview with Fleetworld, CEO Toby Kernon predicted that car subscriptions will become a mainstream automotive product in future. “The pressure is on for car manufacturers and dealers to diversify, competition is fierce and only those willing to change are going to excel,” he said. “Jumping into subscription using an easy off-the-shelf product that dealers and manufacturers can use to diversify their revenue streams, is one way they can do that quickly and easily.”
As well as the vehicles themselves, automotive brands are also recognising the opportunities afforded by technology, with some also selling connected car software as subscriptions. This is arguably relevant to the online/offline purchase discussion because as more and more vehicles (including EVs) are connected products, consumers interact regularly with their vehicle via their phone, whether to unlock it, check charge levels, or book a service, and consequently are accustomed to a hybrid automotive experience.
GM’s OnStar plans range from basic remote access and location via smartphone to a premium plan that includes features such as unlimited streaming via WiFi, automatic crash response and stolen vehicle assistance.
Naturally, many consumers are sceptical about subscriptions to software – a Cox Automotive survey found that just 25% of consumers would be willing to pay for subscription-based features for their vehicle. And just last year, BMW was criticised for its decision to sell $18-a-month subscriptions to heated seats in a number of countries, with consumers stating that the features should come as standard. There are also concerns that advanced driver safety systems (ADAS), could also become part of automotive subscription models, potentially impacting the percentage of drivers using the technology.
However, with automotive brands increasingly looking for new revenue streams, it is likely that we will see more investment in this area. As such, and with cars more expensive than ever, automotive brands need to ensure they are offering real value from subscription-based products.