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How digital disruptors are changing the automotive industry

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It could be argued that the automotive is currently facing the biggest period of change it has seen since Henry Ford created the production line. All major automotive companies, as well as many technology companies, are piling investments into autonomous driving.

Whilst fully driverless cars are still a little way off (2020 seems to be the year when we will start to see them become mainstream), there are some major digital disruptors who are changing the way we buy new cars right now. For many years, dealerships have mainly been franchises affiliated with one or two brands, in out of town locations, often on an industrial estate filled with many other car dealerships.

As a prospective car buyer we would historically visit these dealerships, maybe more than once, book a test drive with a salesperson, spend a lot of time discussing options, haggle, organize finances, negotiate on a trade-in value, and then finally purchase. This is a very time-consuming, and sometimes daunting process, and we are generally restricted to a specific geographical location. Many of us will have stood in a dealership on a Saturday morning waiting for a dealer to become free and give us some attention. You are likely to have your eye on only one or two brands and will visit those specific dealerships rather than browsing through all of them on offer.

Two particular companies are changing this model drastically and have the potential to completely change the way we buy new cars.

Carwow

Carwow is a simple, but very effective idea. As a prospective buyer of a new car, you visit the Carwow website and input details of your desired car. The website then emails your requirements to dealers who have registered with them. The dealers respond with an offer of a price for that car, while the site only displays the first 5 offers so that shoppers aren’t overwhelmed with options.

Through the site customers can communicate with the dealers, view their ratings and reviews, and even negotiate with the dealer further to get a lower price. The offers cover all purchasing options, including cash and finance, and most of the dealers deliver your car to you for free.

The very simple Carwow concept offers a radical way to purchase a new car. Why be restricted by geographical location when most of the dealers will deliver for free? Does it really matter where your car is coming from? Why play the negotiating game with one or two dealers when you can let a large number of dealers compete with one another for your business? Ultimately, you are likely to pay less for a new car when buying through Carwow than if you buy from a dealer in person, and it can be a lot less hassle.

This model has the potential to completely change the way a dealership operates. You may be surprised to hear that a dealer’s typical gross profit on a new car sale is around 10%. When you then factor in the high overheads of having a physical dealership, the net profit is reduced to around 1-2%. You can now imagine a scenario where a dealer may be entirely digital and not actually have a physical presence. This would allow them to significantly lower their overheads and be even more competitive on price.

As you can imagine, this has not gone down all that well with some automotive brands, as it can eat into margins. In 2016 Carwow reported BMW to the Competition Markets Authority (CMA), claiming that BMW was preventing dealers from selling through Carwow. After an investigation by the CMA, BMW made a u-turn and allowed their dealers to participate.

Today’s consumers are much more tech-savvy and are likely to have significantly researched their car purchase online before visiting any dealer. In recent years, most car manufacturers have simplified their offerings where most options are bundled into packages rather than requiring the purchaser to choose from a long list of extras. Car brands have been investing in their websites; creating slick user experiences and usable configurators.

All of this has meant that the consumer’s reliance on face to face contact with a physical dealer has become less and less, which makes a service like Carwow more viable than ever before. We are all used to self-service on the web, whether it is managing our own finances to booking a flight or a holiday. Why can’t it be the same for a car?

Of course, you will still want to test drive the car. I doubt many of us would buy a new car without test driving it, and this is where we are constrained by a geographical location and are likely to go to a local dealer. However, if you use Carwow, you are less likely to actually buy it from them. Maybe in the future, dealerships will primarily be test drive and service centers, rather than focusing on actually selling new cars. After all, current dealers make most of their money on extras, finance and servicing.

It will be interesting to watch what impact Carwow, and any other imitators, will have on the automotive industry in the next few years.

Rockar

Rockar is an omni-channel car dealer based online and currently within stores in 2 shopping centers in the UK: Bluewater and Westfield Stratford City. Yes, you read that correctly: shopping centers. They originally partnered with Hyundai, but recently partnered with Jaguar Land Rover, with the new Rockar Jaguar store opening in October 2016. Rockar aims to completely change the way we shop for and purchase new cars. Rockar was set up by Simon Dixon, a veteran of the car industry, a few years ago. Rockar’s aim is to build a business model that is entirely focused on the customer buying experience, rather than the traditional car sales model and brings the buying experience into the digital age.

The Hyundai Rockar website is more akin to a car hire website or traditional e-commerce site, rather than a traditional car dealer’s. As well as finding the right car, users can book a test drive or book their service through the website. Buyers can buy outright or arrange finance all online in simple and easy steps.

Since Rockar was created as an omni-channel business right from the start, the website experience is carried through into the physical stores. In a Rockar store, you will find a small number of models, as well as lots of touch-screen kiosks, which effectively run a version of the website. They have an office base in the shopping centre car park where you can pick up your car for a test drive. The store does not have the usual salesmen that you would expect to see in a traditional car dealership. Instead, they have people that they call Rockar Angels. The aim of these staff is not to sell or make a deal, but to advise the customers on the cars. 

This model works especially well for a brand like Hyundai. It is fair to say that South Korean brands such as Hyundai or Kia have not had the best reputation for quality or luxury in the past. Over the last few years, both of these brands have significantly improved their quality, especially inside the cabin, to the extent that they are certainly rivaling Japanese brands, and even knocking on the doors of German brands.

However, the legacy of the perception of poor quality still persists, and many of us would not normally consider buying from one of these brands. Therefore, in the traditional model, we would not normally visit one of their dealerships. This is where Rockar changes things. By placing an inviting looking showroom in a shopping center like Bluewater or Westfield, they draw in customers who would not normally visit an out of town Hyundai dealership.

Once this customer is drawn in, they realize that these cars are actually really quite nice. The quality and finish is nothing like they imagined. The staff are very inclusive and welcoming, and the buying experience is a pleasant one. This is known as a conquest sale, and it is making other car brands very nervous. They are losing sales to brands like Hyundai, and I suspect we will soon see more automotive brands in shopping centers very soon.

The future

Over the next few years, I expect to see other major disruptors enter the UK automotive market. Once fully autonomous cars become mainstream, we are likely to see a major shift in many consumer’s perception of cars. Imagine being able to hail an autonomous car whenever you want to take you wherever you want to go. Why would you own a car yourself? Would you really care about the brand of car?

Maybe we will see Google, Samsung, or Apple begin to dominate the market. During your journey, your car would be gathering data on traffic conditions, air quality, and the weather. This data could be be valuable and be sold to subsidize the cost of your journey. You could even be sold premium services on your journey such as movies, news, food or drinks which will further subsidize the journey to the extent that the journey itself is actually free. The decade ahead is going to be a very interesting and exciting one for the automotive industry.

Branwell Moffat
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21 shares
July 17, 2017
Branwell Moffat

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