Market Insight: Auto sector e-commerce shift

VOLVO Cars CEO and president Jim Rowan has told Australian journalists that online and traditional sales models must exist side-by-side – at least in the short-term – to guarantee profitability.

Globally, Volvo currently sells 10 per cent of its new cars online – double the worldwide average, based on 2022 figures – and hopes to move the share to 50 per cent by 2025.

A recent report conducted by Deloitte suggests structural change to the way new cars are sold is pivotal in ensuring the profitability of a growing number of manufacturers, particularly in the electric vehicle space.

Sitting in a traditional brick-and-mortar dealership in Melbourne’s dock precinct, Mr Rowan said the influence of Volvo’s online shopping tool on dealership models – agency or otherwise – was not to be underestimated, but that different markets react to the shift online with varied levels of acceptance.

“For me, it’s not an either-or (proposition). There’s a synergy here. We have over 2000 dealerships across the world, and we have a strong relationship with those dealers. Some of the start-ups, especially the electric start-ups, do not have that model,” he explained.

“At some point in time, they’re going to need to have a way in which they can service their customers. They’re going to need a way in which they can service and engage with their customers properly, and we’ve already got that – and we want to keep that and we want to develop that.

“The only thing that changes is that we need to be part of the conversation. We need to understand our customers, what drives those customers, and we shouldn’t have to rely on the dealership to be a conduit to those customers. The customers can talk to the dealers, and they can talk to us.

“In fact, it’s pretty symbiotic if you look at it in that sense, because we can provide information that the dealership can’t on new cars and new technologies which are coming along, and I think that’s healthy for us, and for the dealership as well.

“But the big thing is how do you move to online direct sales. I really don’t care if someone comes in (to a dealership) because our customers in this day and age expect an omnichannel experience. We would be arrogant to think that we are the only company in the world that would want to stop that.

“Some customers will want to research online and will be very comfortable buying online, especially the younger demographic. Other customers will want to research online and come to the dealership – they’ll want to take a test drive and engage with the dealer. And that’s great. I don’t care – as long as they buy a Volvo.”

But Mr Rowan admitted that the impact of newer competitors on the traditional dealership are more relevant now than they ever have been. To stay competitive against a growing number of EV rivals, he said it was imperative that costs were reduced wherever possible.

“You have got to take cost out of the system. You can’t expect the dealership to cover all the same costs they’re covering and take lesser margins. The secret is you have either got to remove this, and do less, or you have to drive the marketing that gets the footfall to come to your dealership in the first place.

“But we have to do that more effectively. Sometimes the dealerships are doing their own marketing as well. And we have to pool our resources to make sure we’re getting the best value for the dollar on that – because it’s changing.

“The market has changed, especially when you’re looking for a younger demographic. The way in which digital marketing is done now … we need to know the channels that Gen Z is interested in, because they’re coming into the car-buying market right now.

“Even though they don’t own the buy box right now, they influence the buy box heavily, right now. They understand sustainability, they understand authentic companies … and so we need to engage, from a marketing perspective, on those channels.

“We need to understand where those people shop, where they get their information, and how they make decisions, and I really think we can help our dealerships from that perspective – it should be symbiotic in that sense.”

The “bricks and clicks” approach is one industry experts agree is sensitive to different demographics, and indeed different regions.

Some markets are more comfortable with online shopping for ‘big ticket’ items like cars, while others prefer the combination of an online and face-to-face transaction. Others, including India and China, are more happy to cut out the middleman entirely.

Deloitte Europe’s northwestern leader Mike Woodward said there is an urgent need to change the automotive sales and distribution model, largely driven by consumer demand.

“Despite the challenging economic and political conditions of recent years, original equipment manufacturers (OEMs) continue to invest heavily, looking for new ways to differentiate themselves from their competitors,” said Mr Woodward.

“While investments in connected, autonomous and electric technology are commonplace, the sales process has remained untouched for decades.

“There is a case for structural change to the current automotive retail sales model. We believe customers are demanding it – driven by their desire to replicate retail and media experiences in other industries.

“New entrants are increasingly occupying the ‘white space’ left by OEMs. Their ability to build customer-focused retail models, unencumbered by legacy infrastructure and investments, is forcing OEMs to compete on both product and business models – a challenge they have not faced before.”

Mr Woodward suggested that ambitious OEMs could thrive in this new environment, but that the pressure to change quickly is one that has caught many unawares.

It was a sentiment Mr Rowan echoed in his discussion with Australian journalists, saying modelling from the UK and Sweden showed how such a change was already underway.

Globally, Volvo currently sells 10 per cent of its new cars online and hopes to move the share to 50 per cent by 2025. Across the world, just five per cent of all vehicles purchased are bought online (based on 2022 figures).

While admitting that the rate of change was accelerating, he said it was important to understand the nuances between regions and demographics so as not to lose valued existing customers during the process.

“I don’t know that we’ll change globally. We’re going to try (to move to an online and agency sales model) in the UK and Sweden – we understand those markets – but I don’t think it will be a wholesale change from one model to another,” he explained.

“What we want to do is learn. We made an investment through a technology fund in a company called Carwow in the UK which is an online-only model. Twenty-nine per cent of secondhand cars are sold through Carwow and something like 13 per cent of new cars.

“The decision to invest there is simply to understand how that works … to understand the nuances of how cars are sold online.

“Digital marketing has been slow to come to the automotive industry and now it’s arrived you have two choices: you can embrace it, understand it and you can use it to your best advantage, or you can try to push it away and hope it’s not going to happen. I don’t think the latter is going to be very productive.”