The automobile sector faces serious disruption. While growth in population and increasing income levels are expected to create new demand, at the same time the new-age consumer is looking at mobility as a service than an aspiration. Digital has started fundamentally reshaping the way people purchase cars. The new car purchase journeys have shifted to 25% digital from 0% a few years back. 95% of American consumers use digital as a source of information before buying a vehicle.
Most of the OEMs still rely on traditional sales channels and models. While some of them have started experimenting with direct sales and creating a direct consumer approach, dealerships still remain the most critical link in the value chain. Research shows that while most of the consumers use the digital channels extensively for comparing different features, the average consumer still visits the dealership twice before finally making a purchase. More than 80% of the consumers take a test drive of the vehicle before making a purchase. This re-emphasizes the strategic importance of dealerships and they continue to remain the crucial touchpoint in the consumer's buying journey. With the consumers maneuvering multiple touchpoints- both online and offline during their purchase journey, an omnichannel strategy across all touchpoints promises to be the key to addressing consumer needs.
The dealerships have been focussed on driving operational excellence and digitizing their core systems and processes like dealer management systems and learning systems, but the need of the hour is to create a true omnichannel experience for the consumers.
Going digital is as much about creating a delight factor for the consumers and increase their engagement as it is about hard financial metrics. It is important to understand the pain points of the auto dealerships segment so that digital interventions can help the create a superior consumer experience and at the same time, help them thrive and improve profitability. In America, new car sales contribute less than 20% of the dealer margin and often have negative returns. The major chunk of their profit comes from non-core activities like insurance, financing, warranties, etc. The cost structure of an auto dealership is skewed with inventory and fixed operational costs like rent, manpower, etc contributing to the major chunk of the costs. An average dealer maintains about 45 days of inventory, leading to huge cash flow constraints. Auto dealerships are generally situated in prominent locations and spread across a huge area with expansive customer receptions to create an enhanced in-store experience. The operational expenses including rent and maintenance of such facilities further put pressure on the cash flows.
The key challenge is to transform today’s dealer network into a digital, profitable and modern sales channel that combines the opportunities of the online world with the strengths of the traditional dealership channel.
Accustomed to an on-demand ecosystem and inspired by their experiences in other industries, the new age consumer is looking for.a differentiated buying experience. The consumers do not really want to visit the dealerships although they still would like to test drive the vehicle before making the purchase. The millennials also look for experience in all their interactions with the brands. The experience of interacting with a brand to them is as important as the product itself. An ideal scenario would be that the consumer uses a mobile app to book a test drive at the time and location convenient to them. The representative drives the car from the dealership to the consumer's place. The mobile app with Augmented Reality capabilities and VR headsets carried by the representative create an immersive experience and the consumer is able to view different colors, features of all the variants. The user still gets hands on the physical product, test drives the car, and views all variants digitally. The consumer can then order the car and complete all the paperwork in the app, get the loan application processed online or make a direct money transfer, select and buy the appropriate insurance and gets the car delivered to his home. The app ensures that the entire consumer experience is completely digital and paperless. Apart from getting rid of the traditional processes and creating an additional delight factory for the digital-age consumer, it also allows the dealership to unlock the finances tied up in inventory and associated with redundant paper-based processes. It also ensures stickiness since the entire add-ons like warranties, insurance, etc can be integrated in the vehicle purchase workflow. Since the dealership no longer needs to maintain all variants and colors and can order these on a real-time basis, the inventory holding can be significantly cut down resulting in better the cash flow.
The next generation auto dealership will not be a high street showroom or building in the center of the city with expansive reception or waiting areas. It probably would be a digital kiosk in a shopping center of a mall with a single or a couple of variants of the cars. It would be digitally equipped with mobile apps, AR, and VR tools to create an immersive experience for the consumer. The consumer can walk in, look at the product, view all features and variants digitally, and book their test drive at a time and location of their choice. The omnichannel experience perfected by retail needs to be borrowed by the auto companies. Dealerships need not maintain huge showrooms and can significantly cut down on the operational expenses further boosting the cash flows.
The do-nothing dealerships face a major risk of being wiped out in the competitive automobile market. Going digital would mean going much beyond developing websites and mobile apps. It would mean designing new and customer-centric sales models that would help the OEMs and dealerships thrive in the times of huge industry disruptions. Leveraging the power of the cloud, analytics, Augmented Reality (AR), Virtual Reality (VR), and mobile apps can help the auto sector correct the skewed cost structure and improve profitability.
Innovantes is known for its expertise in the Automotive segment and has helped leading auto giants including Fortune 500 companies reimagine their consumer journies. Our offerings- custom mobile application development with advanced AR and VR capabilities, custom web portals, collaborative learning & management solutions have helped our clients to competitively differentiate themselves in the automotive segment. Reach us to know how we can help you with your digital transformation.