The Pandemic Pushed Car Buying Online. It May Well Stay That Way

As in other industries from law to media, auto dealerships are finding that the compulsory shutting of physical sales forced them to upgrade their digital capabilities - and the results have been such that the heightened efficiency and reach from the changes will remain. JL 

Nora Naughton reports in the Wall Street Journal:

The auto industry rushed to embrace the internet as a way to sell more vehicles during the coronavirus-related lockdowns. Auto makers expanded at-home delivery programs, and dealers built out their websites to help customers tour showrooms virtually and complete more of the car-buying process online. As dealerships reopen, many are cutting traditional sales roles and shifting more employees into digital operations. Employees use the internet to close deals faster, reach more customers and expand stores geographic reach through social media.

When the coronavirus pandemic hit Michigan in early March, managers at LaFontaine Chevrolet quickly pushed to move more of the dealership’s sales operations online. Now, they say many of those changes will remain.

“I truly believe we sold more cars last month because we’re finally utilizing technology more efficiently,” said owner Ryan LaFontaine, whose southeast Michigan chain includes 17 stores selling major brands.

The auto industry rushed to embrace the internet as a way to sell more vehicles during the coronavirus-related lockdowns. Auto makers expanded at-home delivery programs, and dealers built out their websites to help customers tour showrooms virtually and complete more of the car-buying process online.

After some sales success, many in the industry expect the online push to continue. As dealerships reopen across the country, many are rethinking how they staff locations, including cutting traditional sales roles and shifting more employees into digital operations, managers and owners say.

While the U.S. trajectory of the pandemic remains in flux—with confirmed cases topping 2.19 million nationwide and infections rising in more than a dozen states—the disruptions already seen in the auto business mirror those in other industries. In retail, some bricks-and-mortar stores are having to react quickly to the explosion in online shopping because of contagion concerns and stay-at-home orders. It also shows how some business changes made hastily in response to the health crisis could outlast efforts across the country to reopen the economy.

“The pandemic brought a magnifying glass to our process,” Mr. LaFontaine said. His employees could use the internet to close deals faster, reach more customers and expand the store’s geographic reach through social media. The Chevrolet dealership’s sales rose nearly 20% in May from a year ago, he said, helping it defy a broader industry decline.

New startups, such as Carvana Co. and Vroom Inc., that focus on internet-only vehicle sales are drawing interest from Wall Street, and executives say customers are readier than ever for a digital car-buying experience.

“Instead of sitting around in the dealership, we went about our day and enjoyed things while they processed paperwork and everything,” said Lisa Hale, 54 years old, who recently used her North Palm Beach, Fla., dealership’s online-buying program to purchase a new Toyota 4-Runner.

Not until the coronavirus crisis had she thought to buy a vehicle this way, and she had some hesitations at first, like over how to take a test drive. But stuck at home, she decided to try it. The dealer even dropped off a test car at her home.

“It was by far the best car-buying experience I’ve ever had,” Ms. Hale said, adding that she isn’t likely to return to a showroom for her next purchase.

General Motors Co. in late March stepped up promotion of its Shop-Click-Drive program, which lets customers get trade-in estimates and apply for financing without visiting stores. They can also arrange for home delivery of new vehicles.

Company executives said purchases through the service, which started in 2013, have increased during the pandemic by about 40% from precrisis levels, with 85% of GM dealers now using Shop-Click-Drive.

“Definitely we’ll see more customers wanting to do most, if not all, of the transaction online,” GM Chief Executive Mary Barra told reporters this week. “But I don’t think everyone will want to do that, and that’s why we have to meet them where they’re at.”

Fiat Chrysler Automobiles NV moved up the nationwide launch of its new online and driveway-delivery service to this spring, six months earlier than planned. “These processes that we’ve become a lot better at, they’re never going away,” U.S. sales chief Jeff Kommor said.

While the internet has become a go-to for cross-shopping vehicles and researching prices, the actual purchase still largely takes place at the dealership with a salesperson’s assistance.

State laws protecting new-car dealer franchises also have made a Tesla Inc. -style direct sales model difficult to execute, and many dealers benefit from getting shoppers in the store, where they can upsell them on features and add-on services, such as extended warranties.

Despite the recent burst in online car-buying activity, some dealers and analysts are skeptical about its staying power. Many car shoppers still prefer to browse the car lot, take test drives in person and pick up their new vehicles at the dealership, retailers and analysts say.

“Covid-19 has been a stop-and-check for us. But I don’t see a 180-turn to online retailing anytime soon,” said Phil Maguire, owner of Maguire Family Dealerships in upstate New York.

Because the online car-buying market is still young, there is little industry data on how many cars are sold this way. However, a survey published in May by Cox Automotive looking at how the pandemic is changing the car business found two in three respondents are now more likely to purchase a vehicle online than before the crisis. It also found about one-third of shoppers surveyed prefer to negotiate the deal in person, many of them baby boomers and truck buyers.

Investor enthusiasm for upstarts Carvana and Vroom, which are helping to pioneer a new market for online-only used-car sales, also has surged in recent months. Phoenix-based Carvana’s stock has rallied, more than quadrupling from late March to close at $126.12 Friday.

Vroom, a New York-based firm that listed last week, also has experienced a sizable bump, closing at $47.51 Friday, more than double its IPO price of $22 a share.

“There’s no turning back,” said Mike Jackson, CEO of AutoNation, Inc., the largest new-car dealership chain in the U.S. “You, as a company, either have world-class digital capabilities or you are falling behind.”

AutoNation, which laid off 7,000 workers this spring as the outbreak spread, anticipates it will need fewer sales staff going forward. While it plans to bring back some workers, many showroom positions will go unfilled as it redirects more employees to online retailing, a company spokesman said.