A person signs a document with a car key in the foreground and a red car in the background.
The evidence suggests that customers still value conducting at least some of the car-buying process offline. Image: Shutterstock

At a conference last month, Volvo Deputy CEO Bjorn Annwall spoke about the difficulty for car makers in conducting vehicle sales entirely online – revealing that the company had abandoned its ambitious target of completing half of global vehicle transactions online by 2025.

When asked how many private customers at Volvo conduct their entire transaction online, Annwall frankly admitted that the figure was “zero percent” – adding that one difficulty with online sales targets was defining exactly what constitutes an online sale.

“It’s very hard to stream a car to the customer,” he added. “It’s a physical product […] They need to go get this somewhere.”

At the same event, Maria Grazia Davino, group managing director at Stellantis UK, told attendees that she thought automakers were right in setting ambitious online sales targets – even if they are missed, they will push companies to develop digital capabilities they wouldn’t otherwise have built. “We are evolving toward an omni-channel solution thanks to this ambition,” she said.

However, automakers who set digital sales targets did so because they believed this would be the future, partly due to disruptive newcomers to the sector like Tesla, Rivian, and potentially even Amazon. So, why have some automakers had success with the online journey and others haven’t? Do automakers need to crack this in order to move with the times – or is it possible that trying to digitise the customer journey is missing the point?

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Automotive and the need for offline touchpoints

According to a McKinsey & Company article from July 2023, “In a world dominated by digital engagement, consumers’ first instinct when considering a car purchase is to go online. One in three buyers say they will not only research but also buy online for their next car purchase, citing simplicity and speed as key drivers.”

However, McKinsey & Company also note that, “Forty-four percent of consumers say that they value a personal connection … Indeed, only 24 percent say they want an entirely human-free experience.”

Where does taking the car for a test drive fit in?

Online chat and video conferencing technology can serve to deliver human expertise online, however, many shoppers would obviously point to the need to experience the car in person. Where does taking the car for a test drive fit in?

Even Tesla, which is famous for having shifted to an entirely online sales model in 2019, has some limited display rooms and service centres that enable the customer to take cars for a test drive or bring them in for major repairs. Speaking to the New York Times in 2022, Michelle Krebs, an executive analyst at Cox Automotive, said that “Our data shows that consumers want to do more of the [car-buying] process online, but most don’t want to eliminate the dealer visit altogether.

“They just wanted the dealer experience to be something else — focused on the product, the features of the product and a test drive.”

In recent years, automotive brands have also begun to invest in virtual and augmented reality test drives, making it possible for customers to get a feel for the car from the comfort of their own home. In May 2023, Ford announced that it would be “reimagining the customer journey to EV ownership, with online access and touchpoints available every step of the way” – including “online showrooms and virtual test drives for exploring products and services from the comfort of the sofa or during a 10-minute break between meetings.”

Underscoring its commitment to this approach, Ford unveiled its all-electric Explorer SUV via an immersive virtual event complete with a virtual test drive. Ford’s framing of the option to conduct virtual test drives and visit online showrooms suggests these are intended less as a replacement for their physical counterparts and more as a way to augment the research stage, making it more immersive. Ford has said that with its reimagined customer journey, customers will be able to “slide effortlessly between digital and real-world touchpoints as best suits them”.

The best of both worlds: online and off

Speaking to Motor Finance Online last year, Paul Bennett, senior vice president at iVendi, outlined how he views the interaction between digital and offline touchpoints within an omnichannel customer journey. “…digital tools should do the heavy lifting; the 80%, covering all aspects of research, initial engagement, finance eligibility and application stages of a transaction,” he said. Which leaves “the remaining 20%, the emotional, hands-on fun component to be enjoyed in-person, in a showroom.”

iVendi’s research shows that “consumers in a mature automotive sector do not want a complete online digital journey”, but they do “expect the convenience of digital when shopping for a car”.

This convenience has often been cited as a key strength of buying from online-only electric vehicle brands like Tesla. Some Tesla owners have expressed frustration with a lack of service centres making it difficult to receive major repairs (Tesla will send a technician to the customer’s home for more minor issues), but most appear satisfied with their experience. EV rival Lucid Motors even offers to transport vehicles in need of severe repair to the nearest service centre free of charge.

The evidence points to offline touchpoints having a clear and valued role in the automotive customer journey, but with customers expecting the level of seamlessness and convenience that they enjoy with digital shopping, and the option to carry out research in either sphere at any stage of the journey.

The fixed pricing conundrum

Selling online isn’t the only thing that companies like Tesla and Lucid Motors are doing differently. Traditionally, cars are sold through dealerships at a negotiable price, which enables the customer to potentially get a bargain while the dealer makes a profit from the resulting sale, which is an increase on what they paid to obtain the vehicle from the manufacturer.

However, some customers dislike the lack of price transparency involved in negotiated prices, or find them stressful. According to the latest Motors Digital Touchpoints Survey, conducted in November 2023, price negotiations are the biggest customer pain point when buying a car – cited by 43% of respondents. A quarter (25%) of respondents also cited making sense of pricing as a stressor, while 23% cited the process of understanding and arranging finance.

…some customers dislike the lack of price transparency involved in negotiated prices, or find them stressful.

EV brands like Tesla have enjoyed success with fixed, up front pricing, which has caused numerous other automotive brands to embark on an agency model, where dealers cannot influence price and the contract is between the buyer and the OEM (original equipment manufacturer). Given that online sales via a D2C website don’t involve a dealership, a fixed pricing model makes sense; however, OEMs that have embarked on these models have often struggled to make them pay dividends.

When Ford announced its transformed EV customer journey, it also revealed that it planned to roll out an agency model across Europe, starting with the Netherlands. The company stated that it would be “making haggling a thing of the past for customers in the Netherlands with transparent pricing … ensuring that customers get a consistent price whether they shop online or at the store of their choice.”

But less than a year later, Ford walked back these ambitions, telling Autocar magazine that “here in Europe, we see that most customers are simply not ready to do the complete transaction online. We had expected that [shift] to be faster, but the reality shows us that customers wished to have a physical interaction for the purchase, not only to get the test drive but also to have physical guidance during the transaction process.”

Anna Lena Strigel, Sales and Brand Management Director for Model e at Ford Europe, added that some 90% of customers do “start the journey online”, but “nearly all customers actually make the switch between digital and physical.” She said that the company plans to implement an ‘advanced franchise model’ that would provide more end-to-end insight into the customer journey while still playing to the strengths of dealerships.

Hyundai Australia also switched away from an online-only, fixed-price sales model for its Ioniq 5 and Ioniq 6 EVs, raising prices for the cars while making them available through dealerships. Last year, Volvo Australia abandoned the agency model in favour of selling electric cars through dealers due to reported overstocking, but Volvo UK still sells cars at fixed prices, and the OEM plans to introduce the agency model in Sweden, Norway and Germany.

A chicken-and-egg problem

In the wake of Audi delaying its shift to fixed-price sales for EVs, Paul Hilton, Head of Sales Link at automotive data provider JATO Dynamics, told Car Dealer Podcast that “There is a lack of talent and experience in the OEMs to sell online.

“Business transformation takes time and that is the challenge – you don’t have the luxury of time to make that type of transformation when you’re in such a competitive market like they are today.”

Fixed pricing appears to be something of a chicken-and-egg problem for OEMs: manufacturers feel that a shift to fixed pricing is needed in order to make online sales work, but are simultaneously not selling online in enough volume to be able to justify the shift. Dealers may also feel discomfort with the change, and so a hybrid model that offers the best of both worlds (some OEMs adopt a ‘non-genuine’ agency model that still gives dealers leeway to adjust prices) might ease the transition or work better as an alternative.

Could Amazon succeed with online automotive sales?

When Amazon announced in November 2023 that it had launched a “broad strategic partnership” with Hyundai that would include “vehicle sales on Amazon.com in 2024”, this naturally caused a stir within the automotive industry.

Writing for Forbes, auto industry consultancy Jeremy Alicandri observed that “Amazon has the power, influence, and money to be successful at whatever it chooses,” but speculated that Amazon’s move would be constrained by US franchise laws that require new cars to be sold through dealerships and not direct to consumer (although one or two states permit direct sales of electric vehicles only).

The Chicago Automobile Trade Association shed more light on how the partnership would work in practice, revealing that “the vehicle is discovered via Amazon and the checkout includes the deal jacket, pricing rebates, lending, products all occur via the individual dealer. … The final transaction, paperwork and vehicle delivery will be finalized at the dealership.” At the time of writing, the initiative is in a pilot stage open only to Amazon employees and their friends and family members.

Amazon seems to be gearing up for a bigger foray into the sector

The partnership with Hyundai isn’t Amazon’s first foray into automotive – in 2016, Amazon trialled new car sales in Italy with the Fiat 500, 500L and Panda models, and in 2018, it teamed up with Volvo UK to offer ‘Prime Now test drives’ of the Volvo V40 hatchback. Hyundai’s own partnership with Amazon dates back to 2018, when the brand launched a ‘digital showroom’ on Amazon.com.

However, this time Amazon seems to be gearing up for a bigger foray into the sector – describing Hyundai as its “official launch partner for vehicle sales”. This might, of course, depend on how well the pilot and subsequent launch with Hyundai pay off for Amazon. Some commentators are sceptical as to whether Amazon’s role in the transaction process will be more than that of a glorified lead generator.

“I’m really hard-pressed to understand how this is … different than Autotrader, or Cars.com, or any of the other lead generators that are well-known to consumers,” Jim Appleton, President of the New Jersey Coalition of Automotive Retailers, told CNBC.

Others have been more confident that Amazon’s reputation and heavyweight position in the ecommerce landscape will get consumers – and dealers – on board with online car-buying, paving the way for OEMs to make this the norm. Writing for Car Dealer Magazine, James Batchelor predicted that, “Amazon will make a success of this and more carmakers will come to the platform.

“…while dealers might be a bit sceptical at first, if they’re guaranteed a sale without having to actively sell to that customer through costly marketing, then they’ll get on board.”

Amazon and Hyundai will still be faced with the challenges of making fixed pricing work – although this may be an easier sell with Amazon as the ‘shop front’ – and joining up the customer experience across online and offline parts of the journey. Appleton expressed concern that Amazon will “leave the dealer with the hard and unpleasant task of delivering the bad news when the customer shows up … and finds out that it’s not as simple as ‘point, click and buy’.”

Arguably, the same challenge faces any car manufacturer working to meet elevated consumer expectations in the age of ecommerce, and therein may lie the real answer to the question of how OEMs can crack digital. Perhaps it shouldn’t matter which touchpoints a consumer uses and whether they conduct the entire journey online or even wholly offline; what matters is whether the overall customer experience is smooth and hassle-free.