Hyundai, Volvo, Mercedes take steps toward Internet car sales

Less than five minutes. That is how long it usually takes shoppers to buy a book on Amazon … or a new Hyundai online. Last November the South Korean carmaker formed a partnership with auto retailing entrepreneur Simon Dixon called Hyundai Rockar to sell cars in the UK via the Internet 24 hours a day, seven days a week in a pilot program that could be rolled out to other markets.

Not only do customers avoid price haggling, they also don’t have to travel to Hyundai’s dealership to get their new car. A new i30 compact is just a few clicks away, and it can be delivered right to the customer’s home. “It’s a totally new approach to selling cars. I would say it is maybe the first pure digital dealer,” Hyundai Europe Vice President of Marketing Jochen Sengpiehl told Automotive News Europe.

While Hyundai’s trial appears to leave the future of auto showrooms in doubt, automakers remain very reluctant to completely remove dealers from the retail process. Volvo, Mercedes-Benz and others, however, are very interested in strengthening their online tools to at least make it possible for the bulk of the transaction to take place on the Internet.

Test drive decline

The Internet has already stolen business away from many kinds of bricks-and-mortar retailers, and now it threatens to upend the traditional dealership model. Andrew Tongue of ICDP, a market research firm specialized in automotive retailing, argues that the main reason for going to the dealership before purchasing -- physically inspecting a vehicle and taking it for a test drive -- is becoming steadily less relevant for today’s society. “The industry tends to rate the value of the test drive much more highly than we customers do; some of us spend more on our monthly satellite TV and broadband package than we do on our car loan,” he wrote in a research note in January.

After discovering that roughly half of their customers would consider buying a car online, Swedish automaker Volvo is aggressively expanding its own Internet sales presence.

“We want to have the whole range available online, at the latest, in 2016. We’re already going to start this year,” Volvo board member for sales Alain Visser told Automotive News Europe. Volvo couldn’t say whether all markets would be included by the end of 2016.

Volvo is bullish about what it calls “e-ordering” after it sold out a limited run of its new second-generation XC90s in 47 hours last summer during the automaker’s first Internet-only sales campaign. Most of the cars were reserved within one hour of the sales start.

When asked what is motivating customers to use the Internet for car buying Visser said price wasn’t the No. 1 factor. “They want to bypass the salesman discussion,” he said.

One major reason for the shift is the growing buying power of Internet-savvy millennials, who are used to the soft-sell approach popularized by Apple’s retailing model. According to CapGemini’s most recent Car Online annual survey conducted in February and March of last year, 49 percent of likely car buyers ages 18 to 34 said they would be likely to purchase a car online, compared with only 29 percent for those who are 50 and above. “We have to anticipate very quickly what Generation Y wants,” Hyundai’s Sengpiehl said.

Mobile apps and online portals also offer carmakers an ideal platform to tightly control all aspects of a customer’s brand experience in cyberspace at a time when their entrenched franchise dealers may not be willing or able to finance the latest million dollar refurbishing to comply with new corporate identity guidelines.

Better virtual tools

Volvo CEO Hakan Samuelsson said the automaker wants to make sure it has the best virtual tools available and he wants them to support its dealers rather than take business away. “Customers’ demands are changing. To support that you need strong configurators as well as the ability to order online if you want,” he told Automotive News Europe. The CEO said the tools are beneficial to Volvo’s dealers because they will help bring them more business as they will continue to deliver and service the car. “We have absolutely no intention of creating conflict with our dealers or to compete with them,” Samuelsson said. “I think we should be able to follow these trends together and in a powerful way.”

‘The final click’

Mercedes-Benz is testing Internet car sales in two European markets: Hamburg, Germany, and Warsaw, Poland. Online shoppers can purchase a pre-configured vehicle for the same price as in the dealership in both markets. Mercedes discovered, however, that most people who have accessed the system do so to chat in real time with dealer staff, make appointments with the sales people and book test drives. “Some of the customers, but not many so far, go all the way to the final click and order a car,” said Daimler board member for Mercedes sales Ola Kaellenius. He declined to say what share of Mercedes sales are made online. For the moment, Kaellenius will monitor the development of the two online stores. He said Mercedes will decide this year whether to expand the program.

“We could potentially drive transaction traffic up on our website if we would lower prices, but we don’t want to do that. One of the experiences of shopping on the Internet has been the expectation that’s where you get the least costly alternative -- that’s not the case with us,” Kaellenius said. “We don’t want to replace our dealers or change the pricing dynamics with this. We want to make it a portal of convenience and that seems to be working so far.”

He shares the views of other sales executives at rival brands such as BMW and Audi that to retain their coveted price premium over volume automakers, offering a unique best-in-class sales and service experience is becoming ever more crucial, including the kind of hospitality customary at a five-star hotel. And for that digital platforms are best suited for complementing, not supplanting showrooms.

Still need stores

Meanwhile, Hyundai and partner Simon Dixon have hedged their online bet ever so slightly. According to Cap Gemini, for example, consumers in the UK are the least likely of all nationalities it surveyed to buy a car via the Internet. So for those non-millennials not accustomed to spending tens of thousands of pounds on a product without ever testing it first, Hyundai Rockar maintains a small presence sandwiched between the Body Shop and the Disney Store in the Bluewater mall near Kent, England, where 27 million annual mall visitors can find test cars waiting in the parking lot.

Despite the creeping decline of consumer temples like Bluewater, shopping centers have the advantage of getting far more foot traffic than most dealerships, where customers typically only return for their annual maintenance check. Said Hyundai’s Sengpiehl: “Consumers go to a mall often, not just once a year.”

Douglas A. Bolduc contributed to this report