Why VW, Ford, Volvo, others are accelerating shift to online sales in Europe

Online disruptors have dramatically changed how we spend our money, whether on food delivery, taxis, TV shows or vacations. But while research into car buying has emphatically moved online, the actual car purchase has remained stubbornly linked to a physical dealership.

The absence of an Uber or Deliveroo for car buying means automakers haven't felt the pressure to substantially alter a model that is almost as old as the cars they sell. However, as technological change starts affecting not just the car but also what it means to "own" a car, automakers in Europe are slowly building the capability to move the whole car-buying process online.

The shift to online sales, automakers say, is in response to customer demand. "We have to offer customers another way in. It's all about not prescribing how you want your customers to behave," Roelant de Waard, Ford of Europe general manager of passenger vehicles, told Automotive News Europe.

The springboard for Ford's rollout of an online ordering system will be next year's launch of its first stand-alone electric vehicle -- the so-called "Mustang-inspired" battery-powered SUV. It's a significant milestone. With a new propulsion system comes a new mindset to purchase it.

Also joining Ford is the Volkswagen brand, which is rolling out a new IT system to coincide with the launch of its new ID family of electric cars that incorporates online sales as part of a wider shakeup of its relationship with its dealers and customers.

PSA Group CEO Carlos Tavares told investors in February that he wants online sales within the group to increase from 6,000 in 2018 to 100,000 by 2021.

And across Europe automakers such as Hyundai, Volvo, Alpine, Jaguar Land Rover, Mitsubishi, BMW, Dacia, Mini are operating online sales programs or pilot schemes in selected markets.

Zhejiang Geely Holding subsidiary Lynk & CO, meanwhile, is promising to launch next year in Europe with a strategy that predominately relies on online sales.

Dealers are gearing up for the change. In the UK, Europe's second-largest market and the test country for many automakers' online sales programs, 60 percent of dealers say they will have the ability to offer online transactions within the next two years, according to a new study by Cox Automotive.

"It will be the normal way of selling in 10 or 20 years, no question," said Marion David, product director at PSA's DS Automobiles brand.

Car buyers are already online. Ford research in Europe shows that its customers visit a dealership just 1.2 times during the purchase process, with much of the decision-making informed by research done on the Internet.

Automakers have long facilitated that by developing increasingly sophisticated online configurators, where customers can create a virtual version of their ideal car, while seeing how each change will affect the price.

But that's where it stops. Or in VW parlance, where the link is broken.

"In the future, we will try to avoid these break points," said Juergen Stackmann, head of sales, marketing and aftersales for the Volkswagen brand.

Right now a customer's online journey is largely invisible to VW. Car buyers don't emerge until they send a link containing the details of their configured car to their nearest dealer.

The new system proposed by VW gives the customer an ID number to make themselves known to the entire VW dealer network and VW itself. Not only will that enable online purchasing, but it means any interaction the customer has, be it servicing reminders or an email complaint to the dealer, will be recorded onto that customer ID.

"This way everyone who needs to know, knows who he is and what he needs. It has a total ecosystem advantage," Stackmann said.

It might be VW creating it, but it will be to the dealers' advantage.

"The dealers realize the future of customer connection is within our system, not within each dealer. They can't create a journey for a customer on their own," Stackmann said.

The dealer, however, remains a key element. The move to embrace online sales is not the same as a move to direct sales, automakers were keen to point out.

"They are the face of the brand to the customer. They help when things go wrong. We can't pretend everything we do is perfect," Stackmann said.

The online sales model that automakers are largely adopting calls for the internet order to be fulfilled by the dealer chosen by the customer, most likely the store that is nearest.

"You don't want to just drop off a vehicle and say goodbye," Ford's de Waard said.

Matthew Harrison, head of sales and marketing at Toyota Europe, agrees. "The purchase is just the first part of the journey," he said. "It's important we look after them through the ownership of what are increasingly high-tech cars. Our retail partners are central to that relationship."

Toyota has a pilot online sales program in the UK and Norway ahead of opening online sales "across a number of markets" within the next few years. But right now they are still gathering information. "We have learned it's not as straightforward as putting a payment form underneath your website," Harrison said.

In Norway Toyota's online operation has focused on the Aygo minicar specifically and has generated some interesting findings. The first was that Toyota gained a lot of conquest sales from other brands. Secondly, the automaker learned that offering finance in the form of leasing was the key to success.

"There has been a very high mix of customers who want to take the full private leasing package. Finance, insurance and car in one. It's almost like a contract for a mobile phone," Harrison said.

Private leasing in Norway has grown alongside its unique electric car market, perhaps in response to nervousness about residual values.

"It's possible there is some shift away from ownership because of that," Harrison said. Having a younger customer base also helped.

The willingness of customers in the UK to buy cars on finance is a big reason why automakers have chosen the country to trial online sales.

In the 12 months to the end of March this year, 91 percent of cars bought privately were done using finance, according to figures from the UK's Finance and Leasing Association.

"The 'how much does it cost per month' mentality reduces the barrier to an online purchase compared with a capital purchase of 20,000 euros or more," said Steve Young, managing director of ICDP, an analyst firm specializing in automotive dealerships.

Volvo launched its online sales platform in the UK in April, describing Volvo Online as more comprehensive than similar services in the UK run by Peugeot, Hyundai, BMW and Mitsubishi.

A tick-sheet of online features Volvo offers includes the ability to have your current car valued prior to trade-in, three different types of finance (including personal leasing, hire purchase and, the UK's current favorite, personal contract purchase, where a chunk of the car's price is held back to the end of the contract to reduce the monthly payments) and an online credit verification process that is concluded by using an e-signature.

Volvo Online requires buyers to pick a dealer first and then accept that dealer's offer on finance packages. Unlike standard configurators, buyers can see how the additional options or engine upgrades will affect their monthly figure, not just the overall price. Volvo said the system doesn't just embrace dealers, it benefits them.

John O'Hanlon, CEO of Waylands Automotive, which runs a small network of Volvo dealerships in the UK, agreed. "We don't care where that lead comes from," he said. "If you had asked me how I felt about a manufacturer setting up an online channel 12 to 24 months ago, I would have been more concerned," he said.

But Volvo warned customers that its online sales site would not necessarily show the cheapest car available, partly because customers could not search the whole dealer network at once.

"If you just want the best price you will go to an aggregator. If you want a brand experience involving bricks and mortar that our dealers have invested in, this is the way to do it. Not everyone wants to take the cheapest in the market," said Volvo's former UK managing director, Jon Wakefield, who is now head of Volvo in Sweden. He said Volvo's aim is to offer a "premium" method of buying cars online.

The aggregator sites he was referring to operate in a similar way to websites advertising cheap flights by collating the best deals, often financed by private leasing. The car is still delivered to a customer by a franchised dealer, but sites such as carwow.com in the UK are the closest thing to a disruptor in new-car sales.

In Sweden, leasing now accounts for about 40 percent of the consumer car market, helping Anders Hedin Invest grow its carplus.se website, which collates lease deals from across the IA Hedin Bil dealer group.

Carplus.se's share was 6.6 percent of the consumer market last year, and 20 percent of its sales were done online, the company said.

The aggregators run counter to the ethos of a premium manufacturer such as Volvo, said Waylands' O'Hanlon. "Discount culture drives any value from the proposition and that's where we should slow down the process and actually sell you the benefits of the car you have searched for," he said.

The suspicion that the price being offered is not the best in the market is preventing online sales from becoming popular, ICDP's Steve Young believes.

"Our consumer research shows that very few new car buyers are interested in completing the entire sales process online, although most want to do some part of the process online," he said. "They recognize that there is a deal to be done when buying a car, and no automaker has yet introduced a site that allows deals to be done."

ICDP research suggests that pilot schemes around Europe are generating no more than a few hundred online sales each per annum. Ford, too, has experienced a slow uptake from its UK pilot. "It taught us that you get a lot of traffic but in the end the majority prefer to go to the dealer," Ford's de Waard said.

The push to make online sales work could come from automakers' need to persuade their customers to join a digital ecosystem that offers more opportunities to sell products and services, much in the same way retailers such as Amazon or Apple do.

Tesla operates this way, and its direct sales model already requires customers to buy online, even when the actual transaction takes place in one of its stores.

The California-based company went further earlier this year by announcing that it would be winding down its physical network of stores and moving all sales online, before reversing that statement and instead committing to keep half its stores.

Next year Lynk & CO will launch in Europe with an online sales model that relies only on a handful of retailers. "There's a mismatch between today's consumer behavior and what the car industry is doing," CEO Alain Visser said.

The company wants to follow the subscription model already piloted by other automakers, including Volvo, that boils everything down to a single monthly payment. "We will be like Spotify or Netflix. We are selling mobility rather than cars," Visser said.

Buyers only need to commit for a month at a time rather than a minimum of 12 months and can make their car available to be shared by others via an app. Users will be prepared to pay for the flexibility, the company believes. "We never said we would be cheap, but we will be super-relevant," Visser said.

Whether customers embrace online sales or not, it's clear the manufacturer-dealership relationship needs to change with the advent of electric cars, which threaten dealers' lucrative aftersales revenue stream because EVs require less maintenance.

Aftersales, for example, generated 33 percent of the gross profit for UK dealer giant Pendragon last year, despite bringing in just 7.3 percent of revenue. New-car sales generated the least profit, ranking No. 3 after used-car sales.

VW's new dealer agreement includes a revenue-sharing arrangement with the dealer when a customer goes online to choose, for example, software upgrades for the vehicle, whether the dealer had influence over that decision or not. 

There is clearly disruption ahead then, but the advantage that automakers and their dealer networks have is that if customers  had to buy online, they would still much rather buy a car from them than any online retail disruptors, according to consumer surveys carried out by ICDP.

Said ICDP's Young: "Traditional franchised channels are the most preferred, while pure online retailers, for example Amazon, are the least preferred option, by a significant margin."