Europe becomes a test bed for online car sales

Digital disrupters have dramatically changed how consumers spend their money on food delivery, taxis, TV shows and vacations. But when it comes to new-vehicle buying, apart from online research, purchases have remained linked to a physical dealership.

That's starting to change in Europe, where automakers are developing pilot programs to move vehicle buying online. Automakers there say the shift to digital sales is in response to customer demand.

Next year, Ford will roll out an online ordering system in conjunction with the launch of its first standalone electric vehicle — a so-called "Mustang-inspired" battery-powered crossover. It's a significant milestone. With a new propulsion system comes a new mindset to buy it.

"We have to offer customers another way in," Ford of Europe general manager of passenger vehicles, Roelant de Waard, told Automotive News Europe. "It's all about not prescribing how you want your customers to behave."

Joining Ford is the Volkswagen brand, which is rolling out a new information technology system to coincide with the launch of its ID family of EVs. That launch incorporates online sales as part of VW's wider shake-up 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 to 100,000 by 2021 from 6,000 in 2018. And across Europe, automakers such as Hyundai, Volvo, Alpine, Jaguar Land Rover, Mitsubishi, BMW and Mini are operating digital sales programs or pilots in selected markets.

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

Dealers are gearing up for the change. In the U.K., 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 digital transactions within two years, according to a 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 high-end DS Automobiles brand.

Car buyers are already online. Ford's research shows that its European customers visit a dealership just 1.2 times while buying a vehicle, with much of the decision-making informed by digital research. Automakers have long catered to that trend by developing increasingly sophisticated online configurators, allowing customers to create a virtual version of their ideal vehicle 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 Jürgen Stackmann, Volkswagen brand head of sales, marketing and aftersales.

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 vehicle to their nearest dealer. The system proposed by VW gives customers an ID number to make themselves known to the VW dealer network, and to VW itself. That change will not only enable online purchasing, but it permits any interaction the customer has, whether servicing reminders or an email complaint to a dealer, to 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.

VW might be creating the ID link, but having it will be to the dealers' advantage, the automaker believes.

"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.

But dealers will remain a key element. The move to embrace online sales is not the same as moving to direct sales, automakers here point out.

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

The online sales model that automakers are largely adopting calls for Internet orders to be fulfilled by the dealer that the customer chooses, which is most likely the nearest store.

But it is about more than picking up a vehicle, said Matt Harrison, head of sales and marketing for Toyota Motor Europe.

"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 U.K. and Norway as part of a plan to open online sales "across a number of markets" within the next few years. But first, the company is gathering information.

"We have learned it's not as straightforward as putting a payment form on your website," Har- rison said.

In Norway, Toyota's online operation has focused on the Aygo minicar, and has generated some interesting findings. The first was that Toyota gained a lot of conquest sales from other brands through the sales process. Second, Toyota learned that offering lease finance was the key to success.

In Norway, leasing has gained popularity alongside EV sales growth, perhaps in response to nervousness about the residual values of battery-powered vehicles.

"It's possible there is some shift away from ownership because of that," Harrison said. The younger age of EV demographics also may have been an influence.

Volvo launched its online sales platform in the U.K. in April, describing Volvo Online as more comprehensive than similar services in the U.K. run by Peugeot, Hyundai, BMW and Mitsubishi. Volvo's online features include the ability to have a vehicle valued before trade-in, three types of finance and an online credit verification process concluded with an e-signature.

Volvo Online requires buyers to pick a dealer and then accept that retailer's offer on finance packages. Buyers can see how add-on options or engine upgrades change their monthly payment.

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 U.K., 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."

But Volvo warned customers that its online sales site doesn't necessarily show the least expensive vehicle available, partly because customers can't search Volvo's entire dealer network at once.

"If you want a brand experience involving bricks and mortar that our dealers have invested in, this is the way to do it," said Volvo's former U.K. managing director, Jon Wakefield, who is now head of Volvo in Sweden. "Not everyone wants to take the cheapest in the market."

Volvo's goal is to offer a "premium" method of buying cars online, he said.

Other independent search sites — referred to as aggregators — operate in a similar way to websites advertising discount air travel by collating the best car deals. The vehicle is still delivered to a customer by a franchised dealer, but U.K. sites such as carwow are the closest thing to a disrupter in new-vehicle sales.

But aggregators run counter to the ethos of a premium manufacturer such as Volvo, Waylands' O'Hanlon said. "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 isn't the best in the market is preventing online sales from becoming popular, believes Steve Young, managing director of ICDP, an analyst firm specializing in auto dealerships.

"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 programs around Europe are generating no more than a few hundred online sales each annually. Ford, too, has experienced a slow uptake from its U.K. 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-to-buyer sales model already requires customers to buy online, even when the actual transaction takes place in one of its factory-owned stores. Tesla went a step further this year by announcing that it would wind down its network of physical stores and move all of its sales online. It later backed away from that statement and said it will keep half its stores.

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

Lynk & CO wants to follow the subscription model piloted by other manufacturers, 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 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 superrelevant," Visser said.

Whether or not customers embrace online sales, it's clear the manufacturer-dealer relationship needs to change with the advent of EVs, which threaten dealerships' service department revenue stream because the vehicles require less maintenance. Service operations generated 33 percent of the gross profit for Pendragon, one of the U.K.'s retail giants, last year, despite bringing in just 7.3 percent of revenue. New-vehicle sales generated the least profit, ranking third after used sales.

To address the potential loss in profits, 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, but in the European experiments, customers would still rather buy a vehicle through the automaker-dealer network than turning to online marketplaces such as Amazon, according to consumer surveys by ICDP.

Said ICDP's Young: "Traditional franchised channels are the most preferred."