August 13, 2020

Giving Customers What They Want – Tesla versus OEM Dealerships

Among the many changes ushered in by COVID, the rise of digital marketplaces stands to be the most substantial and permanent. A look at the web’s biggest retailer tells the tale. “For the three months ending in March, Amazon brought in $75.4 billion in revenue—a 26% gain over 2019. Sales at Amazon Web Services, the company’s cloud-computing business, crossed $10 billion in a quarter for the first time. Through early May, Amazon’s stock was up 25% for the year.” Amazon, of course, does not sell cars (yet), but their success speaks volumes. Completely digital cars sales are nothing new; OEMs and their dealership peers had been on a steady path to digital adoption prior to the pandemic. Today, these players are scrambling to deploy digital solutions that cater to the public’s need for touch-less business models.

“COVID-19 represents a watershed moment for online retailing. The brands and dealers that aggressively embrace a cohesive and robust strategy will win during future crises.” Jon Sederstrom, Managing Director of Strategic Initiatives at J.D. Power

Within the automotive world, no one has mastered the digital retail experience better than Tesla. After reinventing how the world looks at electric vehicles, they set their sights on revolutionizing how to sell them. Tesla customers know full well the value of a seamless online journey from test drive to purchase, and their sparse brick and mortar locations are drastically different than what many consumers are used to. These boutique “showrooms” often have but one or two vehicles and reside in high-end shopping malls sharing space with other luxury brands, a far cry from the expansive lots a short way out of town that purveyors of cars traditionally inhabit.

Tesla makes a good product, but it’s the dead-simple purchase experience that’s one of the brands’ strongest differentiators; customers select a model, add options, submit a credit application, and digitally sign the documents. That’s it in a nutshell, and it’s a fully connected experience. Additional documentation, if necessary, can be sent with a few photos taken by the purchasers’ phone. The only thing left to do is await delivery. Tim Huntzinger, an automotive designer at the ArtCenter College of Design, opines that “the purchasing experience is so different [from what] we’ve all been forced into with the dealership model…It’s super-refreshing to see the customer being put first.” Keith Barry, of Consumer Reports, backs this up by citing a Deloitte study that found that “57 percent of car buyers disliked how much paperwork they had to fill out, 42 percent said the whole process took too long, and 40 percent hated haggling over price.” Similarly, McKinsey attributes changing consumer sentiment to “a new wave of tech-savvy customers, accustomed to the service levels of big online retailers, are demanding more innovative features, like an end-to-end transaction, home delivery, and advanced search and recommendation features (for example, by lifestyle, driving style, or other attribute).”

Dissatisfaction with current dealership processes goes further than mere annoyance, however. According to the FTC, “consumer grievances about auto sales and leasing made up almost 70 percent of the complaints filed against the industry last year.” Leather-appointed seating areas and complimentary snacks do not speak to luxury as much as does simplifying and streamlining the vehicle purchase and ownership experience. Hours spent browsing for the perfect vehicle online coupled with additional time spent haggling over the finalized deal at a desk in the dealership finance department has been replaced by fifteen minutes online – and you can do it on your phone.

“Our data clearly shows that a growing number of consumers want a shorter and easier experience. In fact, 43% of car buyers tell us that they are willing to complete the entire purchase process online—without ever visiting the dealership. It is a figure that has been climbing since 2018.” Jon Sederstrom, Managing Director of Strategic Initiatives at J.D. Power

Yes, Tesla benefits from a direct-sales model, but with the right tools traditional dealerships could challenge them by duplicating their successful digital experience. Additionally, large dealership groups benefit from financial depth and geographic reach which could be used to form a powerful symbiosis with the addition of digital channels.

“Online desktop and mobile shoppers are not excluding the in-store experience, nor are bricks and mortar consumers neglecting to use their desktop, laptop, tablet or mobile device to compare prices, product offerings and purchasing terms. If consumers are moving around and across various channels, so should the point-of sale – a single channel world is no longer sufficient.” Deloitte

The influential National Automobile Dealers Association agrees, believing that car shopping at physical dealerships is “by far the best way to sell, distribute and service new vehicles,” while adding that “the vast majority of consumers want to do some combination of both online and traditional shopping for new vehicles.” By leveraging their brand recognition and accompanying trust, dealerships can transcend car sales to encompass the gamut of after-sales activities including insurance, user experience and beyond. The infographic below explores how Tesla revolutionized not only the customer experience, but the sourcing, production, and servicing of their products as compared to traditional OEMs and their dealership networks.

As illustrated above, Tesla has extended beyond online vehicle sales to the ancillary activities necessary to support its lack of showroom and repair facility real estate. Cox Automotive found that “roughly 85% of car shoppers would more likely buy from a dealership that allows them to start or complete nearly all of the vehicle purchase online.” By leveraging their own digital platform and engagement tools, dealerships can mitigate Tesla’s competitive strength while promoting their superior geographic reach and inventory. Naysayers who insist Tesla’s move to online-only sales was the result of shaky financial stability are missing the point. Given how much of the car buying experience already occurs online, combined with the public’s comfort with virtual purchasing, the move to a completely digital environment is a natural progression and here to stay. Still seeking proof? Tesla now accounts for roughly 60% of the electric car market in the United States, despite increased competition from cheaper offerings fielded by traditional industry stalwarts. On top of that, the company recently dethroned Toyota to become the world’s largest automaker by market value. Tesla’s meteoric rise demonstrates that deep technological investment remains the primary driver for business success in our connected world.

Twenty years ago, dealerships realized they needed a website to compete. Today, they need to bring it full circle with a connected digital platform like that offered by SHIFTMobility. If streamlining processes and transactions with fully automated digital documents and personalized customer engagement secured by Blockchain interests you, contact us.

SHIFTMobility Inc.

 

 

Sources:

https://www.forbes.com/sites/sarwantsingh/2020/07/21/new-digital-retailing-business-models-in-used-car-market-take-center-stage-with-covid/#6726a10c45c4

https://fortune.com/2017/12/22/tesla-elon-musk-design/

https://www.cnbc.com/2019/04/05/tesla-online-sales-gives-customers-what-they-want-no-car-salesman.html

https://fortune.com/2020/05/18/amazon-business-jeff-bezos-amzn-sales-revenue-coronavirus-pandemic/

https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/used-cars-new-platforms-accelerating-sales-in-a-digitally-disrupted-market

https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/ConsumerIndustrialProducts/deloitte-uk-consumer-industrial-products-how-digital-is-changing-car-sales.pdf