Global passenger car original equipment manufacturers (OEMs) are attempting to moderate costs for new vehicles by innovating and adopting novel retail models. Enormous strides have already been made with Audi City, BMW Brand and MINI Pop-up stores, among the digital car showrooms, making its presence known. Owing to the immediate success and cost-efficient benefits achieved through these showrooms, digital retailing appears to be a convincing way forward.
New analysis from Frost & Sullivan, Executive Outlook of the Future of Automotive Retail, finds that investments in digitization worth $500 million to $5 billion are expected from multiple vehicle OEMs and dealer groups in Europe and North America in 2016. In fact, 20 to 30 percent of the conventional dealership space will be allocated for digital technology. Digital spending is anticipated to account for roughly 70 percent of marketing and advertising budgets of dealerships and OEMs.
Going forward, urbanization, connectivity and convergence, bricks and clicks, as well as social trends, are expected to be major drivers of retail in the automotive industry. Moreover, future stores, omni-channel retail, connected retail and new business models will be the top transformational shifts undertaken by key global OEMs.
In the luxury car market, premium OEMs are leading the digital approach to automotive retailing. Audi, Jaguar Land Rover and Nissan have already implemented diverse showroom concepts and are digitally revamping existing showrooms for retail and after-sales purposes in Europe. In addition, US OEMs such as Lexus and General Motors’ Cadillac are approaching digitization primarily in existing showrooms and encouraging their sales forces to apply digital methods.
With these developments, ultra-high-net-worth individuals (UHNWIs) have begun to assess dealership potential in the value chain. They are particularly attracted to US dealerships, which have a large customer base and sell used and new vehicles, along with maintenance, insurance and financing.
However, the shrinking of the new car dealership network over the last 20 years and declining number of car buyers visiting showrooms, threatens the conventional retailing strategy. In contrast, the multi-channel retailing strategy is becoming popular to facilitate new car sales.
“The challenge for automotive OEMs is not only to devise a new sales strategy, which could bring down the total cost of the vehicle, but also to maintain the same customer loyalty level as before,” pointed out Frost & Sullivan Automotive & Transportation Team Leader Neelam Barua. “To achieve these ends, OEMs will introduce multiple touch points to the car purchase process by 2016.”
Since digital retailing will allow automakers to leverage their brand, products and services, European and North American OEMs have been making significant investments to update store technology, train staff, and digitally integrate various aspects of the car retailing process.
“With such initiatives underway, 50 to 60 percent of sales leads will originate from digital channels by 2016,” noted Barua. “Beyond 2020, digitization will enable lead conversion ratio improvements of more than 80 percent.”
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