The ongoing COVID-19 pandemic is currently fueling a decline in sales of both new and used automobiles. IBISWorld expects New Car Sales to decline 29.9% in 2020, which is likely to significantly depress revenue for New Car Dealers in the United States. Used car dealers in the United States are also expected to experience significant revenue declines in 2020. Even as lockdown measures lift, it remains to be seen how car dealerships will perform as states around the country reopen. Many consumers may be anxious about conducting in-person transactions at a dealership, which, combined with difficult economic conditions, may lead some prospective buyers to hold off on purchasing a new or used car.
Car dealers enter the e-commerce market
In order to address these issues, automobile manufacturers and dealerships are increasingly integrating e-commerce platforms in order to boost sales during this challenging economic period. As a result, car dealerships, historically slow to adopt e-commerce options, have seen an increasing proportion of their revenue from e-commerce transactions over the past few months.
AutoNation reported a sharp jump in online-only sales between March and April. In their first quarter results, General Motors, Fiat Chrysler and Ford, three of the largest companies in the Cars & Automobile Manufacturing industry in the United States, emphasized digital tools to assist dealerships with e-commerce as a key tool for bolstering revenue in this adverse economic climate. General Motors claims that more than 85% of its dealers in the United States are currently signed up for the company’s “Shop Click Drive” e-commerce system, with a significant uptick in the number of dealers after the start of the pandemic. Carvana, which runs a platform for trading second-hand cars online, reported that weekly sales were up 20% to 30% year-over-year in May, after having been down 30% in early April while lockdown measures were largely still in place.
Distribution costs become an obstacle
Nevertheless, there are significant hurdles that may prevent e-commerce sales from becoming the dominant revenue stream for automobile dealerships. For other industries, the internet provides a low-cost distribution channel that allows would-be disruptors to take business away from traditional retailers. However, distribution costs for cars are very high due to the nature of the product, regardless of the sales platform.
Furthermore, pricing is more difficult for cars compared to other goods, as automakers often use discounts and incentive programs to change prices as frequently as every month, while also giving sales representatives leeway to offer lower prices in order to close sales. Some manufacturers, including Honda, even bar dealerships from advertising prices that they would be willing to accept. Additionally, a complex mix of local, state and federal regulations makes implementing changes to traditional retail networks for automobiles a challenging and slow-moving process. While e-commerce sales of cars are becoming more common, a trend that is likely to continue in the near future, the staying power of online car sales remains to be seen.
