The rise of the internet and online shopping seemed to signal the ignoble end to the ubiquitous car dealership in the 1990s.
Those gloomy predictions from industry watchers turned out to be wrong; consumers continued to flock to dealerships, which largely carried on despite the critics. Then the COVID-19 pandemic hit, closing showrooms, sending sales teams home and driving consumers online to purchase vehicles.
Insiders again sounded the alarms that dealerships would not survive. In reality, the exact opposite happened.
The pandemic has been a boon for U.S. dealers, which reported record profits in 2020 even with reduced staff and a national recession. Nearly 30% of U.S. new car sales last year were completed online, according to Alan Haig, an automotive retail consultant and president of Haig Partners. Before the pandemic, less than 2% of vehicles were purchased digitally.
“This shift to digital retail is positive for dealers who embrace it,” Haig told ABC News. “For those that don’t, they will lose customers and be harmed by the trend.”
Dealerships moved quickly to stave off online competitors and rehabilitate their poor customer service rap. There were 16,623 franchised new vehicle dealerships at the end of 2020, according to the National Automobile Dealers Association, and more than 1.1 million workers are employed in the sector.
The retail experience was “ripe for change” but dealerships are not going away, according to Michelle Krebs, an executive analyst at Cox Automotive.
“Dealers have tremendous political power. The franchise laws were written in favor of dealerships,” she told ABC News.
(These laws protect dealers from competition and require auto manufacturers to sell new cars through franchised dealers.)
According to a recent Cox Automotive study, buyer satisfaction also reached an all-time high in 2020. The overall car shopping experience took less time and was more efficient, buyers reported, and the number of dealerships visited and the amount of time spent in them dropped in 2020.
E-commerce will likely make up the core of dealership sales in a decade, with the pandemic only accelerating the inevitable, Haig said.
“Young people in particular want to purchase or lease a vehicle by using their cellphone,” he said. “Online becomes a portal to a showroom. When consumers come to dealerships now, they’re there to buy.”
He went on, “Anything that enhances the customer experience is a win.”
Bryan DeBoer, president and CEO of Lithia Motors & Driveway, a publicly traded dealership group with 215 U.S. locations and 15,000 employees, told ABC News that he has seen “a spike in online traffic across all of our locations with active and educated consumers going into our dealerships ready to buy.”
The classic dealership model has been under threat in recent years. Automotive upstarts like Tesla and Polestar, the Swedish electric performance car brand, are selling directly to consumers through company-owned stores.
Polestar is “breaking away from the traditional car-buying experience you’d normally find at dealerships,” Jonathan Goodman, the company’s chief operating officer, told ABC News. “Instead, we’re focusing on a digital-first retail model and our retail Spaces, opening across the U.S. and Canada, support our digital platform. Located in highly trafficked city centers, each Space is staffed by non-commissioned Polestar specialists who will assist with any questions or coordinate test drives onsite or at home.”
Volvo, which owns half of Polestar, may become the latest automaker to shake up its selling strategy. Volvo’s newly unveiled electric C40 Recharge compact SUV, for example, will only be available online.
“Globally, we’re aiming for half of all our car sales to be online by 2025,” Anders Gustafsson, president and CEO of Volvo Car USA, told ABC News.
Gustafsson enunciated that the company’s revised structure would not adversely impact its 285 U.S. dealers.
“Our dealers will not earn less than they do today,” he said.
He reiterated, however, that reducing selling costs and “unhealthy competition” among dealers would benefit the company in the long term. Simplified orders, smaller dealer inventories and an automated buying process are the company’s future, he said.
A Volvo spokesperson told ABC News that “our retail partners will remain an integral part of our sales and customer care process” and there are “no plans to close any retailers within our network.”
Luxury automaker Lincoln said it worked closely with its dealer partners last year to speed up the launch of its Effortless Sales Experience, which includes a fully remote sales platform and a virtual walk-around tool to better serve customers during the pandemic.
Mary Barra, CEO of General Motors, said last May that 85% of GM dealers are using Shop-Click-Drive, a shopping tool that allows users to search for certain GM vehicles at local dealerships, apply for financing, get trade-in estimates and complete a portion of the transaction online. GM rolled out the tool in 2013.
Online car retailers like Carvana and Vroom have seen big jumps in sales in the past year. Carvana sold 244,111 cars in 2020, up 37% versus 2019, and the company is investing $500 million in new facilities and hiring thousands of new employees, a spokesperson told ABC News.
The online push could lead to consolidation in the industry, among other changes. Sales roles will likely transition to product specialists or consultants. Dealerships will have to operate with fewer workers and lean more heavily on digital platforms for traffic.
For consumers, the digital perks — remote contact, a facile application for financing — may not be enough. There’s a solid contingent of customers who want to inspect a vehicle before signing any paperwork.
“Do you fit in the seat? Do you like the tech? It’s still a very touch and feel business,” Krebs explained.
Alex Vetter, CEO of Cars.com, also pointed out that the “dubious” reputation of dealerships has overwhelmingly improved over the last several years.
“The local dealership is evolving at an extraordinarily fast rate,” he told ABC News. “Many dealerships are innovating with concierge services, on-demand car washes — even using AI to communicate with customers.”
He added, “Many manufacturers have toyed with the idea of going direct for years. They also realized dealerships are critical for vehicle ownership.”