Alongside challenges due to a global pandemic and the continuing rollout of more electric vehicles (EVs), we’ve also seen consumer behaviour shift across pretty much every retail sector. Automotive retail is no different and manufacturers and dealers must be prepared for and continue to monitor these evolving customer trends.
EY surveyed around 13,000 consumers in 18 different countries and found that car buyers are increasingly looking for the online convenience of a digital-first experience, yet they want to maintain the reassurance of personal interactions with sales staff. Importantly, the EY Mobility Consumer Index (MCI) found that this trend is being accelerated by tech-savvy fans of EVs, with 71% of EV buyers using digital tools to research models before completing their purchase. This highlights the digital fluency of EV customers and their desire to thoroughly research the purchase of what is still a relatively novel technology in advance.
But how will consumer attitudes and expectations change in 2023?
Growing generational divide
Even when examining digital natives, or people who grew up during the information age, it’s not a case of either physical or digital, but both. Younger buyers are actively seeking a digitally enhanced experience, but they still look for the familiar comfort of physical and in-person interactions. This will be a difficult balancing act which businesses must get right.
We are seeing a rise in digital popularity between generations, and this is only set to rise. Nearly four in ten (37%) of Gen Z, 28% of Millennials and a fifth of Gen X would like to buy their vehicle online. According to EY research, Baby Boomers are showing the biggest resistance to the switch to digital purchases.
However, the MCI found that 66% of car buyers across all age groups are increasingly turning to online tools for researching a vehicle purchase, showing these are fast becoming an essential and growing part of the purchasing process. Interestingly, this seems to transcend across the generations, with 65% of Gen Z, 69% of Millennials, 66% of Gen X and 60% of Boomers using various digital tools, such as price calculators and vehicle configurators, to help with their purchasing decision.
We are increasingly seeing that EV customers are the biggest adopters of digital tools, with over 60% of EV buyers interested in booking a test drive and working out the price of a new car online, while 52% would use an online configurator to spec the car of their choice.
But appearances can be deceiving, and despite overall similarities with other retail products, cars remain distinctive in the minds of consumers in several significant ways. A car represents a major financial commitment and, whilst digital tools are popular for pre-purchase research, the in-person experience remains a key factor. In fact, only 23% of consumers would use an online channel for the all-important final purchase, meaning that physical interaction will still remain a vital cog in the car-buying process for quite some time.
Physical assurance in a digital world
While there might be a divergence in generations of vehicle buyers, the blend of physical and digital is ultimately pushing automakers to either move away from large physical stores or transform them into experience centres to enhance the customer purchase journey.
EV customers are the biggest adopters of digital tools
EY research showed that while more than half of buyers (57%) intend to buy their next car from a dealer, consumers are increasingly open to using quick and convenient digital tools for at least some parts of the process.
Dealers and OEMs have already become used to a world where getting a sale is no longer just about having the best product and the most competitive deal. In fact, they must evolve beyond competing for the best and most engaging online or virtual experience, to who can offer the greatest overall customer lifetime experience.
Going forward, the car dealer of the future must learn to embrace a digital future where showrooms become ‘experience centres’, and sales involve online, offline and virtual contacts with customers.
Building the Metaverse
Another important shift is the introduction of the Metaverse. It became one of top trending terms in 2022, but we have only just began exploring it. Essentially, it’s an immersive, high-tech alternative universe which will potentially unlock US$800bn worth of business by 2024, reaching multiple sectors, including automotive and manufacturing.
On one level, the Metaverse is just the latest upgrade to the AR/VR brand experience that many are already providing. However, its real commercial potential lies in the opportunities for creating a huge range of margin-enhancing revenue streams at practically zero marginal cost. For example, dealers will be able to build virtual showrooms where potential customers from across the globe will be able to browse the full product range and meet ‘face-to-face’ with a salesman.
The Metaverse will also appeal to future cohorts of Gen Z car buyers, who will expect OEMs to be in the Metaverse in the same way that their parents expected them to have a website. EY analysis also suggests that EV manufacturers will take a “build it and they will come” approach to this novel technology, with many already embracing the Metaverse despite the fact revenue promises are yet to materialise.
Agents of change
EVs are intrinsically lower maintenance than internal combustion engine (ICE) cars, a factor that has resulted in a shift toward direct-to-consumer EV sales, even from some legacy OEMs. This industry-wide shift in the relationship between consumers, dealers and OEMs toward an agency model will only increase in popularity over the coming year and has the potential to disrupt the whole industry.
The agency model, which sees ownership of vehicle inventory to be sold remain with the OEM or its sales company, rather than with the dealership as has historically been the case, offers OEMs several advantages. For one thing, it makes the provision of an integrated seamless customer journey easier, as there is much less back-and-forth between dealer and OEM systems to cause friction. It also provides better price controls and multiple opportunities to upsell and cross-sell along the way, plus it gives them a more direct connection with the customer.
OEMs are still experimenting to find the right balance between direct sales, dealer sales and the agency model
However, the agency model is something of a mixed blessing for car dealers. In return for a fixed fee per vehicle, the dealer’s role becomes that of “last mile” distribution and delivery of vehicles already ordered and paid for by the OEM.
There is as yet no silver bullet solution to the distribution dilemma, and OEMs are still experimenting to find the right balance between direct sales, dealer sales and the agency model. This will be a key consideration for businesses right across the value chain in 2023 and, more than likely, beyond.
The issue around repair still remains a challenge and opportunity. The Metavers can currently help with training, diagnosis and some remote service, but physical service and repair still needs to be done. 2023 will see some additional progress in dealing with and optimising this area.
As we look ahead to 2023 and beyond, the seamless blend of online, offline and virtual elements into the customer service package will be key.
OEMs and dealers have tested and developed many of the individual elements of that experience—now, the challenge is how best to integrate them into a unified whole. The leaders of tomorrow, whether OEM or dealership, will be those that offer consumers the seamless buyer experience they expect, with the physical touchpoints they still need, via whatever medium they choose.
About the author: Randy Miller is Global Advanced Manufacturing & Mobility Leader at EY