Car buyers click into digital gear
New generation is totally ready to ignore old-style dealerships
● As South African shoppers grow accustomed to digital shopping, questions are being asked about the relevance of car dealerships. Will kicking tyres be a thing of the past as more consumers move online, leaving showroom floors all but deserted?
At its North American debut last month, Volvo’s electric vehicle was put on display for some 200 US customers who had already paid their deposits but were seeing the car “in the flesh” for the first time.
The vehicle, which will only begin production in 2019, appeals to a growing consumer base that no longer needs to visit a dealership when choosing its next car, and relies instead on digital browsing. A large percentage of SA-born entrepreneur Elon Musk’s Tesla vehicles are pre-ordered.
Everyone’s an expert
Paul de Vantier, MD of Lightstone Consumer, said almost all purchases started online as would-be buyers researched their options.
“Many customers arrive at a dealership knowing more about the market and the alternatives they are considering than the salesperson ever can,” he said.
In SA, more than a third of customers are willing to conduct the entire car-purchase process online, including paying a deposit and arranging finance.
“This percentage increases for younger buyers; for example, with buyers aged 18 to 25 the percentage is 36%,” De Vantier said.
“Buyers over 50, however, are much less likely to consider a completely online approach. As the market matures and new, younger buyers enter the market, this percentage will inevitably increase.”
While manufacturers such as BMW, Volkswagen and Volvo still spend millions of dollars on setting up new dealerships, the rate of expansion is expected to slow. The National Automobile Dealers Association (Nada) says there are about 1,700 new-car dealerships and 2,500 independent used-car outlets in SA.
Dealer still has a role
Motus, a subsidiary of Imperial Holdings, owns 343 retail dealerships in SA and does not expect its dealer footprint to increase.
Esha Mansingh, investor relations head at Imperial, said the cost of setting up a retail dealership could be anywhere between R40m and R100m, depending on the franchise, size and scale.
“An average medium-sized dealer has approximately 10 walk-ins a day” for new or used cars, Mansingh said.
The rise in online sales and a sluggish domestic economy have kept pressure on the number of walk-ins.
While vehicle sales increased to 47,881 units in July from 46,663 in June, sales momentum is hobbled by the pressure on disposable income exerted by rising fuel prices, the VAT increase, inflation and the weak job market.
Bidvest’s McCarthy automotive division, which contributes about 31% to overall revenue, reported a trading profit decline of 6% in the six months to end-December 2017.
The unit, the largest contributor to Bidvest’s revenue, said it was refining its technological and digital operations in response to the fall in traditional retail-floor traffic.
“Our strategy is to take our showroom directly to the living room or the office, thus also improving the transparency of the buying experience for our customers,” it said.
But Mansingh maintains that car dealerships are still relevant. One argument in their favour was the paperwork surrounding the purchase.
Navigating Fica
Nada chair Mark Dommisse said Financial Intelligence Centre Act (Fica) regulations meant a consumer still had to use the dealer channel to complete a purchase.
“Motor vehicles are highly regulated products that require stringent Fica regulations when being purchased,” he said.
“In addition, licensing, insurance, financing and periodic servicing and/or maintenance are specialist areas needing expertise and a lot of investment by the dealership owner.”
The majority of people still need to touch and feel — kick the tyres, if you like Paul de Vantier
MD, Lightstone Consumer
FirstRand-owned WesBank says dealer sales account for 80% of total sales in SA, and it expects a modest increase of 3% in the dealer segment this year, driven mainly by passenger-car sales.
De Vantier also believes car dealerships will remain relevant, but says they need to be reinvented.
“Dealers will adapt to changing conditions and the needs of the customer, but they will always be relevant in some form or another,” he said.
“The majority of people still need to touch and feel — kick the tyres, if you like — and test-drive before making a final call, especially in the used-car space,” he said.
“Even where a deal is concluded remotely the dealership will remain the point of delivery and the point of servicing and support.”
Mansingh said: “Customers need to testdrive and service their vehicles and buy parts. Dealers will be relevant for many years to come. The dealer footprint won’t necessarily increase, but will handle more volume. Even in the most developed markets, the dealer model is still relevant.”
Ghana Msibi, executive head of WesBank sales and marketing, said consumers needed to use a dealer to complete the transaction, except in the case of a private sale.
Msibi said WesBank had seen an increase in the number of consumers applying for finance via its online finance application portal, “but ultimately the dealer is involved in the process when it comes to delivery of the vehicle itself”.