Car dealers turn to online as sales plummet.
Pandemic causes industry to rethink business model
After more than a decade of getting around New York City almost exclusively by subway and bus, Nicole Avallone decided to buy a car in April after watching the rapid spread of the coronavirus.
But with dealerships closed in the New York area, Avallone did something few car buyers are able or willing to do: buy a car online. Over the course of several phone calls, text messages and Zoom meetings with a sales representative at Paragon Honda in Queens, she found a low-mileage, darkpurple Honda HR-V that the dealership delivered to her door in Brooklyn.
“We did a lot of the paperwork online, and we didn’t have to spend hours in the dealership,” said Avallone, a psychotherapist. “I had a million questions, but it was a lot easier than I thought.”
E-commerce has been embraced for all manner of goods and services books, travel, groceries, electronics but auto sales have resisted the trend. While consumers typically use the internet to browse and arm themselves with information, they have gone to dealers for most transactions.
With the coronavirus and stay-at-home orders, that is changing.
“Dealers are discovering they can sell cars online,” said Alan Haig, president of Haig Partners, an automotive retail consultant. “They are learning how to interact with customers outside the showroom.”
In reporting its first-quarter earnings, General Motors said 750 of its dealers had signed up for its “Shop Click Drive” e-commerce system since the outbreak began. More than 85% of its dealers in the United States now use it, said GM’s chief executive, Mary T. Barra.
AutoNation, a chain of more than 325 dealerships, also reported a jump in online-only sales in March and April.
The company’s chief executive, Mike Jackson, said he
believed online sales would continue increasing even as stay-at-home restrictions were eased. “This is what the industry has needed to do for a long time,” he said. “This is an inflection point, a strategic shift, and it’s not going back.”
Paragon Honda sold about 70 vehicles a month online before infections started to surge in March, a small fraction of its typical monthly total of about 1,300. But when officials in New York ordered people to stay home, the dealership had a dozen or so of its sales representatives switch to online sales.
In April, the dealership sold 378 cars online,
and the total for May is expected to exceed 500, said Brian Benstock, Paragon’s general manager. “We didn’t think we’d see this much business, but in April we had no choice,” he said.
Paragon had a head start because it had been picking up and delivering cars for oil changes and other services for the last two years, using a system that allowed customers to schedule, approve, and pay for repairs by text. As a result, it had a staff of experienced delivery drivers ready to go.
Paragon’s drivers wear masks and gloves, cover seats with protective plastic and disinfect the steering wheel and other places that might have been touched during the delivery.
Until recently, customers
had few options for buying cars online, among them Tesla, the electric car company, and Carvana, a nationwide seller of used cars.
Tesla customers can choose and customize cars, secure financing and pay for their cars on the company’s website. Carvana has a similar system allowing customers to peruse its nationwide inventory. Buyers can have cars shipped to them, sometimes at no additional cost.
“This is what consumers want and expect now,” said Ernest Garcia III, Carvana’s chief executive. “The product comes to you. You don’t go to the product.”
Conventional auto dealers face issues that onlineonly sellers do not, particularly in setting prices. Automakers use discounts and incentive programs to change prices as often as every month. Manufacturers give sales representatives leeway to cut prices to close deals, and customers know that the sticker price may not be the last word. Dealers resort to such discounts in part because other dealers in the area are competing to sell the same cars.
Some manufacturers prevent dealers from advertising the prices they would be willing to accept. For example, Honda typically requires dealers to advertise the list prices of cars on their websites, without taking into account discounts and incentives, Benstock said. For some models, that means Paragon is displaying a price that may be up to $7,000 more than what customers end up paying.