To meet consumer demand, many manufacturers are adapting their retail businesses, introducing alternative sales models and digitalizing customer-facing and in-house processes. Although these digitalization efforts have been available for some time, the recent COVID-19 pandemic has accelerated the demand for online services, both from a consumer perspective and from an operational one.

The variation in operating models tends to depend on the market conditions and the primary focus of the business – many new, all-electric manufacturers have adopted fully online retail models, offering digital services to their customers. However, it’s unlikely that any OEM will achieve a fully online status any time soon. Customers have shown a continued desire for some form of human interaction, forcing some new players to re-introduce more physical stores to meet customer demand. Tesla, for example, increased its number of sales outlets in Europe from 87 in 2016 to 145 in 2021.

Despite introducing CASE technologies to their product portfolios, most traditional OEMs still produce legacy vehicles so they need to offer both online and offline sales journeys to customers. Research conducted by ICDP found that in 2017 only four brands in Europe were offering their full product range online, and only in individual markets. By November 2020, this increased to nine brands offering their full product range in specific markets, with one even providing its full product range online in multiple countries. But although these OEMs are improving their online offering, many aren’t striving for full digitalization because their retail network plays an important role in the brand’s success. And while introducing an agency model will improve the OEM’s relationship with the customer, physical touchpoints will still be a requirement.

Challenges and disruptors

As well as managing customer expectations, OEMs must carefully consider the costs attributed to selling vehicles through the traditional retail network. With considerable investment being made in new, innovative mobility solutions and sustainable transportation, costs must be reduced elsewhere. An online sales model enables OEMs to reduce their distribution costs and provide more transparency to the customer.

While some disruptors still focus primarily on manufacturing vehicles, others are entering the industry from different sectors, bringing with them an established ecosystem, network or online presence. One of the main challenges for these disruptors, however, is that automotive retail is not in their DNA. Many lack the experience and set-up required to complete vehicle repairs and maintenance and are therefore looking for partners who have established networks. Although these organizations may not have the generations-long experience in automotive retail, they can offer exciting new services and revenue streams.

But these new collaborations must integrate data flows and workstreams to manage the online customer journey. To connect to the customer, every touchpoint must be tracked and data needs to be logged as part of the customer journey, whether it’s in the workshop, sales area, technical helpdesk or warranty support. The management of customer data can be enhanced by workflows that combine the vehicle identification number (VIN) with customer information enabling the OEM to track the entire lifecycle, even into its second life with a new owner.

Digitalization is key to improving customer satisfaction

The responsibility of lead generation is quickly moving away from the dealer to the online platform. Consumer expectations demand that information and services be available online, including the ability to communicate with the brand. Shared forums or virtual showrooms provide customers with the ability to shop from the comfort of their homes, configuring the car they want and exploring finance options. In the aftersales area, many of the new digitalized processes focus not only on transforming the customer experience, but also on reducing operating costs. Automated warranty handling and technical assistance are digitalized backend solutions that, when combined, make up consolidated aftersales services. By integrating these processes, OEMs can help connect different areas of the business, reduce operating costs and help OEMs work more efficiently.

There are also advantages to digitalizing customer communication in the aftersales area. If a vehicle in a workshop requires additional work, the request and price quote can be sent to the customer who can approve it digitally without the need to visit or call the workshop. This not only provides a clear paper trail for audit purposes, but it also allows the technician to complete the work as quickly as possible, further improving transparency and customer satisfaction.

Automotive retail from the view of the customer

Before the pandemic accelerated the digitalization of the automotive industry, customer expectations were already changing when it came to online purchasing. But now, consumers are also demanding online vehicle service booking, saving them time and effort, and allowing them to choose a service at a time that’s convenient. Other industries have already set expectations for online buying, and the car industry needs to follow quickly. The process of visiting multiple dealerships to look at different cars is no longer appealing to today’s consumers. Research conducted by ICDP found that on average, 66% of new car buyers had a single, specific make and model in mind at the start of the purchase process. In many cases, the visit to the dealer is simply the last step in the journey – to sign the contract or finance agreement.

A positive move from dealer to agent

With more data being captured by OEMs, and customers forming relationships with the brand rather than an individual retailer, it may be surprising to learn that many dealers are in support of this transformation. But with online customer interactions increasing, dealers recognize the challenge in keeping the cost of running a traditional dealership viable. With the agency model, the agent, formerly known as the dealer, earns a certain percentage of the sales without having to generate the leads and invest in stock. Some businesses are generating a higher income than they were before the change.

This agency concept has been developed in line with the needs of the retail network, and OEMs have had to consider the consumer demand for physical touchpoints. So, while the role of traditional dealers is changing, they still have an important role to play in the network. Meanwhile, the price transparency offered as part of the agency model means that competition between dealers is no longer price-focused, but is instead about customer experience and satisfaction.

Transforming the traditional OEM

Currently, we’re seeing OEMs roll out the agency model in conjunction with the launch of new vehicle models. But eventually they will want to introduce the model across the whole brand. This will further improve customer satisfaction, removing the need for multiple retail models operating under the same brand for different vehicles. Besides meeting customer expectations, online sales give OEMs the opportunity to save costs, and with such heavy investments being made in innovative technology and connectivity, OEMs need to make savings wherever possible.

Crucially, OEMs must consider how they position themselves in the market – whether they consider themselves a manufacturer or mobility provider. Any digitalization efforts must fit into their existing ecosystem to make the transformation financially viable. Systems have to be connected and people must be trained to use them. But whatever they decide, OEMs must create a new brand experience in line with their ethos that allows them to position themselves as industry innovators.