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US automakers accelerate online selling options during COVID-19 pandemic

Major U.S. automakers are expanding online sales options during the coronavirus pandemic, a trend that experts say is likely to accelerate even as the largest companies remain reliant on dealerships.

Automakers began expanding their online presence to encourage vehicle sales as government orders that closed businesses, including dealerships, and kept consumers at home caused a drop in demand for new vehicles in the first quarter of 2020 and prompted experts to shave their full-year sales forecasts.

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The growth of online used-car retailers Carvana Co. and Vroom Inc., which made its public debut June 9 on the Nasdaq despite other companies postponing IPO plans, could also be a sign of demand for online options for buying cars. Vroom shares closed at $47.51 on June 19, more than double the $22 per share initial offering price. Carvana directed questions from S&P Global Market Intelligence about sales trends and the pandemic to its first-quarter earnings report, while Vroom did not respond to a request for comment.

Although automakers like General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV cannot sell new vehicles directly to consumers because franchise laws require carmakers to sell through dealers, the automakers are expanding online options that still involve dealerships. GM offers a "Shop Click Drive" option where customers can order a vehicle and pay online, either picking up the car at a dealership or requesting home delivery where available. Fiat Chrysler introduced an "online retail experience" in April to help dealers that had to shut down new-vehicle sales operations and showrooms during the pandemic. With Ford, individual dealers offer online sales, which means consumers can handle most of the paperwork online but must pick up the vehicle at the dealer.

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Most states, however, still require that certain documents and forms must be filled out in person, according to Cox Automotive.

"That said, we do believe more of the process is taking place online and less is happening at dealerships," Cox Automotive spokesperson Mark Schirmer said. "And consumers have long indicated that's what they want."

Shift toward online retail

Two-thirds of consumers are likely to buy a vehicle online, according to a Cox Automotive survey, but the remaining one-third — mostly baby boomers and truck buyers — still prefer in-person deals. Participants identified as baby boomers said they prefer to negotiate in person, while truck buyers said they enjoy negotiating, can get a better deal in person, or both, according to the survey.

GM CEO and Chairman Mary Barra said online retail is a big piece of how people are making purchases right now, adding that GM dealerships stepped up to provide that capability to consumers.

"Definitely we'll see more customers wanting to do most, if not all, of the transaction online," Barra said June 15 during a fireside chat with the Automotive Press Association. Barra, however, said she does not think everyone will want to do that, which is why GM will offer customers as much or as little as they want online.

Fiat Chrysler said sales leads generated from online tools account for 20% of sales at dealerships today, compared with 1% year over year. More than 95% of its dealer network is using online tools, including the "online retail experience," to sell vehicles online, the automaker said in an emailed statement.

"FCA believes online selling is now a permanent part of the industry moving forward," according to the statement. Online tools will not replace showroom visits but will offer another way for dealers to reach the segment of consumers who prefer online retail, Fiat Chrysler said.

About 25% of Ford's sales are online now with 72% of its North American dealers offering online options, COO Jim Farley said June 10 during Deutsche Bank's virtual auto conference.

Ford customers still need to visit a dealership to finalize the purchase, and a Ford spokesperson said "moving to a contact-free experience is a change in process, but our dealer partners are no strangers to change and are committed to meeting the needs of Ford customers."

The fluidity of the situation makes it difficult to predict if an increase in online-related sales is temporary, but the spokesperson said the increase in popularity of Ford's online retail — along with surveys from customers and dealers — shows consumers appreciate the online process.

Online retail for used cars ramps up

The increasing popularity of companies like Carvana and Vroom, which allow consumers to purchase vehicles online, could show growth in the online auto retail market.

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Carvana, which went public in 2017, sold 52,427 vehicles in the first quarter of 2020, up 43% year over year. The company's revenue hit $1.10 billion in the quarter, up 45% year over year. However, the company has yet to turn a profit, posting a net loss of $183.6 million in the first quarter of 2020, according to its earnings results for the period.

Vroom, which went public in June, sold 7,930 vehicles in the first quarter, according to its S-1 filing with the Securities and Exchange Commission.

To become a new vehicle franchise, like a traditional car dealership, the company must also service the vehicles, Cox Automotive's Schirmer said. This is why Carvana and Vroom are focused on used cars only.

Technically there is nothing stopping franchised new-car dealerships from doing exactly what Carvana does, Schirmer added, which includes negotiating the deal online, bringing the car to the buyer's house and signing the paperwork at home.

Dealerships still involved

While electric-car maker Tesla Inc. sells directly to consumers, experts say other automakers will still need to involve their dealers.

Using dealers franchised, independent businesses — is a competitive advantage for original equipment manufacturers, or OEMs, because the dealers use their own capital, employees and resources, according to Michelle Krebs, executive analyst at Autotrader.

"At the end of the day, automakers sell vehicles to dealers, dealers sell to people," Krebs said. "Why would Ford want to sell directly to individual customers, one vehicle at a time?"

Tesla also has fewer models to choose from and lower volume compared with automakers like GM, Ford and Fiat Chrysler.

Alexei Andreev, managing director at venture capital firm Autotech Ventures, does not think OEMs will be able to sell their vehicles directly to consumers anytime soon because of franchise laws. Consumers, however, do not care whether they buy a vehicle directly from a manufacturer or dealer, he added.

Younger customers are more likely to gravitate to online purchases, whereas older consumers still want to visit the dealership, according to Andreev.

"Some people may want to buy pure online," he said. "Some people may want to almost buy online, but they still go and do the final test drive before clicking."