New vroom of digital sounds the alarm for suburban car yards
City Motors Holden’s Mark Robertson and Zoe Nieuwhof. Picture: Colin Murty.
Its name is Carzoos. But some just prefer to call it the Apple Store of cars.
It is manned by a young team of “buddies”. And the only cars you can see in the showroom are on iPads.
It is a world away from the usual suburban used-car yard stocked with vehicles to touch, feel and drive, but for AP Eagers chief executive Martin Ward, it is a vision of the future.
Over the past 12 months his firm — which owns the nation’s biggest portfolio of car dealerships, including Toyota, Holden and Ford — has opened a Carzoos test store at Westfield Garden City in South Brisbane and a full store at Westfield North Lakes in north Brisbane.
So far, so good.
“The customers we have engaged with absolutely love Carzoos and they see compelling value in our offering. Our Google trust pilot rating, which only commenced last month, is sitting at five out of five. This is a critical success factor for future web-based scalability,’’ Ward told his shareholders at the company’s annual meeting.
“Carzoos at this stage is an investment into the future of automotive retailing and the insights we are gaining are also assisting us to adapt our core retailing operations.”
The problem for Ward is that at the very same meeting he issued a surprise profit downgrade. Less than 24 hours later Automotive Holdings Group, in which AP Eagers has a 22.8 per cent stake, did the same.
The downgrades, flowing from weaker than expected new car sales numbers, were blamed on the weak West Australian and Queensland economies to which AHG and AP Eagers are heavily exposed, as well as tighter consumer credit conditions in the automotive financing market.
New car sales have fallen 10 per cent in Western Australia and 5.9 per cent in Queensland this calendar year, while nationally they are down 2.8 per cent.
An Australian Securities & Investments Commission investigation into excessive commission payments in the financing of automotive vehicle purchases has also had an impact.
But the downgrades have also raised bigger questions about the future of the automotive dealership, in an age where car buyers are more informed than they have ever been and have tools at hand that transform the purchasing experience.
With the end of auto manufacturing in Australia, car retailing is now the biggest employer in the motoring space, said to contribute around 2 per cent to national GDP.
But it is “very difficult to confidently predict what the landing space is’’ for the sector, according to Australian Automotive Dealer Association CEO David Blackhall.
AHG managing director John McConnell said it was inevitable the industry would face more challenges in and around the digital journey from consumers.
“Some more consumers will want to transact digitally, and I don’t think the parallel is significantly different to, perhaps, online retail in the UK. If you take Tesco and Sainsbury etc in working out the balance between the appropriate bricks-and-mortar deployment of capital versus the digital channel,’’ McConnell says.
AP Eagers runs more than 120 vehicle dealerships around Australia, while AHG runs 109 dealerships across several states. Most new car dealers make a margin of 2 per cent on sales, so volume is crucial for the sustainability of dealerships.
“While the transactions in an automotive sense are arguably more complicated than that of ‘I’m buying a bunch of bananas online’, the nature of a new car transaction involves multiple different aspects (finance, insurance, accessories, trade-ins). It is a more complicated transaction but nonetheless I think more consumers will over time want to potentially transact that way, which means some of the volume that previously might have gone to bricks-and-mortar channels, may be going in a digital channel,’’ McConnell says.
“So rethinking how we face off to customer needs going forward is going to be important, and whether or not the same deployment of bricks-and-mortar capital may be required in the future is another question.’’
AP Eagers shares have dropped around 19 per cent so far this year and are currently trading near two-year lows, while shares in AHG Group have lost almost 25 per cent over the same period, taking its market value below $1 billion for the first time in three years.
Shares in Autosports Group, which runs 31 new and used high-end car dealerships, along with three crash repair outlets in Sydney and Melbourne, have fallen over 23 per cent this year.
But in a note to clients this week Credit Suisse claimed that unlike housing, “cars remain at highly affordable levels, population growth and car park size support a base level of annual vehicle sales, and manufacturer incentives (when aligned to current conditions) are arguably more important to profitability than a few percentage point swing in new car sales.”
Credit Suisse also noted that parts and service income would continue to provide a regular, profitable back-end income stream for dealers, often supported by fixed price service programs.
It also said AHG and AP Eagers had opportunities to increase used-car sales penetration through easyauto123 (AHG’s online concept) and Carzoos, respectively, as well as through existing channels.
Earlier this month European Automotive digital marketing analyst Sophus3 released its quarterly summary on research into how consumers are accessing information from major car brands. The device of choice was clearly the mobile phone.
Sophus3 found mobile usage for car shopping in Britain represented 59 per cent of all visits to car brand sites, which allow consumers to take virtual tours of the online showroom and even take virtual test drives.
Matt Zwolak, Tesla product specialist Callum Alchin, and Greg Zwolak. The Tesla store in Martin Place offers a glimpse of what car dealerships of the future could look like. Picture: Hollie Adams
Mark Robertson, the new car sales manager at Perth Holden dealership City Motors, acknowledges customer behaviour has changed markedly over recent years.
“Not very long ago customers might visit a dealership or dealerships four or five times before making a new car purchase, whereas today they’ve fully researched their choice before they walk into the showroom,” Robertson says. “But for the vast majority of purchases there’ll still be a test drive involved.”
It’s a sentiment echoed by City Motors marketing manager Zoe Nieuwhof. “Online is massive, and especially mobile,” she says.
“We can give customers so much information and even chat live with them online ... (although most still want) the tactile experience before they make that final decision.”
And in the bricks-and-mortar world the shopping centre store model is being increasingly adopted by carmakers across the world.
Late last year Renault launched a unique brand concept store at Westfield Hornsby in Sydney’s north, while many other brands such as Holden have used temporary pop-ups in retail centres.
Electric car trendsetter Tesla now has a permanent store at Melbourne’s Chadstone shopping centre, as well as showroom and service centres across Melbourne in Richmond and in Sydney’s Martin Place.
Tesla’s model allows customers to deal exclusively with the brand. A company spokesman claims this allows it to open stores in locations “where our customers are, creating an educational and low-pressure environment to learn about our products.
“The online process is also complementary to the in-store process. There is consistency with the use of the design studio, allowing for customers to come in-store and be educated by the Tesla team, undertake a test drive, however be able to make decisions pertaining to their design in the comfort of their home if they wish,’’ the spokesman says.
“They are then able to place the order online, or go through their configuration in-store. This also allows for customers in locations where we do not have stores to order our vehicles as we continue to grow.”
But David Blackhall says he cannot yet see a model that obviates the need for a physical presence in the market.
“Tesla likes to say they don’t have dealers ... Tesla have dealerships. When you go into one of their shops you’re speaking to someone who is in the business of selling you a car,” he says.
Confirming its ongoing belief in bricks and mortar, AP Eagers on Friday agreed to pay $14m for the Porsche Centre Adelaide to complement its existing Porsche Centre in Brisbane.
Gary Martin, CEO of Cox Automotive Australia and New Zealand, says dealers globally are streamlining their sales process as much as possible to align their sales teams to better integrate with a customer’s online experience.
“The nature of the customer engagement and relationship has changed with the internet. This is especially true for younger buyers, Gen Ys who are looking for frictionless retailing,” he says.
“Dealers are already adapting to consumer needs, offering more highly self-directed and personalised shopping experiences. Their process will be fast, transparent and actually enjoyable for their customers.”
Technology is changing the way consumers buy new cars. Picture: Getty Images
Last year, Cox Automotive merged its Australian assets — Dealer Solutions, Manheim and online website Sell My Car — with auto classifieds group CarsGuide after News Corp Australia (publisher of
The Weekend Australian) — sold its 50 per cent stake in the latter group.
Cox Automotive Australia is now 30 per cent-owned by DealerMotive, a consortium of some 60 dealer groups representing about 600 dealerships around the country.
Global chief executive Sandy Schwartz said during a visit to Australia in April that Cox planned to bring its proprietary vehicle shopping and dealer software products to the Australian market to accelerate the adoption of digital technology in the buying, selling and servicing of cars.
Blackhall says about 45 per cent of all used car transactions today are peer-to-peer. “And that again has put pressure on the profit opportunities of the franchise dealerships. If you’re managing to the old paradigm you’re going to have a problem,’’ he says.
But John McConnell says online players Cox Automotive and carsales.com have become an inextricable part of the industry — not viewed as competitors, but rather new avenues to consumers.
“Whether we wanted to do things differently or wanted to do things ourselves ... the reality is Carsales has built a position in the marketplace as a scale player,’’ McConnell says.
New Carsales chief executive Cameron McIntyre — who took over from industry legend Greg Roebuck earlier this year — agrees that the company will always work co-operatively with dealers.
“We see our role in life with the dealers is to provide them with the facility to make their inventory visible to consumers and provide them with capability to manage their performance. I don’t see our role in that space changing — I would like to see our role with the dealers to continue to evolve,” McIntyre says.
“There is also the servicing requirements for cars and they still have to be delivered somewhere. There will always be a market for a dealer and there will always be a place for them.”
Additional reporting: David Swan
