J.D. Power projects the COVID-19 pandemic will reduce US vehicle sales by 1.2-1.6 million units over the five months of March to July, digital engagement with consumers has helped to soften the blow at least a little – making it one of the few bright spots in an otherwise bleak automotive market, according to Jon Sederstrom, Managing Director of Strategic Initiatives at J.D. Power.

“To be clear, the issue has not been on the demand side of the equation. Most shoppers consider the traditional process of buying a car outdated and lagging other industries. It takes too long and requires too much effort to get basic information about price, trim and options,” says Sederstrom.

J.D. Power research reveals that consumers are spending upwards of 11 hours researching cars online. And while this helps consumers reduce the number of dealers they visit, it hasn’t translated into less time in the dealership when they actually purchase a vehicle. They still end up spending close to five hours in the store.

“Our data clearly shows that a growing number of consumers want a shorter and easier experience. In fact, 43% of car buyers tell us that they are willing to complete the entire purchase process online—without ever visiting the dealership. It is a figure that has been climbing since 2018,” adds Sederstrom.

Most consumers, however, run into barriers when completing their digital transactions. Despite the desire to transact online, more than 90% of new-car buyers tell us they eventually end up going to a dealership to finalize their purchases.

“This represents a significant gap between digital demand and the ability of the industry to supply a digital solution. While much of this can be explained by limitations in the technologies that are currently in use by OEMs and dealerships, the gap is largely driven by fragmented strategies and traditional preferences,” says Sederstrom.

Many OEMs have deferred the responsibility of managing digital experiences to their dealer networks. This has led to a fragmented array of strategies that are often not well integrated across the different key elements of consumers’ buying journey.

In addition, dealers have been slow to embrace digital retail. They have been highly successful for many years selling cars face to face and few have seen a compelling reason to change.

“In fact, there is concern that online sales will create a race to the bottom on price while eliminating a dealer’s opportunity to profit from the sale of F&I products,” adds Sederstrom.

As a result, dealers that have adopted digital retail tools have largely implemented them in a way that collects rich information about the shopper before requiring a traditional showroom visit—not as a true purchase platform.

“The COVID-19 pandemic has changed the rules of the game. While we fully expect the kind of year-over-year growth in digital transactions to somewhat flatten now that consumers can visit showrooms (and are comfortable doing so), the digital genie in the automotive sector is now out of the bottle,” says Sederstrom.

General growth in end-to-end transactions will continue—and very likely accelerate—over the mid- and long-term horizons.

However, J.D. Power does expect that many consumers will still want to see and touch a car before making such a major financial commitment. Some shoppers will also want to negotiate. The rising profile of digital transactions will not fully displace brick and mortar dealer facilities, just as e-tailing has not fully replaced traditional retail operations. It will, however, leave an indelible impression on the industry.

“Looking ahead, we project that the adoption of online car buying will accelerate and account for 25% of retail sales by 2025, even if the online actions take place before and/or after things like a test drive. The pandemic is forcing the industry to respond to the fact that consumers want to take more control over how they experience the car-buying process,” adds Sederstrom.

As these trends unfold, digital retail tools are going to get a lot more attention throughout the automotive value chain. The ability to attract, engage and close transactions will increasingly depend on how well these technologies perform.

“While there are pros and cons, our experience has shown that the standalone third-party platforms tend to connect with consumers in a more effective manner. Companies like Carvana, Vroom and CarSaver have built platforms from the ground up with the exclusive objective of selling cars online. As a result, the online experience is more complete, integrated and user-friendly,” says Sederstrom.

The details of how established dealerships and OEMs respond to the changing automotive retail landscape remains to be seen. What is certain, however, is that winning the digital engagement battles will be key to sustained success in a post-COVID-19 market. Confronting a recurrence of the COVID-19 crisis (or other unforeseen disruptive event) without a viable online sales channel presents untenable risk for both dealers and automakers.

“COVID-19 represents a watershed moment for online retailing. The brands and dealers that aggressively embrace a cohesive and robust strategy will win during future crises,” concludes Sederstrom.

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Jon Sederstrom is Managing Director of Strategic Initiatives for J.D. Power’s Global Automotive division. In this role, he focuses on digital disruption and how it affects consumer interactions with the dealership. Jon has been with J.D. Power for more than 10 years in numerous roles, including five years partnering with OEMs and dealers in Brazil.