Digitization, Customer Experience are Reshaping Vehicle Sales

The automotive industry faces arguably the biggest transformation in its history, impacting all players, from the supply chain to OEMs and dealerships. Digitization, technology and mobility trends, in addition to new consumer demands, are shaping vehicle sales toward a more customer-oriented, online experience. Meanwhile, second-hand vehicle sales continue to grow and digitize in the Mexican landscape.

"The world has become omnichannel. The convergence of the physical world with the digital world is a reality. In the second-hand vehicle market, 67 percent of customers who bought a car first saw it online and confirmed the decision when they saw it in person. The car is a good that people want to see physically in order to buy it, but in the future, 100-percent digital sales will also play an important role,” said Roberto Villalobos, Country Manager, OLX Autos.

The traditional sales model, which still prevails in the Mexican market, is through dealerships. In 1898, a salesman from Detroit obtained a franchise from General Motors Corporation to sell steam autos. Over 120 years later, the dealership model still dominates the market, with OEMs and dealers operating as independent or even nonaffiliated legal entities. Automakers sell their products to dealers, and dealers, through their own stores, sell directly to customers.

The dealership model gives OEMs more liquidity because they are paid before the vehicles are sold to end customers. It also allows automakers to distribute vehicles through the network quickly, enabling them to focus on expanding their manufacturing capacity and upgrading technology, which has become increasingly important for customer preference.

“The [automotive] industry has existed for over 100 years, and only in this new millennium it started to change substantially. Now, investments are changing considerably. The centralized one-stop-shop automotive distribution model is increasingly at risk. We see fewer dealerships and tighter margins,” said Daniel Esponda, Founder and CEO, Odetta.

The unending challenges that the automotive industry has faced since the pandemic, from semiconductor shortages to logistics and supply chain constraints, resulted in historic lows in vehicle production across the world, reducing new vehicle sales dramatically over the past two years. As the sector continues facing the consequences of the pandemic, some may fear that entire segments or players may disappear due to disruption and innovation, said Guillermo Rosales, Director, AMDA. However, other players will see the situation as an opportunity to innovate and take advantage of the new circumstances and technologies, he added.

OEMs and dealerships face different challenges. While some automakers may see tech giants as competitors due to the changing customer demands and increasing importance of the in-vehicle experience, dealerships could see OEMs as possible threats due to the digitization of vehicle sales, which enables direct sales from OEMs to end customers.

The situation, however, must be managed jointly to keep the business running and innovative, said Jaime Pedraza, CEO, AutomotiveSolutions: “Mobility-as-a-service and direct sales have become a threat to the traditional automotive market. OEMs and dealerships must work together on a robust customer experience strategy. Clients must be served in an excellent, efficient way.”

While the disruption and low-vehicle production impacted OEMs and dealerships negatively, it opened opportunities for players within the second-hand vehicle market. Used cars have always represented an attractive offer in terms of price but, historically, the second-hand vehicle market has faced several issues, mainly high levels of risk. Although traditional dealerships offer a buy and sell market for these vehicles, clients often prefer to remain in the informal market, where they can receive a higher price when reselling their vehicle.

Customers have become more informed thanks to technology, said Esponda. “The process of discovery has changed substantially. The information is online and accessible to most people. Buying a car represents one of the most important purchases for Mexicans. It is a crucial financial decision,” he said.

Mexico has experienced a massive e-commerce boom over the past three years. The pandemic boosted e-commerce adoption and growth in the country. In 2020, online shopping grew by 81 percent, according to the Mexican Association of Online Sales (AMVO). In 2021, e-commerce grew by 27 percent. Online and omnichannel transactions are shaping the second-hand vehicle market, while increased degrees of technology and data analytics have made the inspection of cars faster and more secure than ever before.

“The entire buy and sell process starts with a good acquisition. If we buy a good second-hand car, the business becomes safer and more profitable for everyone involved. Documentation also plays a key role in Mexico, in addition to a deep, professional inspection of the mechanical and physical conditions of the car,” said Villalobos.

Dealerships and second-hand vehicle e-sellers have strengthened their product offering through extended guarantees, insurance and financing alternatives for clients offered by in-house companies or through partnerships and strategic alliances with different players in the market. “We offer a one-year guarantee for our second-hand vehicles,” said Villalobos.

Clients must have a wide range of options when it comes to financing and additional services, such as insurance, said Esponda: “The client must be given all options in one single request, giving them the power to decide.”

Global OEMs have started a transformation from automakers to mobility and technology providers. This shift from hardware sellers to solution providers has led OEMs to focus on technology and in-vehicle and cabin experience, while offering additional over-the-air updates and exploring new business models.

In the near future, “OEMs’ collaborations with dealerships will remain crucial. Vehicles will be associated with much more than taking people from point A to point B. In the future market, clients will be able to buy an entire package of software from their car brand, in addition to several other services,” said Pedraza.