The retail automobile industry is in interesting times

Amazon and other behemoth online services have taken a heavy toll on the country’s retailers. But dealers have been largely immune. That’s because state franchise laws largely restrict manufacturers from directly selling to customers.

Having said that, there are signs of a few manufacturers shifting to a more European-style shopping process with “internet only” models and online ordering.

Volvo has announced the new V90 will be an “internet only” model and will have no classic V90s available at dealer showrooms. A customer will build and order their car online and it will be drop shipped to a nearby Volvo dealer for delivery.

Lex Kerssemakers, CEO of Volvo Cars of North America said, “We want to try online ordering to see how it works,” taking it as far as possible while still obeying U.S. franchise laws. “We know there are many people who simply don’t like to go to a dealer, and we want to give them an alternative experience.”

In the end, the final details will still need to be done by the dealer, including performing the vehicle delivery, but the process will come as close to ordering from Amazon as possible and still comply with franchise laws.

Asked if Volvo might expand that to other product lines, Kerssemakers said, “Absolutely.” And he said the carmaker sees the potential to make the approach to retailing its launching on the V90 appealing to a sizable share of its shoppers.

Cadillac launched Project Pinnacle in January in an effort to transform its retailer network. Cadillac dealers were separated into 5 tiers based on sales volume, with tier five designated for those dealers who sell the fewest number of Cadillacs.

As part of Project Pinnacle, Tier 5 dealers will no longer carry any new Cadillac inventory, according to the Wall Street Journal. Instead, those dealers will become “virtual showrooms,” and customers will view cars with virtual reality goggles and then order the vehicle, according to the report. The idea behind the virtual dealership is that it would give dealers who sell only a few Cadillacs the ability to continue to offer the Cadillac brand with much lower operational costs.

Bill McDaniel, the president of McDaniels Automotive Group, sees the future of the car industry being controlled by maybe a dozen companies like the Penskes, the Asbury group, and the other large groups. Bill thinks that down the road, once the dust settles, the car business will become more like an Amazon.com where consumers order the cars exactly the way they want them. They send it to a service facility and you go there and pick [up] your car. When that time comes, Bill believes there will not be any salespeople.

As for the Volvo and Cadillac experiments, I think it’s a trial balloon for those manufacturers to find out how their customers will react to a fully online buying process.

The tests raise a number of questions:

  • If Volvo and Cadillac deem their “internet only” processes a success, then what comes next? Will other car manufacturers follow suit and start conducting similar tests?
  • What’s the impact to franchise dealers? -Larger used car operations to fill up their blacktop? -More dependence on service absorption rates?

One thing is for sure; it’s an interesting time to be in auto retailing!

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