VOW Volkswagen AG

By William Boston 

BERLIN -- With empty dealerships across China and plunging demand for cars, auto makers are accelerating the move to do more business online and take their inventory pile directly to home-bound customers.

Online sales of new cars are still such a small part of the market that they barely register in official statistics. And studies show that consumers, in China and elsewhere, still want to walk into a dealership and kick the tires before plunking down a pile of money for a new car.

But with a large number of Chinese consumers staying in their homes because of the coronavirus epidemic, some manufacturers see quarantined China, where visits to the dealership all but disappeared in February, as a test bed for more aggressive online sales.

Volkswagen AG has been training thousands of dealers to take their pitch from the showroom to the chat room. In February, Volkswagen tapped experts from Alibaba Group Holding Inc. and Taobao to offer a three-day online training course for 50,000 salespeople, showing dealers how to use social media, create video and live-stream events to reach customers outside the showroom.

The training covered about 90% of the staff at Volkswagen dealerships and those of its joint-venture partners, said Michael Mayer, head of sales and marketing for Volkswagen's passenger car brands in China. Many of the auto maker's showrooms have been empty or closed in recent weeks, Mr. Mayer said. Only a third of the company's 2,100 dealerships across China are operating.

Volkswagen also is shifting some marketing resources away from traditional sales channels. "It doesn't make sense to rent a billboard now, so you shift resources online," Mr. Mayer said. "TV advertising has also gone up; it's now more efficient because people have more time to watch TV."

The coronavirus has pressured car makers to try new sales approaches. In the first two weeks of February, new car sales fell 92%, according to the association of Chinese auto dealers.

For manufacturers, salvaging their China business during the epidemic may depend on how well they have prepared their digital showrooms.

In February, Geely Auto Group, a unit of Zhejiang Geely Holding Group, launched an online ordering and home-delivery system, providing a fully "contactless" auto purchasing and payment service with the option of having cars delivered to customers at home.

Geely said that during the first week of operation, its online sales orders jumped fivefold from the same period a year ago and sales leads from Geely's website increased 75 times.

Audi AG, the luxury car maker owned by Volkswagen, said its dealerships have remained open in China, but that "at the moment their focus is on the online business."

A BMW spokeswoman said the Munich-based luxury-car maker is providing dealers in China with an array of "digital toolboxes," including an online application that enables them to make video car presentations and allows customers to view the car without leaving home.

A Ford Motor Co. spokesman said the company is working with its dealers in China to facilitate online sales when necessary, allowing in some cases for financing to be dealt with via email. When necessary, dealers are making home deliveries to customers who can't come into the store.

Car companies have long tried to capitalize on the rise of e-commerce, but that has often conflicted with their large dealership networks. In some markets, like the U.S., franchise agreements require them to only sell cars through dealers. U.S. dealers have lobbied hard against Tesla Inc.'s direct-sales model, blocking the electric car maker from several states.

Some car makers have tried online sales programs through their dealership networks, like General Motors Co.'s Shop-Click-Drive, but found that most car buyers still opt to shop in person for a new vehicle. Online car sales are more prevalent in the used market from startups like Carvana Co. and Shift Technologies Inc. and China's Uxin Ltd.

European dealers also operate under a franchise system, but the rules are more flexible than in the U.S. It is easier for companies like Tesla, which only offers online sales, and third-party multibrand online car dealers to do business online.

In China, there are large franchises but also independent dealers, often part of larger chains, that sell many brands under one roof.

In a 2019 study of Chinese consumers, the consulting group McKinsey & Co. found that by the time consumers were ready to buy a new car at a dealership, they had already obtained 90% of the information they needed to make the purchase. Still, getting behind the wheel in a car for a test drive remains the most important factor for Chinese consumers when deciding whether to buy, the study said, yet more than half of those surveyed would like dealers to deliver the car to their homes for a test drive.

A survey of auto makers by KPMG LLP concluded that, world-wide, 30% to 50% of retail locations would disappear by 2025. "The process is becoming much more digital," said Justin Benson, head of KPMG's automotive research group in the U.K.

Regardless of the epidemic, Volkswagen is moving to completely digitize its consumer sales, enabling anyone interested in purchasing a car or a service, such as ride-hailing, to do so using a Volkswagen app.

In Europe, Volkswagen spent two years negotiating with dealers to agree on a model in 2018 by which they would be integrated in the company's digital service channels and share 10% of online revenues.

In China, where the company sells its namesake VW marque as well as Audi, Skoda, Jetta, and Porsche, Volkswagen is partly building on an online infrastructure. One Jetta dealer, for example, conducted a virtual showroom tour online in December, with more than 10,000 online viewers following the presentation.

Mr. Mayer said the company's past efforts are allowing VW to try new tactics during the epidemic.

"This is what actually works now," he said. "You even have people doing online test drives."

--Nora Naughton contributed to this article.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

March 01, 2020 05:44 ET (10:44 GMT)

Volkswagen (TG:VOW)
Historical Stock Chart
From Mar 2024 to Apr 2024

Volkswagen (TG:VOW)
Historical Stock Chart
From Apr 2023 to Apr 2024