How important is online retailing to American car buyers?

Author

Colin Velez
August 02, 2024

Consumers are buying vehicles online but not at the rate you might expect.

Why this matters: It goes without saying that the internet has drastically transformed the way people shop for products. This is also true of the car industry. However, there’s an important distinction to be made between shopping and buying: knowing how to cater to each aim can help your dealership accommodate customers.

Big picture: Make no mistake, online car sales are accelerating and may soon start taking a bigger piece of the pie.

  • An April study by Astute Analytica estimated the global online car market would be worth $885.1 billion by 2032. That represents an annual growth rate of about 12.58%.

  • Plus, most survey results indicate consumers wants the option to buy online.

The intrigue: But that increase isn’t nearly as fast as some expected.

  • Back in 2020, Volvo thought half of its global vehicle sales would be conducted online by 2025. This year it dropped that goal, with Bjorn Annwall, a top executive at the brand, remarking that “zero percent” of consumers would buy 100% online.

  • Mercedes has a slightly less ambitious target, aiming for about one in four of its sales to be digital by next year. However, it hasn’t provided any updates on how close it is to achieving that ratio.

Zooming in: While the practice of using the internet to shop for a car is almost universal, very few customers are actually buying online without going to a store.

  • In a 2023 study by Progressive, only 25% of consumers purchased online.

  • More evidence of digital retail’s plight can be found by looking at big retailers. During the company’s Q1 earnings call, CarMax executives revealed only 14% of sales had been conducted online.

  • Instead, CarMax buyers are using “omnichannel” methods (a mix of digital and in-person shopping). Around 57% of its consumer base practiced this in Q1 2024, up from 55% in 2023.

Important to note: Even though one would expect younger shoppers to drive the shift to digital, we’re seeing little enthusiasm from those age groups. According to Cars.com, 80% of Gen Z consumers said they prefer buying a vehicle in person. The most likely to buy online are millennials, but even then only 16% are interested.

Bottom line: Spending money on something as expensive and critical as a vehicle without getting to experience it first just isn’t something most consumers are comfortable with. That could always change, but until then dealers should continue to see their online experience as a way to drive in-store sales, rather than as an independent business.

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