An Uncertain Road: What Does Digital Transformation Have in Store for the Automotive Industry?

The automotive industry has been slow to adapt to digital transformation and, as a result, dealership groups have been affected the most compared to online car retailers. Many challenges have impacted their slow response to the changing behaviour of consumers, which is evident in their digital performance over the last 12-month period. Dealership groups are losing organic traffic at a rate of 26,400 visits per year, which reflects the struggles that many physical dealerships are experiencing with their digital strategies, especially Lookers and TrustFord in particular. We investigated the online performance of dealership groups vs online car retailers to establish how they have been impacted by digital transformation.

It’s no secret that the automotive industry has witnessed a turbulent couple of years since the global pandemic, but is it on the road to recovery? Earlier this year, SMMT reported that UK car production in 2021 was at its lowest levels since 1956, with rising energy costs and computer chip shortages to account for the slump. However, UK car manufacturers are about to face even tougher conditions, with further energy price hikes and the ‘cost of living’ crisis yet to worsen.

The worldwide shortage of semiconductors is proving to be very problematic for the automotive industry, especially as it is directly competing with consumer electronic firms and tech companies for computer chips. As marques are unable to deliver large quantities of brand-new vehicles, the lack of new cars available on the forecourts has forced second-hand car sales to soar. Until now…

Used car sales in the UK have dropped, with 407,000 fewer vehicles exchanging hands in Q2 2022 compared to the same period last year. Are consumers tightening their belts ready for the financial onslaught? Or can it be attributed to the strained new car supply?

According to the SMMT, it was ‘inevitable’ that the limited new car supply would cause inflated prices and eventually trickle down into the used car market. However, fuel prices hit a record high this year with petrol and diesel reaching 191.53p and 199.03p per litre respectively, which led to a 57% increase in battery electric vehicles (BEVs) sales this quarter.

With the September plate change upon us, what’s next for the automotive industry? Are dealerships prepared for what lies ahead? Let’s find out.

What’s in this article?

• How has the car buying process changed?
• How has digital transformation impacted the automotive industry?
• The rise of online car retailers
• Dealerships vs online car retailers: who performs better?
• What can dealerships learn from online car retailers?

How has the car buying process changed?

It comes as no surprise that consumers’ buying habits have changed since the global pandemic, with 78% of consumers turning to third-party sites to purchase their next vehicle. However, it’s not just the process that has changed; the consumer’s taste for content has also shifted. Last year, Carwow reported that the average visits to a dealership before purchase decreased from 8 to 1.6, while the number of digital touchpoints increased to 24. So, what does this mean exactly?

Consumers are turning away from traditional branded content in favour of third-party reviews to gain honest and reliable feedback on other people’s experiences with either the marque or the dealership. Quite simply, third-party reviews are essential to building trust between the consumer and the dealership, and it’s these reviews that are often the deciding factor in purchasing decisions. However, car dealers are no longer in control of the car buying process, instead, it is now fully in the hands of consumers. 

Not only are consumers engaging with content differently across their preferred channels, but they are also creating new touchpoints throughout the buying journey. Dealerships are now having to ask themselves: “how can we best connect with consumers at each touchpoint?”. Except, it goes far beyond this. The real question dealerships should be asking is – “how can we best connect with consumers at each touchpoint while navigating the ever-changing privacy laws?”.

Digital transformation has been one of the biggest turning points of the last century and is largely responsible for such significant changes in consumer behaviour during the car buying journey. Consumers are now used to a fully digital world, so it’s never been more important to provide a fluid and simple customer experience across multiple channels. This empowers users to create their own personalised journey with different touchpoints. As is the case with most e-commerce experiences, consumers want websites that enable product searches and comparisons to help them finalise their purchasing decisions. And yet, the automotive industry has not adopted digitalisation to the degree that e-commerce platforms have in other industries.

How has digital transformation impacted the automotive industry?

The irruptive growth of digital technologies is causing continuous changes in the way both the automotive industry and car dealerships operate, which has contributed to the accelerated diversification of consumers and products. New patterns of behaviour are rapidly emerging and products are witnessing the reduction of model life cycles to keep up with the ever-growing demand of consumers wanting more innovative solutions. 

Although digital technologies have increased the functionality of cars, they have also impacted the complexity of new vehicles. Driver connectivity, location-based services, and assisted and autonomous driving are all improvements that have been brought about by digital transformation, but at a cost. The demand for the latest innovations is forcing manufacturers to find more creative solutions to improve efficiency and productivity, as well as optimising supply chains.

With the customer’s experiences and the vehicles themselves shifting to digital, automotive companies have the opportunity to create an integrated strategy by redefining the customer value proposition and rethinking the operating model. Automotive companies can transform these two focus areas and deliver the value that consumers expect by simply realigning daily activities in the buying and selling journey. The defining factors that automotive companies should consider are:

• Products and services – how do they align with the physical-to-digital strategy?
• Consumer behaviour –  how are consumers adopting content on social media?
• Competitor behaviour – what strategic moves have industry competitors made?
• Transformation of the car buying process –  what is the level of integration between digital strategies and legacy processes during the car buying journey?

The potential for brands to establish themselves as digital innovators within the industry is huge. In order to take advantage of these opportunities, manufacturers and dealerships must fully embrace digital innovation at each stage of the customer journey at brand, market and dealership level. 

The rise of online car retailers

Online car sales have steadily grown over the past several years, with global online sales reaching almost $57 billion in 2020. But when the global pandemic struck, physical dealerships were forced to close their doors overnight, which saw online car retailers flourish. Prior to the pandemic, only 42% of UK residents were open to purchasing a car online compared to 63% during Q4 2020. Online vehicle retail, aftersales and services were forecasted to continue to acquire market share over the next couple of years; however, the accelerated growth of online car retailers can largely be attributed to the pandemic. 

The global revenue from online vehicle retail is expected to increase five-fold, from $120 billion in 2018 to $605 billion in 2025, demonstrating how the coronavirus pandemic has impacted the industry, driving many activities online. As a result, automotive dealerships have been forced to adapt to the growing e-commerce trend to compete with the likes of Cazoo, Cinch and Carwow. The halt in production and the shortage of semiconductors have contributed to the soaring demand for used cars, but dealerships are ill-equipped to deal with the demands of digitalisation. 

Convenience is a significant deciding factor when it comes to purchasing vehicles online – consumers are less likely to commit to a dealership if they cannot pay a deposit for a car online. e-Commerce sites, such as Cazoo and Cinch, have always been fully transactional, which forced dealerships to enhance their online offerings with home delivery or click-and-collect services, or risk the businesses’ future. Industry-leading e-commerce software provider, GForces, revealed that online car purchases using its technology increased 1228% during 2020, worth over £500 million, with one-third of the UK’s franchised car retailers now using the GForces e-commerce platform. 

The rapidly evolving automotive retail landscape is a reflection of the trust that customers have in digital technologies and their willingness to make expensive purchases online. It is clear that the demand for e-commerce already existed prior to the pandemic and the success of online car retailers is largely due to the easy-to-use, convenient and seamless transactional experience these sites provide. Ultimately, online car retailers are ahead of the curve, as they understood that online car buying wasn’t just a trend, but instead the future of automotive retail. 

Dealerships vs online car retailers: who performs better?

To find out, we took the top ten automotive retailers based on revenue from the AM100 and compared them to the ten most popular online car retailers. The data was sourced from ahrefs looking at the monthly average for the last year, comparing the four metrics most indicative of a successful digital strategy:

• Domain rating
• Backlinks
• Referring domains
• Organic traffic

Let’s take a look at the results.

Online car retailers have more robust digital strategies in place

When it comes to digital transformation, online car retailers are leading the way with robust digital strategies. With a higher average domain rating compared to dealerships, it is evident that online car retailers are investing more heavily in their digital strategies to increase their online presence. The likes of AutoTrader, Carwow and motors.co.uk, in particular, are focusing their efforts on creating authoritative content that resonates with audiences on a wider scale. 

Having witnessed an average increase of over 1.2 million backlinks year-on-year, online car retailers are continuing to drive traffic to their websites by developing multi-faceted strategies designed to deliver results. Combine this with an average increase of 1,664 referring domains year-on-year and it is safe to assume that online car retailers are investing more in their link-building and Digital PR strategies to acquire a higher volume of organic traffic to their websites. However, it’s not just the backlinks and referring domains that have seen accelerated growth year-on-year.

Online car retailers are also experiencing significant growth in their domain ratings at a much faster rate compared to their physical counterparts. Not only does this demonstrate the significance of a fully integrated digital strategy, but also the importance of understanding the changes in consumer behaviour brought about by digital transformation. 

Dealerships need to invest heavily in their digital presence

Traditional dealerships are struggling to maintain their online presence, with 50% witnessing significant drops in organic traffic in the past year. In fact, the average dealership is losing organic traffic at a rate of 26.4k visits per year. This is a massive wake-up call for dealership groups to invest in innovative digital strategies or risk falling behind their online competitors.

In an interview with The Armchair Show in 2021, former Head of Digital Transformation at Pendragon, Owen Gill, explained: “For years the automotive industry has been openly criticised. The [pandemic] has forced a lot of automotive visitors to change how they see digital transformation, and like many industries, they have been given that kickstart – you need change now or you will get left behind. So, yes, historically [the automotive industry] has struggled and there will be struggles ahead. Those that adapt the quickest and understand they need to change are the ones who will win in this journey.”

The lack of emphasis on dealerships’ digital strategies is evident in the 9.84% share of backlink growth experienced in the last 12 months, which contributes to the significant drop in organic traffic. Implementing a dedicated Digital PR strategy using proven tactics, such as content campaigns, newsjacking and branded PR, can deliver consistent value with an ‘always-on’ link-building approach and contribute to an increase in organic traffic within 3-6 months. But it’s not just the lack of backlink growth that rings alarm bells.

Dealerships have also witnessed fluctuations in domain ratings, which is indicative of a weak e-commerce SEO strategy. A comprehensive e-commerce strategy enables businesses to be more responsive to the needs of the consumer through cross-channel marketing, which contributes to a higher click-through rate and an increase in organic traffic. If dealerships fail to realign their strategies, then the decline in domain ratings is likely to grow steeper each year, costing both visitors and sales.

TrustFord and Lookers are in jeopardy of losing revenue

Having experienced the most significant drops in performance over the last year, Lookers and TrustFord have witnessed a steep decline in domain ratings and organic traffic. With a combined loss of 43,100 visits per year, both dealership groups risk further losses if they fail to refocus their efforts towards developing a robust integrated digital strategy. So, what exactly is causing the decrease in organic traffic?

There are several contributing factors that could be the reason behind the loss in traffic, from site-wide technical issues to a lack of relevant content on-site. In this instance, Lookers and TrustFord are likely to be experiencing a combination of issues with their SEO efforts, including technical challenges that are preventing their websites from performing efficiently. At first glance, TrustFord has failed its Core Web Vitals which is likely to be severely impacting the user experience on-site.

More concerningly, Lookers and TrustFord score poorly on their mobile sites, achieving Lighthouse performance scores of 32 and 28 respectively. This poses a huge issue for both dealership groups, as 1 in 10 car purchases are made entirely on a smartphone. It has never been more important for dealerships to ensure that their websites are mobile-friendly, with 48% of consumers using their mobile devices to research model information, pricing and compare deals. In order to get performance back on track, Lookers and TrustFord must revisit their technical SEO strategies and prioritise these issues to ensure that the desktop and mobile sites are not inhibiting the user experience.

Domain rating is a lead indicator of organic traffic and while Lookers and TrustFord have already lost a significant amount of traffic, both dealerships are likely to continue to lose visitors. Without a severe realignment of their digital marketing strategy, they will see further decline in the future. One question that immediately arises is – if their backlinks have increased, why are their domain ratings declining? 

The issue here is not one of quantity, but of quality. Both dealership groups have seen a significant increase in the number of backlinks in the past year. However, without a focused link-building strategy in place, Lookers and TrustFord will struggle to remedy the falling domain ratings, which contribute to a growth in organic traffic. 

What can dealerships learn from online car retailers?

First and foremost, dealerships need to understand the significance of digital transformation if they wish to stay relevant and compete with online car retailers. Currently, dealerships are not investing nearly enough in their digital strategies and are therefore risking falling behind over the next few years. It is immediately clear that the performance of online car retailers is far superior to those of dealership groups, which are fast becoming outdated due to the slow response in building fully transactional sites.

Lookers and TrustFord are specific examples of what happens when dealerships are slow in the uptake to respond to the changes in consumer behaviour. Dealership groups should take immediate action to remedy the significant loss in organic traffic before it costs them vital revenue in the long term. The automotive industry faces many challenges over the next few years, especially with the shortage of new cars and the effects of Brexit, and it is how dealership groups respond to these challenges that will ultimately make or break them.

Want to know more about how digital transformation is changing the face of automotive? Get in touch with our team today!