New retail underlines transparency, puts car buyers in the driver's seat

 

Big change is upon the auto industry: Electric cars signify not only new ways of moving people but novel methods of selling mobility solutions.

 

SAIC Volkswagen, the German carmaker's joint venture in China, is selling its first model built on its dedicated electric car platform at a fixed price online. This marks a departure from conventional auto sales.

 

Car buyers can order vehicles themselves or via authorized dealers, who will receive a commission for arranging test drives and vehicle sales, but do not need to maintain any inventory.

 

Yang Siyao, a senior executive at SAIC Volkswagen, said the change has something to do with electric car startups such as Tesla and Nio.

 

"They have been selling vehicles at fixed prices, so electric car buyers take it for granted that the deals don't involve bargaining," Yang said.

 

Traditionally, global automakers such as Volkswagen, General Motors and Toyota set an official retail price for their vehicles, which are first sold to dealers who, in turn, sell them to car buyers.

 

Auto dealers maintain an inventory of vehicles and offer discounts or charge premium prices depending on demand.

 

Dealers selling the same brand of vehicles often compete for customers, bring discounts and sales promotions into play.

 

This persuades potential customers to visit several dealers to figure out the best possible deal and also bargain for the lowest price.

 

But not all customers welcome this practice.

 

Even seasoned bargain-hunters sometimes find it time－and energy-consuming, which could delay sales as consumers may wait endlessly for better deals, necessitating multiple visits to dealers.

 

"The direct sales mode would save them from the unpleasant experience of haggling for a better price and visiting different shops to compare prices," said Florian-Frederik Deutgen, director of automotive, strategy and consulting at Accenture Greater China.

 

A survey by Accenture showed 81 percent of customers do not like price negotiations and would appreciate a fixed price, no matter which shop or dealer they visit.

 

Inter-dealership rivalries and dealer-buyer mind-games do not help sales and may even harm a brand's image and value－a longtime worry for carmakers.

 

"Unhealthy competition among dealers has been a long-standing problem. That's why, we adopted a new sales mode for electric cars, which is good for the buyer, the dealer and the carmaker," said Yang.

 

"Dealers don't have to spend much on inventory. Without the financial burden, they can focus on sales and after-sales service, which they are good at, and receive commission for the same."

 

Around a quarter of SAIC Volkswagen's 1,000 dealers in China have been authorized to sell electric cars and earn a commission. Yang said if the new sales mode is proven to be successful, the company may extend it to even gasoline cars.

 

Volkswagen is not the only traditional carmaker that is switching to online sales at fixed prices.

 

Ford launched its electric Mach-E, its heavyweight electric car under the Mustang marque, earlier this month, and is selling the vehicle online at a fixed price.

 

A month earlier, Volvo announced its plan to become a pure electric car brand by 2030, and all of its vehicles will be sold online to ensure transparency in pricing.

 

Lex Kerssemakers, head of Volvo's global commercial operations, said: "We want to offer our customers peace of mind and a carefree way of having a Volvo, by taking away complexity while getting and driving the car. Simplification and convenience are key to everything we do."

 

Shen Jinjun, president of the China Auto Dealers Association, said the commission-based online sales mode has many advantages, but the brick-and-mortar dealerships will not become less important because of the advent of online sales.

 

"They are nodes that link potential customers and carmakers, and they play important roles in such aspects as arranging test-drives and delivering new vehicles."

 

Deutgen agreed, saying buying a car can be a big move for some customers. For them, trust and empathy are key. Only a physical interaction can provide them that. Most customers still want to experience the product offline and would not be satisfied with purely virtual test drives.

 

"That's why, dealers will still have a very important role to play in automotive retail, but their role and business model will change," he said.

 

SAIC Volkswagen is opening new showrooms dedicated to electric cars in the country. Its first showroom was unveiled late last year in Hangzhou, Zhejiang province.

 

Yang said the company would open 40 such showrooms in 29 major Chinese cities in the next 18 months.

 

Ford is building stores in 20 Chinese cities this year for customers to experience and order its electric Mach-E SUV.