Automakers View the Internet with Complacency

The Internet is seen neither as a threat nor as an opportunity by European automakers, according to a customised consulting study for a Chinese company.

However, the study by international consulting marketing company Frost & Sullivan http://transportation.frost.com - found the EU block exemption is definitely setting some hearts pounding,

Consulting analyst Hester Stolk explains:

In December 1999, DaimlerChrysler with Smart was the first European car manufacturer selling cars directly via the Internet. Since then an increasing number of dealers, manufacturers and new entrants have started exploiting the Internet. So far, this development has not been restricted by the current legal framework. Frost & Sullivan estimates that using the internet solely as a means to replace showrooms by computers or as a means to cut dealers out of the manufacturers' network is an unlikely scenario, but internet will have some impact on the distribution network.

As Mrs Schappert, of DaimlerChrysler says: "The consulting expenditure in car retailing is too high and we do not expect that the sales share of the Internet would be very big. Emotions and excitement, senses like feeling and smelling when purchasing a product like a Mercedes Benz is very important".

Obviously this does not only go for the higher segmented cars like Mercedes, this can also apply to lower segment cars. Especially when you take into account that the purchase of a car is for a lot of Europeans the second most expensive purchase of their life. John Bond-Smith, president of the British dealer association, RMI, adds: "Most people love to go to different showrooms to shop around to select and ultimately try their car. Internet cannot substitute this experience".

According to a senior manager in a leading German automaker: "We don't expect Internet to be a major business. Perhaps in the next couple of years we'll have an increase of 10 percent through direct sales. Even if the customer wants to order through the Internet there is still the need for the dealer. At present a customer is able to look up (called car figurater) and set his car together and send out the order but has still to order through the local dealer".

When is the Internet used for then? A fair part of the pre-sales services previously supplied by dealers are now provided on the web, by web sites of the manufacturers or by web sites of the dealers. Currently, the Internet is mainly used by the consumers as an important source for the early product information process. It enables customers to gather information on different products and brands, for example price comparisons. Currently over 20 percent of the European consumers use Internet as an information source before they decide to buy a car, and this percentage is increasing rapidly.

The Internet is, however, expected to change the current relations between both the manufacturer-supplier and manufacturer dealer. Costs will be reduced and customers will receive exactly what they ask for, at a lower price and at a much higher speed. Frost & Sullivan estimates suggest that response time for building a new car to delivery can be reduced up to 50 percent by use of the Internet.

An important implication of the Internet is for the independents. At the moment independents do not get cars delivered from the manufacturers as a result of the block exemption. In case the regulations of block exemption will be relaxed next year it might become very easy for the independents to start selling new cars to the final consumers. The independents can already increasingly access technical information from the manufacturers. If block exemption will be adapted in the advantage of the independents, competition between the official networks and the independent undertakings will increase. The Internet could be a tool that the independents could exploit to market their cars.

Frost & Sullivan does not expect that the Internet will revolutionise the sale of new cars. It is more likely that, especially in the case of the lower segment cars, people use Internet as a medium in order to gain information in the pre-sales phase.

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