31 Dec Would You Buy A Car Online? Why Chinese Motorists Are Skipping The Dealership For Virtual Showrooms

Forbes, December 12, 2017

A Guangzhou Automobile Group’s Trumpchi GE3 sport utility vehicle

Zhang Tian is really into cars. The 29-year-old, who works for an internet company in Beijing, shifted through a Chevron, a Mercedes Benz and two BMWs in the past six years, so he could get a taste of different driving experiences.

But Zhang’s channel of purchasing those vehicles may seem a bit unusual. During his search, he hardly visited traditional dealerships. Instead, he got all four models online, spending hundreds of thousands of yuan to purchase vehicles from group-buying sites or private forums where people trade used cars directly.

“It is about the price,” Zhang said in an interview with Forbes. “When I got that Chevron from online group buying, it was some $3,500 cheaper than offline stores.”

In China, a fundamental shift in the auto market is underway. While consumers elsewhere are still visiting brick-and-mortar shops to buy cars, shoppers in the world’s largest auto market – where 28 million vehicles were sold last year – are increasingly doing it online, prompting brands to open virtual showrooms, partner with e-commerce sites to promote new models and re-examine their investment in traditional dealership.

“It is not the case in China where people live in proximity to car dealerships,” said Bill Russo, Founder and CEO of Automobility Limited. “When you look at how popular online shopping is, it is natural to think online car shopping will grow.”

In 2016, 1 million vehicles worth a whopping $15 billion were sold online in China, according to consultancy Frost & Sullivan. On Singles Day, an annual shopping bonanza created by e-commerce giant Alibaba, 100,000 cars were sold on its Taobao and Tmall shopping platforms, which, according to the company, was equivalent of what 1,000 brick-and-mortar dealerships sell in a month.

The market is poised to grow bigger, as more young consumers eschew physical dealerships. According to a McKinsey survey, 23% of Chinese consumers aged 18 to 24 buy cars online. What may also fuel Chinese car owners’ digital foray is the introduction of more electric vehicles, because in the future, such cars may not differentiate so much in specification except for battery sizes – thereby eliminating the need to examine them in person before buying, said Shu Chang, a Shanghai-based partner at consultancy Roland Berger.

“As more and more vehicles become electric in the next five to 10 years, their differences will become smaller and smaller,” Shu said. “So the online shopping trend will become more obvious.”