General Motors (NYSE:GM) plans to expand its Shop-Click-Drive program, which has been testing at select dealers since last year, to all dealers. The program is aimed toward consumers who are savvier with purchasing products online and enables them to do so with GM vehicles. E-commerce continues to grow in today's economy and similar online retail strategies have allowed companies like Amazon to completely crush brick-and-mortar competition. However, don't expect this development to have a revolutionary impact on GM's ability to sell vehicles online or improve margins. I believe GM will have minimal success and here's why.
In February Automotive News reported that the Shop-Click-Drive program allowed you to purchase in five simple steps.
- Choose a vehicle by reviewing inventory.
- Get a value on a trade-in.
- Fill out a credit application.
- Select extended warranties and accessories.
- Schedule delivery either in-store or at the buyer's destination of choice.
Lenny George, general manager of Berger Chevrolet in Grand Rapids, Mich., offered Automotive News his opinion. "People who are shopping online for towels or Apple gear expect to be able to buy online. Why should auto dealers be any different?"
George has a point, but with all due respect, comparing towels to vehicles might be a stretch. If consumers take a leap of faith to purchase towels online, the risk of being unsatisfied likely comes at a cost of $5 to $10. When it comes to purchasing a $25,000 vehicle, I doubt consumers will be buying blind.
In a phone interview with John Giamalvo, director of dealer initiatives at Edmunds.com, he explained to me the necessity of integrating online programs with dealerships. "Having an online presence in the auto industry is becoming a necessity. There's no question consumers are wanting to get as much visibility into the actual vehicle transaction before they step in the dealership for a test drive." He continued, "What's important for GM and other automakers is how the online selling programs are integrated at the local level to maintain customer satisfaction. Automotive manufacturers still want face to face contact, they want you to test drive, they want a local presence for repairs, maintenance and customer loyalty."
Consumers need to feel the materials, get a sense of the headroom, and take notice of a thousand other factors. Even if GM were successful in convincing consumers to buy online, it wouldn't cut out the middle man and boost to margins as most would think. State franchise laws exist that protect the important role that dealerships play in vehicle sales. Tesla (NASDAQ:TSLA) is currently testing the boundaries of these laws, and has had some success because it has never had franchised dealerships in place. That's why GM's success will be minimal, and its Shop-Click-Drive program will essentially be a front door to the dealership, not replacing their presence. GM's move to expand its online sales program is more evolutionary than revolutionary -- but that's not a bad thing.
"When this was first introduced, there was a lot of talk: 'Well, GM is eliminating the dealerships. They want to be Tesla,'" said George, according to The Wall Street Journal. "To me, this is just another way to close the customer [deal]. It's a selling tool."
I agree wholeheartedly with George on this point: GM really has nothing to lose by expanding its program, which could generate incremental sales leads over competitors without a similar online presence.
While the approach may not revolutionize the buying process, as Amazon has done in its industry, it could appeal to the millennial generation, which prefers to do much of their research online, including steps typically done at dealerships. GM won't boost its margins by cutting out dealerships -- it doesn't want to. If GM's online program can reduce the hassle and time spent at dealerships, it should help GM's battered brand image by improving its customer service and satisfaction. That would be a huge development because crosstown rival Ford continues to lead the industry in consumer loyalty, and is gaining market share because of it.
Fool contributor Daniel Miller owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.