Car dealerships may not offer that ‘new car smell’ in future

Car dealerships may have to rely on virtual reality test drives in future. Picture: Antoni Shkraba/Pexels

Car dealerships may have to rely on virtual reality test drives in future. Picture: Antoni Shkraba/Pexels

Published Sep 13, 2023


If you are looking to buy a new car, don’t be surprised if you are offered a test drive or interior inspection via a Virtual Reality headset.

As car dealerships struggle to keep their doors open and opt for smaller showrooms, buyers may no longer be able to view physical vehicles on their floors.

This means they will also have to wait until they have taken delivery of their vehicles before they can experience the excitement elicited by that new car smell.

Wayde Carroll, head of automotive for Galetti Corporate Services (GCS), a division of Galetti Corporate Real Estate, says South Africa’s automotive industry is under pressure as lower demand for cars forces many dealerships to close their doors. Those that are still open are struggling to keep up with the increased operational costs in the wake of interest rate hikes and decreased purchasing power from consumers.

One of the ways dealerships are cutting down on their operating costs is by moving to smaller spaces and integrating technology into their showrooms.

“Companies like Snapcell offer automotive software and video tools that allow dealers to build trust and engage with their customers without ever having to meet them.”

He shares the emerging technology trends revolutionising dealerships around the globe:

1. Virtual reality (VR)

Customers can use immersive VR headsets to explore a vehicle’s interior and exterior, configure their desired features and enjoy virtual test drives.

2. Augmented reality (AR)

AR applications overlay digital information onto physical vehicles in the showroom. Here, customers can access more information about vehicle specifications by simply scanning a code.

3. Interactive digital configurators

These allow customers to customise their preferred car models in terms of colour, trim, accessories, and features, providing a visual representation of how the chosen options will appear on the vehicle.

Innovative cost-cutting solutions

Dealerships such as Mercedes South Africa are reducing the square footage of their premises and, instead, focusing on the customer experience.

“This trend is termed a ‘destination concept dealership’ and comprises a much smaller space, about 250 square-metres, that can fit two to three cars.

“This type of dealership can be described as a premium outlet with luxury finishings, and is often located within a trendy neighbourhood rather than in a commercial or industrial area.”

Although smaller premises can result in significant cost-savings, Carroll states that these dealerships still require safe locations to house their high-value vehicle stock. The innovators among these dealerships are storing their stock not on display at their affiliated Accident Repair Centres.

“While this approach can be financially beneficial in that it reduces monthly rental costs, dealerships must take into account the security and insurance-related considerations associated with housing expensive vehicles off-site.”

SA Automotive industry under pressure

The 10 interest rate hikes over the past two years have been felt by vehicle dealerships who have had to contend with elevating monthly rental costs on their premises and lowered consumer demand for vehicles.

Citing the National Association of Automobile Manufacturers of South Africa’s (NAAMSA) CEO Confidence Index for Q1 2023, he says 20 percent of respondents reported a decline in domestic new vehicle sales and 43 percent expressed a negative sentiment on new vehicle business conditions.

There is, however, hope as NAAMSA statistics for July 2023 show a 4.46 percent year-on-year increase in domestic vehicle sales.

“Vehicle exports have also increased by 9 percent year-on-year and total domestic vehicle production numbers have increased by 13.95 percent from July 2022.”

In addition, Carroll says various economic forecasters are predicting imminent rate cuts now that inflation has dropped.

“Lowered interest rates are the most significant contributor to consumer demand for new vehicles and we expect to see this translate to increased dealership sales and demand for larger premises to accommodate the new stock.”

But dealerships cannot rely on economic factors alone to assist with their recovery and need to look at other avenues to cut costs and reduce revenues. While they have pursued various avenues to stay financially afloat, the potential cost-savings unlocked by re-gearing their lease agreements or reducing occupied space are often overlooked.

“Innovative solutions are required to help get the industry back on its feet.”

With the prospect of recovery on the horizon, Carroll explains that the clear path forward involves rethinking premises and embracing technology.

“The automotive sector's ability to adapt and capitalise on these opportunities could well determine its future success.”

IOL Business