The £10 billion opportunity: Digital media meets automotive retail

The automotive industry is the largest single value chain in any developed economy. In the UK transport comprises 14% of consumer spending, more than any other category, including housing, and within that vehicle ownership is the largest category of spend. Despite a growing range of alternatives to driving such as car sharing, ride hailing apps, and improving public transport, vehicle ownership has continued to rise, reaching an all-time high of 79% of UK households in 2017.

Given its importance to the economy and the consumer, the central position that the automotive category occupies in the media landscape is unsurprising. Five of the ten largest global advertising accounts are carmakers, and this position probably under-states the importance of auto brands as their own marketing spend is multiplied across each local market by a network of dealerships.

Reflecting the size of the consumer audience and advertising opportunity, large-scale consumer media brands have evolved to address the automotive category. At their peak UK car magazines had a combined print circulation of over 500,000. As media consumption has shifted to digital, both media operators and advertisers have adapted relatively successfully; Autotrader (once a printed magazine) is now the UK's most visited website with over 10 million monthly uniques. Whilst automotive advertisers still make significant use of print media they have led the charge into digital, moving hundreds of millions of pounds of spend online over the last decade.

This substantial change in media consumption and spending has moved a significant part of the initial research phase of the car purchasing journey online, but over 70% of consumers still make the crucial purchase decision offline. Although the media channels used to guide consumers to the forecourt have changed, the traditional dealership retail model remains dominant.

As ecommerce has expanded into product categories of increasing complexity and mechanisms, such as online feedback platforms, omnichannel support, and reverse logistics, have evolved to enable this, consumer perceptions of the risks of distance purchasing have moderated. Consequently, 31% of consumers now view it as 'very or somewhat likely' that they would buy a car online.

The used car market, which offers an instantly available 'take-it-or-leave-it' product with neither the lead time nor the scope for customisation of a new car purchase, is by nature most suited to the instant gratification of ecommerce. Reflecting this, the first successful end-to-end ecommerce models have begun to emerge in the US and UK used car markets.

Carvana is the highest profile example, selling over 100,000 cars per annum from distinctive 'vending machine' style facilities outside major cities and quoted on NASDAQ with a market value in excess of $7 billion. Sensing opportunity, entrepreneurs, growth investors, and others have begun to embrace this market, and a crop of new business models have sprung up. Yet despite hundreds of millions of dollars of funding and years of development automotive ecommerce remains nascent relative to its market, accounting for less than 1% of used car purchases.

Such is the scale of the market that even if the opportunity were restricted to used cars under 5 years old and ecommerce penetration capped at 30%, the potential UK market would be more than £10 billion in sales and £700 million in gross margin annually. Whilst many in the automotive ecosystem have observed the 'digital transition' acting primarily on media supply and customer acquisition, in time this will likely be eclipsed by the impact and value of digital on automotive retail.

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