Farewell to a bastion of bricks and mortar retail

Buying a car used to involve a time-honoured routine: a visit to a dealer for a test drive, followed by haggling over the price, perhaps arranging a finance deal, and finally driving away. So Volvo Cars’ announcement this week that it intends to make only electric cars by 2030, and to sell all of them online, is a turning point.

Volvo Cars is not the only carmaker wanting to reduce the role of dealers by moving online — Tesla announced two years ago that it would close most of its stores before partially retreating. But it shows that even the sturdiest bastions of bricks and mortar retailing face a reckoning.

Department stores and shopping malls have come under severe strain during the Covid-19 pandemic, with customers being forced to turn rapidly to online retailers and groceries. It has trained consumers to sign on to mobile apps and order goods and services to their doors.

The online disruption of retailing is even starting to extend to the buying and selling of houses. Zillow, the online property search site, is now offering to buy homes itself in 20 US cities at the “Zestimate” value it gives for them online, rather than their owners having to go through estate agents.

This is part of the shift to manufacturers and brands going “direct to consumer” rather than relying on intermediaries. Shaving kit, cosmetics and clothing brands have turned to marketing and selling products via Instagram and social media, rather than on the high street.

Volvo will keep some dealers, but use them as centres for giving advice and showing off vehicles. It is moving with the times — the internet has already shaken up car buying by bringing more transparency to pricing. Car buyers can now shop around for bargains on price comparison sites, or invite offers for new cars from dealers on platforms such as Carwow in the UK.

That puts better information in the hands of consumers, and makes it harder for dealers to fool the naive. It means that cars (and perhaps even houses) are more likely to sell at fixed prices rather than being bargained over — the same innovation that department stores brought to household goods in the 19th century.

The transition to electric vehicles, which have fewer parts and are simpler to repair and to service than those with internal combustion engines, encourages the change because it makes owners less reliant on local dealers. The latter have traditionally profited more from aftersales service than the original sale.

There are benefits for owners in being connected to carmakers. Cars are now filled with sensors and can be monitored with greater sophistication than before. Drivers can be told directly by the maker if a part needs to be replaced, and can easily be linked to other owners of the same brand.

But it is not an unalloyed gift — it enforces fixed prices, which may be a relief for some but restricts those who were best at shopping for bargains among dealers. It also allows carmakers to amass customer data and use their greater knowledge to sell new vehicles and products.

There is a parallel with Zillow, which already holds a mass of data and will collect more by becoming a reseller. Its Zillow Offers is a convenient service — it buys homes, renovates and sells them again — but it charges a higher commission even than US agents, which are expensive.

Whether power transfers to the customer or not depends, as with so much in the information age, on who controls the data. Neither car dealers nor estate agents are loved, but they might be missed if they disappear.