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Automotive E-Commerce to Rev Up Amid Coronavirus: Stocks in Focus

Rimmi Singhi

Novel coronavirus has rattled the stock market and global economy. Sales across sectors have been dropping, with the auto sector suffering one of the nastiest blows. Economic concerns, temporary store closures and lower footfall in dealerships amid the pandemic have been denting vehicle sales. In response, the car industry is testing the potential of e-commerce. Automakers and dealers are seeking to change the manner of business operations, and are seeing new opportunities in e-commerce retailing.

E-Commerce Set to Transform Automotive Retailing

The fast-paced world has made e-commerce part and parcel of our day-to-day lives. Driven by rapid proliferation of Internet and smartphones on a global basis, e-commerce has completely changed the way consumers shop. While online shopping has fundamentally changed the majority of retailing markets, auto retailers have been somewhat slow in embracing the potential of digital commerce. Dealers are now looking for alternative ways to connect with car shoppers to sail through these unprecedented times.

Indeed, coronavirus has dented consumer confidence and lowered car sales. However, despite the market volatility and possibility of a recession, people are still shopping for cars, according to a research by Cox Automotive. Amid the virus-induced lockdown, while dealerships and showrooms are witnessing historically low footfall, people are actively engaging in online car purchases, per a research by Cars.com Inc. Coronavirus-induced social distancing has prompted most consumers to stay away from physical dealership. Meanwhile, online traffic is on the rise, with auto dealers ramping up their digital capabilities to make deals with customers and arrange for home deliveries for vehicles. Cleanliness concerns are compelling consumers to refrain from ride sharing services and instead be inclined toward personal car ownership. Increase in the usage of social media and chat tools is enabling dealers to seamlessly connect with shoppers in real-time. E-retailing, online financing and home delivery services are helping dealers to generate sales during these tough times.

Automakers and dealers are attempting to step up digital sales to offset lower showroom traffic. Auto manufactures like Tesla, Rivian Automotive, Porsche North America, et al are already actively engaged in digital retailing. General Motors’ “Shop, Click, Drive” online program, launched in 2013, has been gaining importance lately amid the COVID-19 pandemic. In March, Porsche announced additional measures to boost the digital pilot program by expanding online retail, customer lease extensions, and home pick-up and drop-off facilities.

Auto retailers like AutoNation, CarMax, among others, had been focused on ramping up investments in their online selling capabilities well before the virus eruption. Several dealers are now investing in e-commerce tools, as the outbreak is likely to lead to wider adoption of online services, as customers stay away from showrooms.

While digital automotive retailing currently accounts for a small percentage of car sales, there is incredible growth potential in the field on the back of increasing penetration of Internet services and rising adoption of online shopping. Although the industry is reeling under coronavirus crisis, automotive e-commerce will flourish once the virus fears fade and the business resumes normalcy. Sustained technological developments will bolster the prospects of the market players.

These Automotive Digital Solutions Providers Should be on Your Watchlist

TrueCar, Inc. TRUE: Headquartered in California, TrueCar is a leading automotive digital marketplace. The firm’s recent rebranding efforts including new logo, website and omni-channel advertising campaigns are likely to improve customer shopping experience and drive traffic to its platform. The firm’s focus on creating a differentiated experience for car buyers, and initiatives like tech re-platforming and the launch of trade-in offering should allow the company to drive greater consumer adoption. The online car-shopping service provider currently sports a Zacks Rank #1 (Strong Buy) and is likely to witness earnings growth of 12.5% in 2021.You can see the complete list of today’s Zacks #1 Rank stocks here.

Cars.com Inc. CARS: Headquartered in Chicago, Cars.com is a leading automotive digital marketplace used to connect sellers and shoppers. The company’s focus on execution through traffic and customer growth, and digital solutions positions it well for growing subscription revenues. Cars.com’s new product PRIZM — a proprietary reporting dashboard — is likely to improve dealer acquisition and retention. Its new FUEL in-market video platform enables dealers to run targeted video messages to highly qualified in-market car shoppers through video platforms. This is highly appreciable. The firm carries a Zacks Rank #2 (Buy) and is likely to witness earnings growth of 34.5% in 2021.

CarGurus, Inc. CARG: Headquartered in Cambridge, CarGurus provides an online platform for buying and selling used and new cars. The company uses proprietary technology, search algorithms and data analytics to provide information about a car to assist consumers in their purchasing decision. CarGurus is well poised to emerge stronger after the virus dust settles on the back of ample liquidity and no debt. The firm’s focus on building a rich and positive user experience for car buyers and delivering valuable sales leads to car dealers bodes well for its future growth. The company carries a Zacks Rank #3 (Hold) and its earnings are anticipated to increase 44.6% year over year in 2021.

Carvana Co. CVNA: With its transparent and smooth online buying platform and delivery network, this used car retailer is a notable name in the automotive e-commerce platform. The firm’s differentiated car shopping experience is likely to unlock significant growth opportunities in the years to come. Carvana’s ability to capture outsized share in the large and fragmented used car marketplace is commendable. Management expects its long-term revenues to grow much faster than operating expenses, with EBITDA profit margins expected in the band of 8-13.5%. The company carries a Zacks Rank #3 and its earnings are anticipated to increase 44.3% in 2021.

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