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Why online car sales are surging amid COVID-19

Yahoo Finance's Seana Smith and Adam Shapiro speak with Michia Rohrssen, CEO of Prodigy, a company that makes software to process online car sales, about the state of the auto market.

Video Transcript

ADAM SHAPIRO: Let's go to something that you can predict, and that's whether or not you're going to buy a car. Let's invite into the stream Michia Rohrssen. He is the CEO of Prodigy.

And to give you an idea of what this company does, they refer to themselves as the Amazon.com of cars. But it's not just buying the car. It's everything from start to finish. And does it also include the insurance, Michia? Welcome to the program.

MICHIA ROHRSSEN: Thanks for having me. It does now. You know, what we do is we enable dealerships to deliver a full online check out for car buyers. One of the things that you'll probably see recurring, you have been seeing it, is the way retailers are adopting and changing their business due to COVID 19.

Dealers are no dummies. They sell over a trillion dollars of cars a year. And when this COVID 19 change affected their business, they immediately started embracing online sales.

We're seeing online sales up 250% this year. And yes, our platform enables all of that-- from selecting the car, customizing your payments, now all the way to yes, getting the car insurance you need to drive off the lot.

SEANA SMITH: Michia, what do you see going forward, just in terms of we've seen such a huge jump this year, how much of that do you think is sustainable looking ahead to next year?

MICHIA ROHRSSEN: Well, so we started the company five years ago because there was early indications this was coming. You see similar companies-- Carvana, Shift, and Vroom, now all public companies, where it started with the same sort of [INAUDIBLE] and looking at the same data that we were looking at saying, online car sales is coming. And this is way to before COVID 19, obviously.

So for me, and the way that we've seen the data, COVID 19 seems to be a tipping point for online car sales, but it's not just a temporary moment in time. Online car sales is now a consumer behavior. And I think it's here to stay.

ADAM SHAPIRO: In regards to the dealers, do they find their margin getting squeezed? Or is there still the dickering that goes on between the client and the seller?

MICHIA ROHRSSEN: Well, our dealerships certainly try to avoid any dickering during the car sale. But what our dealers find is that it turns out, when you make the car-buying process smoother, when you allow the consumer to see transparently what's going on, they don't mind the dealerships making a bit of profit.

You know that when I buy this MacBook that I'm talking to you on, Apple makes a tremendous profit. But they make it so easy for me to buy it. Dealerships do the same thing.

Their grosses are higher than ever by selling cars online and actually putting consumers in control. And that was something that, frankly, surprised me. And I'm co-founder and CEO of the company. We never expected that, but the consumers are more than happy to pay for this experience.

SEANA SMITH: Speaking of the consumers, who is the most likely to buy a car online? Is it what we would think? Is it the millennial generation-- younger generation? Or are people who are in the older generations maybe open to doing this? Adam's [INAUDIBLE].

MICHIA ROHRSSEN: As a millennial, I would assume it's me and all my friends buying cars online. But you're really seeing it across the spectrum. You know who's actually most likely to buy a car online is someone on their phone. And so obviously web traffic now is higher on mobile devices than it is on desktop devices.

Online car sales are also higher on mobile devices. And to me, that just signals that consumers have developed a level of trust where they're willing to complete a $30,000 transaction on their phone. And that's across all age ranges, all demographics.

ADAM SHAPIRO: I will tell you, from the older demographic, there's a lot of fun. I've purchased cars online. I've done it through eBay and through different websites. And I do enjoy the negotiating process because that's just-- I mean, the online auctions do very well.

But it's not just the United States and North America where you're doing this. You're doing this what is it? Four continents? Where do you see the greatest growth?

MICHIA ROHRSSEN: So certainly, the U.S. Is leading the charge, in terms of adoption of online car sales. But you're seeing this, like you mentioned that China is seeing huge adoption of online car sales. We're seeing it roll across Europe, as well. And so the U.S is sort of leading the charge in this. But we're really seeing this become a global movement.

SEANA SMITH: What are people buying? What kind of cars? Is it the SUVs? Is it the trucks that have been popular when you take a look at the car giants here in the US, and what they've been selling recently?

MICHIA ROHRSSEN: Absolutely. SUVs are always the category that sells the most. But we're seeing even higher SUV sales now during COVID 19.

I can't say that's because of online car sales. I think it's more of a trend where consumers are saying, maybe I don't want to cram into a smaller car. I want something I can take for the weekend to have a getaway. But yes, online car sales with SUVs-- we're seeing 49% of cars sold are SUVs.

ADAM SHAPIRO: Do you get pushback from the likes of, say, a Tesla, of an Elon Musk, who they just want to do it all themselves. You know they cut off, perhaps, market, but not include someone like you in this process?

MICHIA ROHRSSEN: I think for dealerships, we allow them to deliver the experience that the consumers want. So if the consumer wants, they can buy the car totally online, never talked to a salesperson, get that full Tesla-like experience. But maybe you want to look at a lease payment. And say, should I do at lease or a finance on this car? And that's where we build systems like live chat, video chat, where the consumers can get the help they need, but only when they want it. They're not pestered as they're doing the online car sale.

ADAM SHAPIRO: But as I pin down on this, I don't think Tesla has dealerships per se, the way that, for instance, GM licensed the dealership to a Buick woman or man who's going to sell you the car on your site. Or do they?

MICHIA ROHRSSEN: They don't. They have showrooms. And they will sort of walk you through the car and show you the different features. But you're really buying the car online from Tesla.

We think that's actually a disadvantage. Sometimes you just want to sit in the actual car you're going to drive off the lot. You want to connect your phone to the Bluetooth, have that emotional experience.

And so for us, we think about online car sales, not as maybe an end goal for all consumers, but for many, it's a starting point. And they still end up going in store. And our system helps them in store, as well, to buy the car. But they can still start online and finish in store.

SEANA SMITH: How does your system help them in store once they're inside the dealership?

MICHIA ROHRSSEN: So if you walk into a dealership that we work with, you'll think you're in an Apple store. Every sales person actually has an iPad. And it will pick up right where you left off online.

So you'll see the same payments down to the penny. All your customer information is there. And so you can actually start online. Come in, test drive the car, and sign digitally.

You can also start in store, go home, and finish online. So we really focus on what's the best consumer experience. And for us, the best consumer experience is letting the consumer buy the car when and how they want to. We don't try to force them into say online sales or in-store sales. We support both really seamlessly.

ADAM SHAPIRO: A lot of the money is made, though, through the dealerships or the financing. Do you have any role in that? Do you have partners who do financing? Because you could score big. That's a big part of all this.

MICHIA ROHRSSEN: We do. So we help the dealerships in two ways on the financing side. First is the what's called F&I products, so extended warranties, how you're going to protect this car. Are you going to take a cap insurance? All of that is actually presented through our system-- again, both online or in-store.

And then we also help them facilitate the lending process. So we have a lender network that we can actually connect consumers with. Hopefully get the dealer involved, but also get the consumer a better rate. So we really try to have this holistic view on what can we do as a tech company to help dealers give the best customer experience?

SEANA SMITH: Well new car inventories are low. You're in touch with these dealers. You're talking to the dealerships. When is the expectation that it's going to return to those more normalized levels?

MICHIA ROHRSSEN: That's the trillion dollar question, really. The supply chains we've seen are so unpredictable. And if you look at COVID 19, you're having second-wave lockdowns. And that affects supply chain.

Also for the used car side, consumers are still trading cars in. But they're buying more new cars. So there's a used car drought, as well.

The inventory challenge is arguably the biggest challenge facing dealerships today. When COVID first hit, everyone worried would customers buy cars? Yes, they're buying cars. Yes, dealerships are adapting. It's really the inventory problem that I would say is the biggest challenge.

And unfortunately, I don't have an answer for that. If I did, I'd probably be much richer. It's a real challenge. And it's just so unpredictable with the way COVID 19 is affecting these different countries.

ADAM SHAPIRO: Oh, I think Rick Okacek and The Cars-- when they sang, "You Might Think," I think they might think you're going to be a very successful and wealthy individual. This is a great business idea. Michia Rohrssen, Prodigy CEO, thank you for joining us here at Yahoo Finance.