Cadillac’s president, Johan de Nysschen, recently echoed a sentiment a growing number in the auto industry espouse when he answered that “respond[ing] to changing consumer preferences” is the greatest challenge facing the auto industry. He added, “the business model of having fixed stores and demanding that customers come to us is ready for disruption.”1 Indeed, Britta Seeger, a member of the Board of Management of Daimler AG, predicts that 25% of all Mercedes used and new car sales will take place online within the next five years. In China, 23% of consumers aged 18-24 already purchase their cars online.
The writing isn’t just on the wall; it’s in all caps and neon. But this shift doesn’t necessarily spell doom and gloom for traditional dealerships. On the contrary, many traditional dealerships will learn to succeed in this new economy — they’ll simply help redefine what “traditional” means. Understanding why the purchasing process has changed is the first step in understanding how to prepare and, ultimately, flourish. With that in mind, here are five reasons why this change is here to stay:
In September of 2006, online retail sales accounted for 3% of total retail sales. In 2017, that percentage had tripled to 9%.2 Online sales are growing at an annual rate of nearly 16%.3 According to Forrester’s latest Online Retail Forecast, the research firm predicts that online sales will account for 17% of all US retail sales by 2022. The report also expects US online sales to grow five times faster than offline sales. And, according to the National Retail Federation, in-store purchases have declined steadily in recent quarters, while online purchases have increased steadily over that same period.
Consumers are being conditioned to make purchases online and there’s no reason to believe that those purchases will not extend to automobiles. There are many empty storefronts that used to house bustling retailers who assumed the same about their own inventory. On top of that, in its 2016 Consumer Automotive Index , Beepi, Inc. found that 87% of Americans dislike something about purchasing a vehicle at a traditional car dealership and well over half of the respondents feel they’re taken advantage of while shopping at a dealership.
Car buyers already begin their searches online. In fact, they spend nearly 60% of their time researching and shopping online. SEO and mobile-friendly sites would appear to be the price of entry at this point, as nearly half of those used a smartphone during the process for that purpose. The good news for dealerships here is that a lot of information about prospective buyers can be captured early. More than basic contact information, buyers will often disclose preferences and purchase history, which can help make the sales process even more streamlined.
People like shopping for cars, but they don’t like the transaction process. And “that process has to be made easier,” according to Matt Jones, a senior consumer advice editor with Edmunds. Not surprisingly, automakers have attempted to help solve the problem. Ford Motor Credit Co. is partnering with AutoFi to give customers the ability to buy a vehicle directly from a dealer’s website. And Hyundai recently launched its “Shopper Assurance” program, which enables prospective buyers to work directly with dealerships and find out which dealers have which cars. Importantly, it also lets them know exact prices online. They can also fill out a lot of the paperwork online. Some dealerships will even deliver a car for a test drive. Lincoln Motors is also experimenting with at-home test drives, as well as other ways of reducing the time customers spend at dealerships. Kumar Galhotra, Lincoln’s President, believes that dealerships “need to make the car purchasing process faster and easier,” while noting that “every other kind of shopping is already effortless.”4
When asked to rate their satisfaction, 81% of car buyers gave the test-driving process a rating of eight or above (with ten being the highest). However, satisfaction declined sharply elsewhere. Of the 3-hours average time spent at the dealer during the purchase process, more than half of that time is spent negotiating or doing paperwork, resulting in a 56% satisfaction rate for the process.
Hyundai’s new approach (Shopper Assurance) was a result of customers telling brand researchers that they weren’t buying a car “because the process was so bad.”5 Their research also showed that buyers spent an average of five hours in the dealership in order to complete a purchase. And much of that time, according to the study, was spent worrying that they were being taken advantage of. Notably, it also indicated that many would pay extra to avoid the time spent sitting in dealerships.6
As they say, time is money. But time isn’t only money for customers; It can mean money for dealerships, too. Jones, the aforementioned editor, sold cars in California for more than decade before joining Edmunds, and claims that tedious paperwork is a large part of the problem. He concludes that a streamlined process would make it possible for dealers to ultimately sell more cars.7
New companies like Carvana and Tred allow buyers to skip the dealership experience altogether and make used car purchases entirely online. New Tesla purchases are also made online directly from the manufacturer. However, because of contracts between manufacturers and dealerships, purchasing new vehicles online outside of the traditional dealership’s website has been a challenge.
But new business models are emerging that work with dealerships to respond to consumers’ preferences. Joydrive, for example, sells new and used cars online through partnerships with established dealerships. Vehicles are sold for the lowest price that the dealer is offering online, which eliminates the negotiating process many buyers loathe. While the company is still in the early stages of growth, is has been successful thus far and has plans to expand from the Northwest into other parts of the United States.
The internet has changed how we all interact, transact and, generally, live. There is no going back. There is no amount of advertising that will prevent the inevitable shift to online sales of automobiles. That doesn’t mean traditional dealerships will go the way of traditional bookstores. It simply means those dealers must embrace the new way of doing business, find ways to capitalize on new technologies and set themselves apart from those dealerships that remain stuck in the past.
At DOM360 we helping our dealership clients embrace the opportunities that are here with digital retailing and online transaction. Partnering with firms like GoGoCar we are building marketing solutions that encompass the entire transaction from real-time trade appraisal to banks competing for the best rates on financing. There are a lot of players entering the space and not all solutions are created equal. We would welcome the opportunity to share our latest solutions with you.