Understanding the Modern Car Buying Journey

In the early days of the internet, websites such as Kelly Blue Book and Edmunds provided car and truck buyers reams of static information. Armed with dealer cost, accessories, and those sneaky dealer fees, consumers marched confidently into the dastardly dealerships carrying stacks of paper, proclaiming, “I have You Now.”

Since those early days, consumers have learned there is much more to a successful dealership operation than a simple MSRP. Car review websites have grown from simply listing numbers to showing the inherent value of an automobile and also showcasing the various online services and dealerships where you can purchase them.

No other industry on earth has been analyzed, studied, broken down into subsets, and then analyzed more than the car business. Antiquated buyer attitudes have not changed much, according to LinkedIn: Millennials lead the pack in their dislike, with 56% saying they’d rather clean their homes than negotiate with a car dealer. Gen X-ers aren’t fans either and faced with alternatives, 24% say they’d rather have a root canal than get into car negotiation.

Transformation of Automotive Retailing

Before the internet, car buying was a traditional and slow-moving affair. “Attract new customers by traditional advertising methods. A customer hits the lot, and the next-up salesperson performs a meet and greet, lands them on a vehicle, and does the five-point walk around. The deal is negotiated, and mounds of paperwork are filled out. The package is sent to F&I, and the deal is closed.”

Evolving customer expectations and recent brutal market forces have forced dealerships to rethink their selling strategies. Traditional brick-and-mortar business models are beginning to show deep cracks. The time-honored floorplan model has required huge sums of cash, yet returns are negligible.

Online Digital Revolution

Digital innovation is delivering the exciting car buying experiences consumers expect. Statistics show a significant shift is underway in how buyers shop and purchase their vehicles.

A recent study by S&P Global reveals expectations and market forces that have forced change in the industry.

The pandemic brought about rapid adoption of digital retailing and changed how consumers bought their vehicles. 65% of car buyers in the US now shop and research their next vehicle purchase online. Significantly, 61% of consumers were influenced by adding an online purchase option.

eBay, Facebook Marketplace, and hundreds more have fundamentally changed the car buying landscape. Numbers for Marketplace are staggering, with nearly one billion active monthly users. Recent statistics have shown that 18.6% of these users are looking for a vehicle.

eBay is a well-developed website offering parts and support along with a top-notch listing mechanism for used cars and trucks. Raw numbers are equally impressive, with 135 million active monthly users. 7.4 million of those users are aggressively looking for a car or truck. A vehicle is sold every 3 minutes on eBay.

Many online marketplaces cater to their online shoppers with value-added services on platforms such as GoodCar VIN lookup, Concierge services, and GAP Insurance.

Consumer buying behaviors continue to shift. Global inventory shortages have plagued dealership lots from before the pandemic. Massive supply chain problems and global labor conditions forced automakers to curtail new car production, not to mention the dramatic rise in fuel prices.

Market forces of pent-up buyer demand have quickly outpaced supply, causing prices to rise and sidelining many new car buyers.

The good old days of car shopping appear to be on the way out. There seems to be very little sales pressure as we know it, and incentives are no longer a given.

A sobering report from Kelly Blue Book dated just last year states that the new car transaction price averages $48,301, beating the prior month’s record high of $48,080. Year over Year (YOY) numbers show that from August 2021 to August 2022, prices increased a staggering 10.8% or $4,712. The report says retail sales remain depressed, and inventory levels are significantly below 2019 and 2020.

Automaker incentives are historically low at just 2.3% of the total transaction price. Last year, incentives averaged 5.5% of the transaction price.

EVs are the disruptors creating new consumer buying experiences and forcing change. CAPEX-lite car networks are promising the customer experience everyone wants to see happen. The future of automotive retail is the alignment of EV technologies (electric vehicle) and Dealerships only selling vehicles with internal combustion engines.

Dealerships are striving for business models where franchised dealers can sell EV and ICE vehicles. The future: incentives are lower, and a higher gross profit per vehicle is the goal.

2030 is when most experts believe EVs will account for the majority of vehicles sold. Innovative retailing approaches will continue to grow at the dealership level, with distinct differences between electric vehicles and legacy models.

The future appears to be the digitization of the automotive industry, leading to a consolidation of brick-and-mortar showrooms.

Perfect Storm

The number of shifts, trends, expectations, and the future of automotive retailing is astonishing. Whether you read generalized report trends or industry-specific research, the digital dealership is upon us.

Online car buying continues to accelerate around the globe, with automakers, dealerships, and consumers in a perpetual state of change. According to Forbes, in 2023, over one million electric vehicles were sold, with a 50% YOY increase in sales.

Direct sales business models are quickly gaining a solid foothold, challenging the traditional dealership model. Centuries-old dealerships are fighting for their existence, and car dealerships exist because they work!

Online automotive marketplaces have exploded onto the scene, giving consumers a new way to research and shop. But there are also crippling disadvantages to these marketplaces, such as the ability to test drive the vehicle and limited financing options.

Here are two of the most popular online services:

• Carvana makes buying a used car hassle-free, just like buying dish soap at your local grocery. There are advantages to Carvana, such as a huge selection, delivery to your door, and everything is done online. With every positive, there is a negative, such as higher prices than at a dealership and no chance to test drive.
• TrueCar is similar to Carvana; however, the company sells both new and used vehicles. Consumers feel they save money at TrueCar, and the website and mobile app are great. TrueCar features a huge inventory from other online sites, including Carvana. After signing up, expect a deluge of emails, texts, and phone calls. Also, dealerships may not have the exact car and offer the same deal.

Final Word

Quality dealerships live and breathe by satisfying their customers before and after the sale. There are plenty of new ways to shop for cars and trucks, with most services only offering a limited portion of the new or used car buying process.

Consumers can buy almost any vehicle they want online and have it delivered right to their door. The issue becomes what happens after the car is delivered. What about service, parts, or recall notices? The list is endless.

Food for thought: a few automakers build some of the world’s best vehicles that can be purchased online. The catch is that these manufacturers only allow their vehicles to be serviced at the brand’s facilities. No general mechanic can service the vehicle under warranty. Give that some thought.

For My money, I am sticking with the dealership.