Auto makers manage to cram ever more technology into their cars, but dealers fall behind.

Car manufacturers have embraced digital technology, from navigation systems to night vision displays, but their dealerships are lagging far behind.

The internet has created whole new industries and revolutionized others. Yet some have seen far smaller changes. In the automotive sales industry, the internet has tipped the balance of power toward consumers but done little else, yet.

As consumers glean more data about car sales, dealers, such as Northtown Automotive, have to compete ever more fiercely to win their business. [1] Before the internet, buying a new car meant going to a dealership, almost entirely uninformed, and relying on a salesman’s offers. Getting more information meant driving to another dealership and starting the process over. Now, consumers can look up estimated trade in values on Kelly Blue Book, see comparable used car prices on AutoTrader, review dealer costs on Edmunds, and solicit prices from dealers all in minutes without leaving home.

In the mean time, dealers have learned virtually nothing about consumers. They have begrudgingly accepted the internet as a necessary point of visibility, but little more. Northtown’s web site shows inventory, hours of operation, directions, contact forms, and a credit application, but only the last hasn’t been around for over a decade. For an industry that consumers dread interacting with, the internet has the potential to dramatically improve customer experience and cut Northtown’s costs. Why aren’t they rushing to embrace ideas that will attract customers, improve margins, and allow higher throughput?

Anyone who has bought a car knows how stressful and time consuming the process can be, even after selecting a car and agreeing on a price. Finding a loan, and making sure one can afford the payments, takes time shopping around credit unions, banks, and dealerships. But new ideas are emerging, along with new companies implementing them, such as AutoFi. AutoFi integrates with dealers and gives consumers the ability to “apply for financing, select the payment and term that makes sense for them, choose their protection products and finally e-sign the finance contracts.” [2]

While dealers may be loathe to give up the profits they can earn with their in house financing, the tide is against them. Consumers are growing more savvy, loans are getting easier to research, and soon such anti-consumer practices will be more liability than asset. Getting ahead of the competition will likely lead to increased reputation among consumers, an asset that is increasingly valuable as transparency rises and friction disappears.

The last step in the process is one that all parties would be happy to streamline: paperwork. It’s merely another confusing, stressful, time-consuming task for the consumer, and one that offers no upside to the dealer. While certain documents must still be filed with governments, the process could be much simpler for the consumer and less time consuming for the dealer to boot. Case in point: Carvana. Like other online used car marketplaces, Carvana offers a digital buying experience, paperwork included. “Carvana CEO Ernie Garcia said 25 percent of his consumers handle the purchase online, including financing and signing documents digitally, in 20 minutes or less.” [3]

While dealers pour millions into upgrades to physical stores, recognizing the need to improve customer experience [1], they seem hesitant to embrace digital technologies that will streamline the buying experience. The renovations are vital, as sales account for less than 1/3 of the average new car dealer’s profit. [3] Service and parts contribute the rest, and retaining customers post-sale with coffee and Wi-Fi [1] is a smart move. But that should only highlight the importance of increasing sales volume by reducing the general unpleasantness of car buying. Building or buying digital technologies to improve customer experience and cut costs will be crucial to staying competitive in this industry. Finding a loan and signing paperwork are two obvious functions that can be improved, but it wont be good enough to play catch up to others’ ideas. With 75% of consumers ready to consider an all-online purchase [4], dealers may have to be prepared to give an Amazon-like customer experience sooner than they might like.

 

 

 

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[1] Glynn, M. 2016, Local auto dealers invest millions on makeovers, Chicago.

[2] “AutoFi; AutoFi Reimagines Auto Lending Market; Offers Transparency with Affordable Online Financing and Hassle-Free Loans”, 2016, Investment Weekly News, , pp. 298.

[3] Sawyers, A. 2016, “These guys want your used-vehicle sales, profits”, Automotive News, vol. 90, no. 6731, pp. 4.

[4] Nelson, G. 2016, “DIGITAL DREAMS”, Automotive News, vol. 90, no. 6718, pp. 1.

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4 thoughts on “Auto makers manage to cram ever more technology into their cars, but dealers fall behind.

  1. Interesting post about an internet solution that could help kick-start a lagging industry. Your post also brings to mind questions about regulatory and sustanability risk in the current car loan market. The US has seen recent alarming rises in the rate of subprime auto loans, resembling issues that we saw in the mortgage market before the financial crisis. See, for example, http://money.cnn.com/2016/03/15/investing/subprime-unpaid-auto-loans-oil-crash/. Could risk of further federal regulation, or of the bubble bursting in the coming years, also help spur auto dealers to stop managing this in-house and move to a specialized online vendor?

  2. Interesting post.

    Think generally auto dealers view e-comm as a slippery slope towards direct sales online by the OEM, and the death of their business.

    There’s a decent school of though that AutoDealer business shouldn’t exist altogether and we should transact directly with OEMs, but the auto dealer lobby has gotten increasingly powerful over time. See — http://www.motherjones.com/politics/2009/02/why-you-cant-buy-new-car-online

  3. DK, digitization in auto dealers is very interesting and I agree that the car-buying experience is something that needs to be improved. Reading through the article that Sam posted above, it does seem like the industry is in a bit of a grid-lock and I’m not sure what’s going to drive change. I think that the efforts you describe which the dealers are already doing are a great step, and I think that online purchasing capabilities could help solve the lack of price transparency, but with the dealers as intermediaries, I don’t see the incentive for them to provide greater price transparency.

    It seems as though it’s illegal for car manufacturers to sell their cars directly to consumers, and the reasons for this law appear very anti-competitive. [1] Tesla, however, has launched ‘showrooms’ in certain states that function differently from independent car dealers. There is no price negotiating and the stores are much more experiential that other car dealerships. The ease of purchasing a Tesla is a competitive advantage – this could spur change in the industry and drive other car dealers to adopt a ‘showroom’ model.

  4. It’s amazing that the collusion has held on so strong that dealers are unwilling to compete with each other and offer simple digital tools for consumers. Auto finance is a major profit center and, as Evan mentioned, has a lot of room for exuberance and abuse. Long terms that put owners underwater have become more common. Over the last couple years, CFPB has cited several auto lenders for abusive practices, including the finance organizations of Toyota, Honda, Santander, and Ally.

    Some dealers have been willing to compete on the used car front. There’s the longstanding Carmax, which uses a flat commission model. There’s also EchoPark, which promises an iPad guided experience. http://www.autonews.com/article/20150608/RETAIL/306089992/echopark-stores-ipad-strategy-reaps-f%26i-results

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