Shoppers aren’t ready to buy vehicles online (yet)…

Are Shoppers Ready to Buy Online?

Today, Consumers’ interests are different than Dealers’ interests.  We need alignment.  Amazon did it offering vast inventory, low prices and fast delivery -3 very compelling things.  How are OEMs and Auto Dealers going to do it?  Of course major purchases are more complex than minor purchases.

Truth be told economically it’s in the best interest of the consumer to break their auto deal apart and sell their trade-in on their own and get financing from their credit union.  There are some exceptions to this like subvented financing deals from the captive finance companies and of course doing a bundled deal is just easier and more convenient.  But economics and customer experience drives the buying process for Consumers.  Online car buying is trying to deliver this AMAZON like experience.

COVID sure advanced the topic of online car buying in 2020.  Things like virtual test drives, online car buying, and delivering cars are now hot topics.  And as much as I’d like online car buying to be a reality today we’re not quite ready for it. 

Why aren’t we ready for online car buying?

Our simple answer is because price discovery is very difficult to do and there’s very limited  “one price” selling so most deals are negotiated which injects friction into the process.  Consumers are fearful and therefore hesitant.  So really every deal is unique and negotiated today.  If shoppers were confident of all the unknowns they would buy online today like they do on Amazon.

Thousands (even millions) of make, model trim, option combinations makes it nearly impossible to compare the prices of new cars.  Add to that there are nearly 18,000 franchise dealers all who have different processes and OEM to Dealer pots of money.  Compare Dealer Discounts on the same vehicle and you’ll get dizzy.  Tesla (TSLA) is the leader in simplifying vehicle configurations, one price selling and online car buying – we should all be paying a lot of attention to how they do business and emulate when we can.  

Used cars are almost as bad but getting better quickly with CarMax, Carvana, Vroom, and Shift’s (SFT) one price selling.  Cargurus has done a good job telling consumers what they should pay.  These online used car sellers are bringing a greater level of transparency to used car buying and encouraging more people to do it online.  

Trade-In prices still vary greatly based on assessments of condition and pricing sources like KBB (Cox Automotive), NADA (JD Power), Blackbook (Hearst) and Edmunds (CarMax) gives the consumer some price discovery.  But let’s face it, selling your own car on CarGurus, Facebook Marketplace or Craigslist continues to get easier and easier so trade-ins are probably on a down trend while selling your used car retail is on an uptrend.  

Financing and the cost of money — either interest rate or money-factor — is the third area of price discovery that consumers need to get comfortable with.  Consumers have gotten more educated about their credit scores and how it impacts their cost of borrowing.  Sites like Bankrate.com and CreditKarma.com have helped.  People with Super Prime or Prime credit are easy to finance and tend to have a sense of what interest rate they should pay.  They understand Treasury rates are the base of all borrowing rates and have lots of alternatives.  The Captive Finance companies make it easy for these folks with subvented rates like 0% financing.  Non-Prime and Sub-Prime are a different matter and some are so scared of finance they’d rather buy cash.  They are unaware of the Finance Companies that specialize in lending to them.  This will be changing with alternative lenders like Upstart (UPST), LendingClub (LC), Affirm (AFRM), etc.  Some States and some Lenders still require wet signatures so adopting electronic docs using something like DocuSign (DOCU) will take more time.  Indirect versus Direct lending. 

The other thing our industry has to get good at is Dealer Reviews.  OEMs use CSI scores.  Yes there’s Google Reviews, Yelp and DealerRater but on Amazon you have thousands or tens of thousands of reviews that either give you confidence or not.  Even with all the reviews when you make a mistake it’s a relatively low price item that you can return.  You can’t return cars (usually).  

The franchise dealer system and the OEM to Dealer incentive programs all make emulating Tesla, Carvana, Vroom, et al very difficult.  But let’s face it although McDonalds are all independent franchises their POS (point of sale) systems are all the same and their menu items are all very similarly priced. 

Can’t our industry be more like McDonalds?  Why don’t the OEMs make and provide beautiful software solutions to their Dealers?  Why is our industry dominated by 2 DMS companies and half a dozen (6) website and CRM companies?  

So we would contend the general public isn’t ready for online car buying just yet, but we’re moving in the right direction.  However, we can help shoppers pencil your deal online and teach them the components of a car deal.  This closes the communication gap between a shopper and your sales staff and makes selling easier.  As we help consumers feel comfortable with price discovery, reviews, etc. more will commit to buying online over time.

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