Tech advances in automotive retail have expanded a customer’s buying options. Online lead generation and hours of research have streamlined the time it takes a customer in the showroom to buy a car. That’s especially true for new cars, but the pre-owned market is online as well.
The largest example in the United States is Carvana. The online used car retailer offers customers the chance to shop for their pre-owned vehicle online and take delivery from one of their car vending machines.
Despite the industry growth, used car buyers overwhelmingly choose to shop at the car dealership rather than Carvana and any other online choices.
A Foreign Process
The current dealership model has been used for decades – as long as cars have been mainstream and mass marketed. It’s what Americans know and are familiar with. The typical car buying process for used and new cars entails browsing a car lot to build confidence in a vehicle selection, discovering the vehicle’s feel and options hands-on, and taking the car for a spin to get a handle on its performance. Buying a car online misses all these points.
It’s argued that a no-nonsense refund policy negates these concerns, but it simply doesn’t. Car shoppers don’t fully trust the process and likely aren’t convinced they’d receive a quick and easy refund if the ‘shoe doesn’t fit’. Most car buyers would rather stay with what they know.
No Negotiation
Car shoppers in the used and new markets tend to embrace negotiation. No-haggle price models have been tried with limited success – the Lexus Plus no-negotiation strategy is one example. The mentality is that manufacturers build in a buffer zone and making a deal without negotiating is leaving money on the table.
Carvana doesn’t have facilities or people with whom to negotiate. Pricing is competitive to local markets but doesn’t allow for the full customer experience.
Impersonal Sales Experience
It’s about the people. Dealerships are staffed by salespeople who develop a trusting relationship with customers. From the introductory handshake to the walkaround and face-to-face negotiations, the personal touch at a dealership is hard to replace.
Research from CBC discovered that in all adult age groups, shoppers prefer to see a cashier than use self-checkout services. The same is true whether in the supermarket or dealership environment.
It Could All Change
In the first quarter of 2019, Carvana’s sales accounted for one in every 300 used cars purchased in the US. That leaves 99.6 percent of used cars purchased either at a franchised dealer, non-franchised dealer, or privately. Less than seven percent of car shoppers are familiar with Carvana as an option. And to date, Carvana has yet to return a penny of profit to its shareholders. Dealers have an obvious advantage, but that’s not certain for the future.
Disrupters are notoriously the underdog that becomes the top dog. Recognizing the need for a service to sell cars online directly to customers in a haggle-free process could position dealers to limit the amount of the used car market disruptors capture.
By implementing similar pricing and delivery structures (obviously not a vehicle dispenser) that eliminate the need for negotiation and time spent in the dealership, used car retailers can keep their customers. Not only does it strengthen sales, but it helps retain the fixed operations business from car buyers at the dealership.
