A few days before Tesla unveiled the new Model Y, they announced their decision to shut down brick and mortar showrooms and move to online-only sales and delivery. This caused a mixed reaction of both praise and criticism from industry analysts, and a couple of weeks after the announcement Tesla quietly released an update stating that while 20% of their locations are under review, they will only be closing about half of their stores. This shift seemed to satisfy the experts, and everyone returned to the focus on the Model Y launch.
The conversation around buying used and new cars online isn’t new, but the industry has been slow to respond. People have been using the online platforms Ebay and Craigslist since the mid-90’s to sell cars, both used and new. Amazon is selling used cars online, and Dave Smith Dodge - a pioneer in using the internet to promote its inventory - dominates the turn-to-earn game from Idaho. Buying and selling cars online will soon feel as normal as buying or selling a Peloton exercise bike or new dining room set on Wayfair.
There are so many online vehicle shoppingsites out there, consumers are able to triple their research in half the time. According to the 2018 Car Buyer Journey report by Cox Automotive, car buyers spend 60% of their time online. The same study reveals that 78% of car shoppers use third party sites. The Millennial generation are driving the shift to online sales. This generation is bigger than the Baby Boomers – as of 2016 they are our country’s largest living generation.
Ford Motor Company’s smart mobility subsidiary, Ford X, recently announced the launch of a new online used-car sales platform FindYourFord.com, selling used Ford cars and trucks online, from local Ford dealer lots, directly to consumers. And while this is a great entrée into online sales for an OEM, Ford now joins the ranks of dozens of online sites selling used cars. But what about new vehicles? When will the industry accept the same online model to help dealers move new inventory?
My family has been in the car dealership business in Detroit for over 50 years. My uncle, Hoot McInerney, believed in building customer relationships and treating everyone like family. That’s what kept generations of families coming back to the dealerships. But times have changed. Brand loyalty isn’t what it once was. Today’s consumers are only loyal to their wallets, it seems. The audience for quick and painless online car buying is growing – and it’s growing so fast the industry can’t keep up.
Buying a car is stressful. In the 2016 Accenture report Digital Hits the Road, car buyers are looking to online options for convenience and better pricing. There is an entire generation of buyers out there who have grown up with a smart phone in their hand. The next generation doesn’t interface and build relationships the way we did. They certainly don’t have the patience to deal with salespeople. They do their homework – they research, they bounce from site to site comparing pricing and options. They know what they want and they procure their purchases in the quickest and most convenient way.
In every article I read about online car buying, the same phrase comes up over and over again: “…without ever setting foot in a dealership.” That’s the hook. For the millions of people who need to take a Xanax before walking into a dealership, online car buying is the answer to their prayers. A 2016 survey by CDK revealed that 21% of Americans would purchase a car completely online – and that report was based on data from surveys taken over three years ago.
There will alwaysbe consumers out there who want to go to the dealership. Dealers will always have a place in the process. There are plenty of car buyers who want to test drive cars, kick the tires, ask questions, and get to know their local dealer and service staff. But the migration toward online car buying will likely reduce the number of dealerships necessary in a similar way that shopping malls are shuttering across the country.
What online car buying will do is redefine the role of the dealership and push the culture into reinventing the value they bring to the car ownership experience. The Chicago Tribune recently ran a story about another multi-generational, family-owned dealer group in the Chicago area, Packey Webb. They built a brand new, 54,000 square foot facility on 10 acres in a suburb of Chicago, with a very small showroom. With online car sales becoming a reality, dealer groups like Packey Webb are investing in state-of-the-art service centers. Consumers may buy their cars online, but they’ll always bring their cars in for service.
Manufacturers and dealers are still trying to figure out how this will work in the future. There are state franchise laws that protect dealers from manufacturers selling directly to consumers. Manufacturers invest millions of marketing dollars into their retail strategy through their dealer franchises, and dealers worry that moving to online sales will render dealerships obsolete.
While manufacturers and dealers struggle to find their place in the eCommerce world, large national dealer networks are starting to move in that direction. A recent article ran in the Houston Chronicle about Group 1 Automotive, the third largest dealer group in the country. Group 1 has been testing online sales in 28 of their dealerships nationwide, and plans to implement it across all 117 U.S. dealerships by the end of 2019.
The auto industry is changing and evolving faster every year and this is all part of that transformation. The burden of change doesn’t fall with any one group or industry. Manufacturers, dealers, online third-party sites and consumers – we’re all in this together.