By Andrew Gordon, CEO and Founder of DealerScience
People are really great at thinking they know what the future holds, but we often get it wrong. Planes didn’t fall from the sky on January 1, 2000; Zipcar didn’t eliminate the private automobile; Skyscraper, despite the considerable acting talents of Dwayne “The Rock” Johnson, was a box office flop; and Ronald Wayne shouldn’t have sold 10% of Apple for $800 in 1976.
Currently in the automotive space, there is a breathless rush to online retail. Development teams are working frantically to create tools to make this possible. Talented e-commerce experts are being wooed into this sector. It seems only natural. Amazon is taking over the world and Jeff Bezos has a net worth near 150 billion dollars.
What is missing from this equation is an understanding of what actually happens in a dealership. It’s easy to paint dealers with a broad brush (or tar and feather them) as a bunch of slicksters. In the past, they held all the cards and many took advantage of their position. The strategy was huge markups and tedious negotiations. It worked (for them) until their customers, armed with data from the internet, burned the house down. What is being overlooked is that good dealers actually did provide a valuable service to customers. They helped them navigate an ocean of choices to find the right vehicle for them. This was no small feat. There are over four million different configurations of an F-150 alone. If you want to shop the competition, add in many more million configurations of Chevrolet Silverado and Ram. The choices are staggering.
While many are trying to create the ability to complete online purchasing, they are missing this very basic and complicated step. Go to any dealer’s website and you’ll see the problem. Correctly, they are rushing towards transparency and dutifully list every piece of inventory they carry. That’s where the guidance stops and what is left is a myriad of lead generation devices like pop-ups, form-fills, and chat invitations. How can the customer navigate all these choices without guidance? To make matters worse, most OEMs, in the interest of brand protection, only allow dealers to display MSRP or other MAP guidelines. We know that customers are seeking the answers to two basic questions: What do you have and how much is it? Currently we can’t answer either.
Until this sea change takes place, a better strategy for dealers is to use technology to assist their staff and customers in navigating the myriad of choices of both inventory and financial options. This technique is what makes the Apple experience brilliant and what has brought Best Buy back from the dead. They have figured out how to make an intelligent transition from the online world to the showroom.
But what about the hundreds of billions of dollars spent every year on Amazon? While on the surface, that amount of revenue suggests that the transition to online auto sales is natural, we need to unpack the numbers a bit. The average transaction price of all online retailing is $82, a number that is virtually unchanged since 2012 (SOURCE) not everything is best-suited to online retail. Amazon doesn’t have to present finance and lease options and establish trade-in values. This adds a level of complexity that is mind-boggling. You’re unlikely to consult an online psychiatrist and Amazon didn’t buy Whole foods and build brick and mortar stores because they’d run out of things to do. Dealers that do offer online buying are only seeing a 2% take rate and much of this is in the used car world.
A better strategy is to lubricate the current process to give dealers and customers better and faster access to all the tools necessary to complete a very complicated sales process and move further away from painful price negotiations and closer to what they are good at; helping customers make good choices.
Andrew Gordon is the CEO and founder of DealerScience. After receiving a Masters Degree in engineering management from Tufts University in 2009, he went to work at his family’s Honda dealership. It was there that he saw the need for tools that would eliminate the tedious manual calculations required to conduct financial transactions necessary to purchase vehicles. With these tools in place, the dealership saw sales increase more than 100% in the first year. DealerScience serves more than 350 dealers across the US.