For ages, car dealers have stacked the deck against buyers. They've squelched competition with state laws that their lobbyists helped craft. They've fought attempts to share financial information with buyers, making negotiating unpleasant and difficult. Many of them won't even answer a simple email.
In the past decade, car dealers have haltingly, begrudgingly embraced changes in the retail landscape brought on by the internet. And that slow play would have continued but for a fat little microorganism that traveled the globe earlier this year and disrupted everything. The COVID-19 shutdowns this spring forced dealers to do something they'd been putting off: embrace technology and put buyers first.
"People's expectations changed overnight," said Larry Dominique, chairman and CEO of PSA North America, which is in the process of relaunching the Peugeot brand in the U.S. and Canada after a 30-year hiatus. People began online shopping en masse, ordering groceries, pet food, exercise gear, electronics, and even new cars. The coronavirus crisis raised awareness of what could be done remotely. "People have realized they can use these tools," Dominique said. "They know they exist, they know they work, and they know they're convenient."
Although buying a car and making a large investment will always carry some level of stress, the changing way of doing business promises to make car sales lower-pressure events compared with the past, with prices negotiated online, test drives taken alone without a pushy salesman in the passenger's seat, and financing and insurance sales taking place on the web. This new dynamic has the potential to benefit everyone, but especially women and people of color.
Car sales are steeped in decades of traditions, regulations, and hard-sell tactics. The National Automobile Dealers Association (NADA) was founded in 1917, just nine years after Henry Ford's Model T became available to the masses. NADA's first mission was to convince lawmakers that cars were as vital to the economy as horses and should be taxed accordingly. Since then, NADA and statewide dealer lobbying groups have influenced countless laws protecting the dealers' business interests.
With that safety net in place, many dealers have done a lot of talking about evolving, but very little has happened that Darwin would recognize as progress. We've seen baby steps, like putting inventory online so people can search to see which dealership has the actual car they want. But many dealers still refuse to answer emails. Often, shoppers are punished for emailing a dealer by being relentlessly spammed. Few dealers have figured out how to make negotiating painless, except for those that do no-haggle pricing. And then there's the agony of having to meet with the back-office finance and insurance salesperson, who can eat up an hour of time trying to sell you extended warranties, anti-theft devices, and paint and fabric protection.
But earlier this year, when dealers were forced to shut everything down, they proved they could adapt quickly. Here's what changed and how it could change car buying for good.
Lauren Starks has purchased three cars since the coronavirus outbreak slowed the world down—two used and one new. For the new car, a 2020 Toyota 4Runner TRD Pro, she opted to go with a dealer she already had a relationship with, because many dealers she'd emailed ignored her. Or her emails would go to an automated service and she couldn't get a real person to help. "I'm not sure which was worse," said the Greenville, South Carolina, resident. But once she connected with the dealer she'd already worked with, she was able to complete most of the process online, even the price negotiation.
This kind of buying process has been happening at upstart used-car chains for a few years. Unshackled by franchise regulations, used-car dealers have innovated quicker than new-car dealers. Carvana, for example, can sell a car online using very little human interaction. Customers can reach a sales associate if they need help, but they don't have to talk to anyone if they don't want to. No one works on commission, either, which keeps the pressure off.
"Buying a car is this tremendously exciting moment in people's lives," said Ernie Garcia, CEO of Carvana. "Unfortunately, the experience of buying it sours that experience."
Dealers have often argued that they are different from other business models because they deal with trade-ins, and other retail operations don't. That process of putting a value on your trade-in is tricky—the dealer is making an educated guess about what he or she can sell your car for either at auction or, more rarely, to another customer at the dealership. But for several years, it has been possible to give trade-in estimates online. The pandemic will hopefully push more dealers to embrace those tools.
Solo Test Drives
When Chris Rivers of Burbank, Ohio, was buying a Jeep Cherokee this summer, all the salespeople in the showroom stayed six feet away from him, wore masks, and refused to shake hands. When it was time to go for the test drive, they tossed him the keys and let him drive off on his own. He returned and bought the SUV.
A survey by Cox Automotive showed that car buyers are craving time with vehicles but not time with pushy salespeople. Six in 10 survey respondents said they'd prefer help from dealership staff but don't want to deal with salespeople. And a Google survey conducted this spring showed that consumers ranked at-home test drives their number-one alternative to visiting a dealership.
Colorblind (and Gender-Blind) Sales
With more sales conducted online, there's hope that discrimination in car buying will begin to fade. In 2018, the National Fair Housing Alliance released a study on car buying, comparing the experience of white people with that of non-white people. White people were given more favorable financing options, with non-white car buyers paying an average of $2663 more over the course of their loans than less qualified white people.
Trei Ceril, a Raleigh, North Carolina, resident and co-founder of a car club called Black Auto Enthusiasts, said he finds solace talking to other Black car enthusiasts about the discrimination they've faced buying cars. "But it's also depressing," he said. To help its members escape prejudice, Black Auto Enthusiasts maintains a list of dealerships owned by Black people. But, Ceril says, some folks are finding online tools just as helpful. His mom just bought a used car through CarMax, and the only interaction she had with someone in person was when she dropped off her trade-in and picked up her new vehicle. Since she did all the research on her own, there was no need to question someone else's motivation or whether they'd given her the best deal. "You take that part out of the equation; so in a way, it makes it less racist," Ceril said.
Return to Normal?
For all the change that is possible, it is also likely dealers will fall back into old habits quickly. We talked to a dozen car buyers for this story, and many who'd purchased cars since dealerships began reopening in May said it was business as usual. William Heacox of Albany, New York, bought a 2021 Kia K5 in July. "It was pretty much the same as always," he said. "The only issue I had was that they preferred you make an appointment to see a salesperson."
Dominique says he's hopeful the economic impact from the crisis will push the auto industry to reinvent itself the way he's trying to reinvent Peugeot in North America, but he's skeptical. "Our industry is like a giant black hole; there's a lot of gravity pulling you toward these business decisions that don't make sense anymore," he said.
Colin Beresford contributed to this report.
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