Why Americans Buy Cars From Dealerships

Americans love their cars, but one thingAmericans don’t seem to be crazy about is the processof acquiring them.

The American car dealership experience is onemany seem to regard as a necessary evil.

Buying cars often feels like ananxiety inducing ordeal that can last hours.

Some surveys suggest Americans don’thave a terribly high opinion of automotive salespeople either.

Yet in the years since the Americaneconomy began recovering in the wake of the financial crisis, new carsales have repeatedly reached record levels.

And industry analysts say Americansoverall seem to be relatively satisfied with their purchases oncethey drive away with them.

There certainly are things they would liketo change about it, and some already are using toolsnow available online.

Meanwhile, dealers face their ownchallenges, including a consolidating landscape, tight competition and threatsfrom new business models promoting contactless virtual transactions whichhave thrived during the age of covid-19 outbreaks.

To survive, dealers will have to keepup and find ways to accommodate buyers less willing to go through therigamarole they have endured in the past.

There are parts of America youcan only scout if you come in here for International Harvester dealer showroom, a rugged scout to 476 has great off road handling andsnows a lot of gear.

You can choose a four cylinderengine and selective four wheel drive.

Come in for a test drive.

Scotty and the others pass.

In the U.

S.

, the vast majority ofautomakers don’t sell their cars directly to consumers, they sell them todealers, which are basically separately owned franchises that fly the banner fora particular brand of cars, often several, and have a close, ifsometimes contentious, relationship with the companies that producethose vehicles.

Cars made by any automakeroperating in the U.

S.

are considered sold to a certain dealeras soon as they roll off the assembly line.

Dealers are then taskedwith turning those cars over to buyers, preferably asfast as possible.

The franchise model saved automakers theexpense and trouble of opening and operating their own stores, allowing themto rapidly expand their reach across the United Stateswithout footing the bill.

Every U.

S.

state, in turn, hasdealer franchise laws designed to protect dealers who have invested in buildinga brand’s presence in a territory.

These were created to assuage thefear that manufacturers might move into an area a dealer had already establishedand run them out of business.

These laws have become a pointof controversy in the 21st century, primarily because of onevery disruptive company, Tesla.

The electric carmaker has long insistedon selling its cars directly to customers over the Internet.

Tesla has been involved in legal battlesin several states to set up its own kiosks withoutcreating franchised dealerships.

But when Tesla was still afledgling electric carmaker, churning out a tiny number of high end electriccars, other larger trends were already shaking up the dealership landscape.

The industry has gone through atremendous degree of consolidation over the last few decades, and nowthere are massive publicly traded dealership groups such as AutoNation and LithiumMotors, which have steadily bought up many of the once independentlyowned dealerships that dotted the country.

The way Americans buy cars isalso often quite different from the way they are boughtin other countries.

In Japan, for example, cars are typicallycustom ordered at a showroom and then delivered to the buyer.

Later, while Americans can special ordervehicles at dealerships, most car shoppers in the U.

S.

choose their cars from whatever isalready available on the lot.

Of course, the dread that many consumersfeel prior to a trip to the dealership has longbeen widely known.

I think what’s really interesting about carbuying is that a number of years ago, John Kravchuk, whowas the head of U.

S.

Hyundai Hyundai Automobiles and he wasahead of the group, said something to the effect of it’s almost asituation where people would rather go to the dentist than go and buy a newcar because of just how the consumer is almost beaten down into submission just tothen give their money over to take home a product that they’re then goingto have to bring back to the dealer on a regular basis forservice and repairs and such.

And it’s gotten better over theyears because there’s more information out there.

But it’s almost a double edgedsword because at the same time, there’s so much information outthere, it’s almost more confusing.

A 2014 study from industry researchfirm Edmunds found that people have such low levels ofenthusiasm for car buying.

Many shoppers said they would rather give upsex or do their taxes than go through it.

A Harris poll found that52 percent of car shoppers said a trip to the dealershipmakes them anxious.

One Gallup poll evaluating publicperceptions of professions found that car salespeople were rated the lowestin terms of their perceived commitment to honesty and ethics.

They came in belowchiropractors, insurance salespeople, advertisers, lawyers and members of Congress.

About 65 percent ofAmericans think U.

S.

car dealership practices are unethical, accordingto data cited in a 2008 paper from consulting firm KPMG.

But also, of course, there are plentyof buyers who are happy with their purchases once they have them.

Most customers, they like their sales, sothey might not like the process of getting a price or the salespersonhas to talk to the manager.

But in general, they like thesales consultants, probably why they buy that specific dealer.

And I think they also believe that inmost cases, the dealer does a pretty good job of explaining the technicalissues with the vehicle and products and features of the vehicle.

A vehicle certainly got more complex overthe years and I think for most consumers, they feel that dealership does agood job in that the most frequently cited pain points tend to bewhen customers are sitting in the finance and insurance office, often for upto an hour or more, filling out paperwork, applying for credit andnegotiating terms of the deal.

Many customers feel they are deeplyunprepared for this part of the process and do not enjoy thehours long, complex discussion with sales representatives.

A car is among thefew purchases shoppers have to haggle for, and it also happens to be oneof the biggest purchases a person will make in their lifetime.

Many buyers don’t have the experiencenegotiating they might like to have, especially withprofessional salespeople.

And we don’t negotiate for much besideshouses and cars in the United States, so it’s not something that peopleare very used to a very comfortable with.

A lot of times theyjust want to get out of there.

During this time, customers are offeredextended warranties and a whole suite of add ons many of themdon’t expect to encounter and don’t know what to make sense of.

Like my pointed to dealers as wellas lenders is is pull that information up front because consumerscan educate themselves.

What is the value ofan extended service contract? What is the valueof an extended warranty? Why do I need gap insurance andI might choose those products before I even come to the dealership? Hey, this makes sense to me.

I’d like to buythis particular service contract.

And I know going to keepthe car for this many years.

I like like the warranty.

I like the maintenance agreement.

By the way, I think Gap Insurancemakes good sense for me because I’m going to keep this car for a whileand maybe it’s a good product so that education process can happen upfront versus in dealership.

That said, fewer than five percent ofshoppers have walked away from a sale due to high pressure sales tactics.

According to J.

D.

Power’s sales satisfaction survey.

The most common reason for turning awayfrom a purchase which 30 percent of customers cited, is that a dealershipdidn’t have the right model in stock.

And a lot of cases, it’s just amodel I shot grand in model way and end up buying Model B because therewere features or priced around that model that they didn’t like.

But for some customers, there’sareas within the negotiation process.

They feel some of the back and forth.

The pricing can bea reason for rejection.

There are a few brands thatdo seem to stand out.

According to J.

D.

Power, among luxuryconsumers, Porsche owners seem to be exceptionally happy with theircar buying experience.

The brand ranked first inthe luxury segment on J.

D.

Power S.

I.

three times between 2015 and 2019.

Mercedes came in second in 2019among more mainstream brands, Buick and GMC, which are both owned by GeneralMotors, came in first and second in 2019, and the quirky small carbrand Mini came in third.

Like Porsche and luxury, Buick has toppedthe mainstream list three out of four years between 2015 and 2019.

Despite the angst, Americans continue tobuy cars during the economic recovery.

New sales in the UnitedStates reached record levels in some years and even surpassedexpectations in 2019.

Dealership giant lithium motors saw salesgrow from about two billion in 2010 to twelve point seven billion in2019 as of August 18th, 2020.

Shares of Lithia had climbed nearly 24percent since the company’s 1996 IPO and nearly 86 percent sincethe beginning of the year.

Likewise, sales at another dealer, giant AutoNation, grew from about twelve point five dollars billion in 2010to about twenty one point three dollars billion in 2019.

Its shares rose about 20 percent fromthe beginning of twenty twenty to August 18th and have risen more than12000 percent over the course of its entire history.

Of course, sales levelslike these are not expected to last forever.

The automotive industry isa cyclical business and there have been concerns that younger buyersare not as interested in car ownership as their elders.

But some economists have argued thatthe millennials killed the car.

Narrative has been overblown.

A 2013 analysis from MIT foundthat millennials are actually buying cars at about the samerates as older generations.

However, there are some shifts takingplace in the automotive market that carmakers and dealers are watching.

Ride hailing apps such as Uber andLyft have become popular around the country.

Companies continue to researchand develop self-driving cars in myriad other industries.

Businesses have increasingly looked forways to reach customers through their smartphones, where a growingshare of shopping is done.

The Internet has also contributed considerablyto the rise of membership and service models of selling, andconsumers have grown more interested in the idea of paying monthly or annual feesfor access to a product that is periodically updated or replaced.

Even smartphone makers such asApple have programs like this.

Carmakers and others in the automotiveindustry have rolled out their own attempts to lure customers with modelssuch as these online marketplaces for cars and subscription services thatare similar to Lease’s but include service plans, insuranceand registration fees.

However, these new business models haveso far attracted small portions of the market, and strong new car salesover the last several years have given dealers little incentive toinvest heavily in them.

But online sales have seen aboost since the coronavirus pandemic began, dealers have responded to retail shutdownsand crowd weary shoppers by putting inventories on shopping sites, offering contactless test drives and home delivery.

Automakers are also offering servicesfor their dealer networks.

General Motors, for example, set up aprogram called Shop Click and Drive that allows customers to configurevehicles online, get estimates for their trade in, sort out theirfinancing options, and either take delivery at home or at a showroom.

Over the last several years, a numberof companies have sprung up that exclusively sell cars online.

One such firm called Vroom held itsinitial public offering in June right in the middle of the coronaviruspandemic as of August 18th.

Shares of room were up more thantwenty four percent in twenty nineteen more than half of rooms.

Sales had comefrom traditional dealerships.

It offers contact, free transactionsand seven day returns.

Highly unusual for car sales.

Perhaps the best known name amongonline only car sellers is Caravana, which went public in late April 2017.

As of August 18th, shares hadrisen by more than 17 percent.

The stock was up more than 120percent just since the beginning of 2020.

Some industry analysts do expect that someof the jump in online sales seen during the pandemic may remain the pieceof the process customers do seem increasingly prefer doing online isthe paperwork that they would otherwise do at the dealership.

Surveys show customers want to haveas much information about the financing side of the transaction as possiblebefore they step onto the lot contents.

I talked to dealers about thesame thing is you need to build your process around the idea that consumersno longer want to go sit in the finance insurance office.

They don’t want to be tied upfor an hour signing documentation, nor are they willing to sit through the salespitch that your money manager, he or she might provide because there’s anumber of products that they sell.

Do you think it’sabout transacts today? Most dealerships make more money ontheir FANNI transaction than they do on the sale.

So dealers are changing howthey sell cars, even if they are doing it a bit more slowly thancustomers or other industry insiders would like.

But if these shifts takeroot, dealers may begin rethinking their entire business models.

If customers keep movingonline, for example.

It is plausible, say analysts, thatdealers may ditch their centrally located showrooms aside large lots linedwith cars, SUVs and pickups.

They may opt instead fora smaller showroom space.

Coupled with anoffsite distribution center.

Customers may in turn get used to theidea of having a car delivered to their homes the way they wouldreceive a package or a pizza.

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