Few would mourn the death of the traditional car-buying experience. The haggling and the I-have-to-talk-to-my-manager routine. The multi-hour wait for financing as you sit through sales pitches for extras like leather protection and roof racks.
Fortunately, it’s now trending to become a thing of the past.
We’re already seeing a dramatic shift in the way we buy cars. Companies like Tesla TSLA, -0.77% and Carvana CVNA, -9.96% are using the direct-to-consumer model. Electric-vehicle buyers are essentially doing the same, preferring to order from the factory as the U.S. fleet turns from gas to electric. And as manufacturers learned during the pandemic, when supply chain problems emptied dealerships, there’s no need to stock that 900-car lot when sales are just as strong without it.
The reality is that just about everyone already researches a car purchase online, but state laws make it difficult for consumers to buy without a middleman dealer, at least for new cars. (Tesla uses legal loopholes and Native American reservations to skirt government business protections for new car dealerships.) There aren’t equivalent dealership-protection laws for used cars, so those online sales are booming.
Dealers may have a role to play in recalls, warranty work and service, but will any consumer really miss the price haggling and bad coffee that have become synonymous with the car-buying experience?
In short: The traditional dealership no longer makes sense. And the car-buying experience will be better for it.
Stuck in the pre-internet era
Think of the traditional dealer as the giant department store of yesteryear. It’s built on a dated premise: that people want to shop in-person from a wide selection, rather than doing it from the comfort of home. But as we well know from buying everything from electronics to furniture, we no longer need a salesperson to guide us through the options. All that information is just a tap away on a computer. When it comes to car buying, all we really need is a test drive.
Yet the auto industry is largely stuck in the pre-internet era. Prior to the pandemic, manufacturers assumed they needed dealers for local advertising and promotions, the drive-by allure of auto miles, and all the costs that came with it.
Then Covid caused a microchip shortage. Production slowed. Suddenly, that 900-car lot was stocked with just 50. Manufacturers discovered that sales were as strong as they ever were. Buyers were perfectly comfortable test-driving a model at the dealership, then ordering exactly what they wanted from the factory.
It proved a bonanza for automakers, evidence that it no longer needed the vast inventory cost of millions of cars that would just sit on a lot. It could now build each vehicle to a customer’s specifications. They would be sold before they ever left the factory. This meant that dealers had to change or become extinct.
The dealership of the future
Massive industries don’t shift on a dime. These changes are likely to filter down over the next five years. But they will be dramatic and likely paralleling the auto business’ overall shift toward electric vehicles.
Begin with the demise of that 900-car lot. Dealers will have little choice to convert from shopping centers to test drive and ordering sites. The real estate of that suburban dealership Auto Row can be put to better use — the economics are simply too compelling.
There will no longer be a need for a 10-acre expanse of parked vehicles. Instead, that giant selection will be replaced by a few versions of each model. Buyers will make appointments for test drives, then order at a kiosk or online from home. You’ll see a repair center, perhaps a showroom and a smaller lot for trade-ins. You’re also likely to see micro dealerships popping up in more convenient locations, much in the same way Enterprise Rent-A-Car has expanded to neighborhood storefronts.
You’ll still be able to buy off the lot, of course. But you’re bound to pay a premium as dealers push to reduce overhead. With manufacturers taking more control over sales, prices will be fixed across the board, ala Tesla. That means no more haggling. No let-me-talk-to-my-manager. No driving across town in hope of a better price. You’ll simply order a car, a color, and accessories, while arranging a down payment and financing from a single screen. The angst of car buying will largely become a relic of the past.
Cutting out the middleman may not mean more savings to the consumer, though. The average price of a new car now tops $ 47,000, according to Kelley Blue Book. With inflation running at 8% — and an end to supply-chain issues nowhere in sight — the cost is only going up, at least in the short-term.
Still, buyers can take solace in knowing that car prices have always fluctuated based on demand and the health of the economy at large. During tougher times or struggling sales, manufacturers may still turn to rebates, financing incentives and seasonal sales, if only to keep revenue flowing and production churning. But gone will be the major sales hosted by dealers themselves. Without all those cars sitting on a lot, there will be no need to move stagnant inventory or clean out stock for a new model year.
Yet this is still a win for consumers. The changes may not lead to better pricing. But they’ll certainly go a long way toward removing the dread and the wasted time of the traditional car-buying experience.
Tom Holgate is CEO of iLending.