During the early days of selling online, the customer base changed drastically.

Is your team ready for the car-buying future?

A long time ago, I sold cars exclusively with the use of the Internet. Now, you’re saying to yourself, “That’s impossible! My GM says you need a minimum two-hour delivery. Nobody will buy without test-driving a vehicle first. Customers can’t figure out the paperwork on their own”—and plenty of other things not appropriate for a G-rated audience. The truth is, from 2003 to 2010, I sold most makes and models, priced from $10,000 up to $100,000, based in three different states, to nearly one-third of the U.S, all without ever shaking a customer’s hand. And you could probably do it better…if you really wanted to.

 

It’s nothing new

As early as the mid-’90s, a few enterprising dealers embraced the Internet from the word “go.” Team Hillsdale Chrysler and the Waikem Auto Group (of Michigan and Ohio, respectively) did a remarkable job of doing what today’s venture-backed dot-coms haven’t been able to do: actually sell cars. Both dealerships embraced the Internet in its infancy, working closely with a scrappy startup named Autobytel, to convert leads into customers. Both dealerships rode the wave of early adopters, picking up market share wherever they could.

By the turn of the century, CarsDirect.com and CarOrder.com, along with a few smaller startups, were in a knock-down, drag-out battle royale to circumvent the dealership altogether. Both blew tens of millions of dollars in the process of locking down the click-to-buy customer. While chasing those buyers through the rough waters of franchise laws, both dot-coms ran out of steam. CarsDirect pivoted, ultimately ending up as a lead provider, whereas CarOrder folded, with its parent company (where I coincidentally ended up working) electing to pursue partnerships with OEMs and large dealer groups.

 

John (and Jane) car buyer wasn’t quite ready

During the early days of selling online, the customer base changed drastically. I joined Hillsdale Chrysler at a time when the Internet was more accessible to the average customer. The dealership had a core group of buyers by then, with many coming into their second or third purchases online. The early adopters were hooked on the exact vehicle, at a budget they established, topped off with free home delivery. The next wave of customers was much different.

The customer base was shifting from those early adopters to…well…everyone. Computers were being added to homes daily, and dial-up Internet was rapidly transitioning to broadband, bringing with it richer content. Add in that everyone and their brother claimed to be an automotive lead provider, and things weren’t quite so clear anymore. We were flooded with leads with unsalvageable credit, eye-watering negative equity and vehicle requests that were unattainable. I built a system to filter out those leads, however that was a Band-Aid solution. Being novel just wasn’t enough any longer.

When I took my skills to Texas, I went to work for CarOrder’s parent company, AutoNation, to assist with the launch of a direct-buy service (ironically enough, I teamed up with a couple of CarDirect’s all-star hitters). We had a virtually infinite supply of inventory, offering nearly every make and model of vehicle at prices that shocked dealers. We expected closing ratios of infinity plus one; instead, we closed at a ratio slightly above what most would consider average.

We chalked this up to a lot of external rules. Texas didn’t permit free home delivery, so we were hobbled from the get-go. From an efficiency standpoint, we were crushing it (lowering the cost of selling a vehicle by more than two-thirds is nothing to sneeze at), but from a lead-to-sale conversion standpoint, we were “meh.” We relaunched in Atlanta, even more aggressively. While all of our metrics were markedly better, one thing became abundantly clear: Even with the precise car the customer requested, at an unbeatable price and delivered to the buyer’s home without the person ever having to go to a dealership, we still lost deals. For a good portion of people, it was just too much of a departure from a process they were used to; for them, it was flatly unbelievable. After eight more years of tinkering, AutoNation finally rolled out AutoNation Express across the United States.

 

Now, people are ready, except…

Oh, how commerce has changed since 2008. Between then and 2015, Amazon’s annual revenue climbed from $19 billion to $107 billion (now slightly less than a quarter of Walmart’s revenue, with no physical stores). In 2008, Apple got the second-generation iPhone right, and Google launched Android. Since then, we’ve had a fully functioning computer in our pockets, connected to the Internet all day, every day. Coincidentally, e-commerce sales as a percentage of total retail sales have more than doubled. People are no longer scared of buying things online, sight unseen. It’s becoming the norm.

Nothing demonstrates this shift better than Tesla. In January, Tesla sold more cars (not including trucks and SUVs) in the United States than comparably priced luxury makers such as Porsche, Jaguar and Maserati. It also sold more cars than Mitsubishi. The fact that Tesla has been able to do this with a barely existent retail infrastructure is truly amazing. And that scares the hell out of some people, namely car dealers.

The good news for franchised car dealers is that they’re protected by franchise laws. The very same laws that were put in place to protect customers from manufacturers also protect those dealers from non-dealer threats. In addition, each state has its own laws about how a vehicle is to be sold, what paper is to be filled out by whom, and so on. Even the mighty AutoNation is having trouble navigating the online-paperwork waters. Essentially, the Beepis, Carvanas, Drive Motors, Roadsters, Shifts and Vrooms of the world will continue to lean on dealer partners to execute the actual delivery of the vehicle. For now.

 

Predicting the future

Consumers will continue to inch toward purchasing cars strictly using the Internet. Although it seems contrary to conventional wisdom, traditional dealerships are still best equipped to handle the click-to-buy customer, just like my teams did back in the day. Those who embrace the movement will be in the catbird seat to dominate the market as the consumer sentiment continues to shift and laws relax. (And as I’ve previously written, I foresee a clarification in the franchise laws that will create a loophole for self-driving vehicles that will provide for the direct purchase of such vehicles.)

From the early adopters of the Internet’s nascent stages to today’s hyper-connected buyers, there has been a clear demand for a true e-commerce experience. With the nearly continuous nudge from external threats, even the smallest dealerships have been able to adapt and thrive in what’s still considered a nontraditional selling environment. If you’re reading this from your dealership, you must ask yourself, “Can a Silicon Valley–backed startup or my OEM do a better job selling cars online than I can?” I think not.

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