In the last several years we’ve all heard the warnings about how the auto industry is being disrupted by online retailers such as CarMax, Carvana, and Vroom, but are these disruptors a serious threat to the current dealership business model?
The truth is, dealers can do everything that the disruptors are doing. In fact, dealerships have several advantages over the typical disruptor business model. Let’s review some ways that enterprising dealers can disrupt the disruptors using these advantages.
1. Pre-Owned Inventory Selection
Dealers have a better selection of trade-ins to choose from than the disruptors. New car shoppers nearly always have a trade available, and the service lane provides numerous opportunities to scout for pre-owned inventory. Dealers also have first right of refusal on lease returns and access to manufacturers’ closed auctions.
Currently disruptors have an advantage in obtaining vehicles from consumers because they offer free online valuations. But dealers could offer a similar service supplemented by convenient local inspections, offering the best of clicks and mortar. Additionally, not many dealers advertise the fact they buy cars from consumers, even if the consumer doesn’t purchase their next vehicle from the dealer. By offering these conveniences and getting aggressive with service lane appraisals, dealers can get a leg up on disruptors and offer car shoppers a much better selection of inventory.
2. CPO Guarantee
Disruptors offer customers peace of mind with a money-back guarantee. But that doesn’t guarantee the vehicle won’t have problems down the road. Dealers have an advantage here with their ability to offer certified pre-owned (CPO) vehicles backed by either the OEM or the dealer. Manufacturers and dealers both stand behind this certification that not only offers the consumer peace of mind, but guarantees that within a certain timeframe, some mechanical issues will be repaired at no cost to the consumer.
Disruptors have done a great job in branding themselves while reinforcing negative stereotypes about the traditional car-buying process. Every dealership has the same opportunity to create a strong used-vehicle brand that is meaningful to potential buyers. For example, provide a free limited warranty with every vehicle and offer customers a money-back guarantee. Promote this brand promise heavily — on your website, in social media, and in marketing.
4. Fixed Pricing
Disruptors offer the option to complete 100% of the purchase process online. This approach includes fixed, no-haggle pricing. Many consumers dislike the process of negotiation because they perceive the dealership has an advantage. In reality, most consumers end up paying disruptors a higher price than if they had purchased the same make and model at their local dealership. This often reflects the higher cost of pre-owned inventory acquisition. But the perception is “no haggle,” and perception is important.
To compete in this area, dealers must commit to a digital retail process that includes a fixed price approach, at least for pre-owned vehicles. The key to making this work is consistency for both online and showroom customers. Do not offer one price for digital customers and another price for showroom customers. Whatever your brand promise is online, make sure the promise is also fulfilled for walk-in customers.
5. New Car Incentives
The good news for dealers is that disruptors cannot disrupt the new car transaction. With manufacturer incentives, rebates, and other specials, dealers have the opportunity to turn every used car shopper into a new car buyer.
6. F&I Profitability
Today’s F&I process is still fairly complex, with products that have a level of complexity difficult to explain in an online blurb. As a result of this complexity, disruptors are forced to keep online F&I product offerings simple.
Fortunately for dealers, the traditional F&I approach still works well in an in-store environment, delivering higher per vehicle retail profits. Even when the customer is purchasing remotely, trained F&I managers can get on the phone or do a virtual presentation and answer questions.
While it’s true that disruptors have taken some pre-owned market share from dealers, there is nothing these retail outlets are doing that dealerships can’t do even better. In fact, dealers have several natural advantages that should enable them to disrupt the disruptors.
Scot Eisenfelder took the role of CEO of APCO Holdings in 2021, after joining the team in 2020 as senior vice president of strategy and planning to help grow the company in an increasingly digital and competitive auto retail environment. He brings a rich background in the automotive industry and an expertise in selling products and services to the retail market.