Buying Cars in America Is Going Online, But Dealers Are Here to Stay
The global pandemic brought an unexpected boon to the car market in the U.S., with prices soaring as people scrambled to buy new and used cars. Many people never quite made it to a dealership or lot, however, as lockdowns and a growing trend of shopping for cars online coalesced into a situation that’s making many dealers nervous: in 2021, online sales of cars in America jumped by 25 percent.
This accounts for the single biggest gain that U.S. auto ecommerce has seen in the past decade, as Wired reports, which says that buying a car on the internet is no longer niche; it’s quickly becoming the norm. Wired refers to this change in car buying as the “Amazonification” of the U.S. car market, comparing the process of buying a car online to that of buying a TV or couch on Amazon:
For years, automakers resisted the Amazonification that has swept the rest of the global economy. There was a feeling buyers wouldn’t feel comfortable making that major, expensive purchase online. But US auto ecommerce sales grew by 25 percent in 2021, the biggest jump in the past decade, according to a report from the investment banking firm Cowen, which judges the sector to still be “early” in its digital transformation. Recent data from the auto services firm Cox Automotive shows that while satisfaction among US car buyers went down overall last year, those who completed at least half of the steps online were more likely to be happier about the process. Most vehicle buyers will interact with at least one digital tool while buying a car this year, Cox estimates.
Carmakers were skeptical that buyers in the U.S. — where it just so happens that dealers are protected by a legal framework dating back to the 1950s — would ever embrace online car shopping. But they have. While the pandemic may have been the catalyst of auto ecommerce growth in the U.S., EVs are now spurring it on.
Carmakers such as Volvo, Acura, Ford and GM are committing to online car sales for their upcoming EVs, albeit to varying degrees. Tesla was the first to offer a digital car-buying experience across its lineup, but legacy automakers are coming around to the idea.
Dealers and franchisees are struggling with the change; they’re still clinging to older business models despite pressure from both carmakers and car buyers. It’s no wonder dealers would resist direct sales, because, by definition, selling directly to consumers will decrease dealer profits. And it’s going to be hard to accept less profit after record-setting money was made during the pandemic.
Some dealers are pushing back against online initiatives passed down from automakers: Ford is being sued in three states by dealership associations that claim the company is breaking the law by making them spend up to $1.2 million to sell EVs like the Ford Mustang Mach-E and Ford F-150 Lightning. Ford CEO Jim Farley has said the company wants to move to a non-negotiable pricing model and sales that are 100 percent online. Honda has echoed the sentiment.
Dealerships would go from festooned auto malls with ambitious financing departments to service centers where buyers can learn about their new EVs (chosen and purchased online), then pick up their cars and go on their way — only to return at service intervals.
And yet, carmakers such as GM think the future of car-buying is neither 100 percent online nor 100 percent on dealer lots. It’s likely that car-shopping in the near-to-mid term is going to be varied. There will be options for buying a new car online or at a brick-and-mortar dealership or somewhere in between. Dealerships will have to adapt to this hybrid business model, and learn how to foster relationships online. Sales start via email, then move to the showroom.
For the next few car generations, at least, dealers are here to stay. Even though the “Amazonification” of the American auto market is a persistent trend, the things we buy online range from furniture and large electronics to objects that are mundane and quotidian, like a cable to charge our phone. There are still many people who’d prefer to buy their TVs, couches and cars in person. Dealers will have to adapt to digital retail sooner or later, but they will survive for now.
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