The automotive industry is in a frenzy over selling cars online. Pure online retailers and rising consumer expectations are applying enough pressure for traditional dealers to know that they have to add the online option for car buyers. However, when dealers hear Cox Automotive Chief Economist Jonathan Smoke say that we are moving into a “post peak period” for the U.S. auto industry, they may wonder how a tightening market and digital retailing can coexist.
What’s Next, a Car in a Shopping Cart?
Let’s face it, ordering Thursday night’s dinner or a pair of shoes online does not begin to approach the complexity of a vehicle purchase. Why can’t automotive easily replicate that success? We can definitely learn from these nonautomotive examples and integrate some of the consumer-friendly options offered in other retail categories. However, it is up to the automotive industry to meet consumer expectations for making car buying easier, more efficient and fun.
Consumers are in the driver’s seat when it comes to how they want to purchase vehicles. As a result, dealers need to adapt or they will get left behind. In recent years, Cox Automotive research has shown the persistent frustrations car buyers have with the F&I process, which includes negotiating the purchase price, finding a good deal, and valuing the trade-in.
So if dealers do nothing other than address these ongoing frustrations, they will be miles ahead on the journey to provide consumers with a superior buying experience. In other words, putting the paperwork online isn’t the first place dealers should look to begin their journey into the digital retailing transformation.
What Consumers Want vs. What Dealers Provide
Consumers want a convenient (and that means digital) buying experience. Research proves this over and over. For now, let’s focus on millennials. It might not be the greatest generation, but it is certainly the largest, comprising 75.4 million potential buyers. This generation was shaped by the smartphone and has never lived without the internet. They account for 29% of new car sales today and will make up 40% in 2020. Perhaps wiser from recent student debt, millennials are driven by budget more than any other generation, and 83% say that an affordable monthly payment is very important.
Across all generations of car buyers, we find that 61% want dealers to allow them to review prices, payments and add-ons before the F&I process begins. A convincing 83% are interested in learning about F&I products before entering the dealership. Finally, 63% are more likely to buy F&I products if they can learn more about them on their own time, before finalizing the vehicle purchase.
Since we already know what consumers want, what is the problem? The problem is what most dealers provide. By not adapting their sales process and operations, dealers put consumers on an emotional instore roller coaster. Most of the time in the dealership is spent in a valley of negative emotion during a prolonged and stressful buying process.
The Way Forward
Dealers should embrace digitizing the buying process to meet consumer expectations. Digital retailing is a win-win because it can vastly improve dealership efficiency — and profitability — by enabling dealers to work deals, not leads.
As a first step, dealers need to replace the payment calculator on their dealership website with a self-penciling tool on the vehicle display page (VDP) in order to start deals online. Basic payment calculators give buyers bad information because they have an uncontrolled tool that allows them to enter unrealistic deal terms.
Shifting the conversation from price to payment meets 90% of consumers’ needs who buy based on their monthly budgets. And because buyers lead themselves to the “Yes” through a more comfortable and convenient online process, dealers can achieve higher profits when the conversation shifts off price to payment.
A digital retailing self-penciling experience on the VDP allows the dealer to control the parameters that build the deal structure and the vehicle-specific advertised monthly payments. When shoppers select their credit tier and/or finance or lease term, enter their trade information and adjust their preferred cash down, they are leading themselves to the right amount of car and farther down the path to the purchase.
This self-directed part of the journey is happening before dealers invest the time and money of the traditional labor-intensive sales process — a process that consumers would rather fast forward through online. With a self-penciling tool, dealers and consumers can avoid payment misunderstandings because the consumer is seeing a real payment based on real terms.
In the second step, car buyers and dealers agree on terms and make deals online. This is when dealers negotiate price and consumers fill out their finance application and receive approval. This step should include a full protection product catalog and monthly payments. In today’s virtual world, it is possible to build strong online relationships. Using tactics and tools to nurture a good virtual relationship will translate to a strong in-person relationship when the customer comes into the store to confirm the deal, test-drive the vehicle and sign the paperwork.
Contrary to what some people might lead you to believe, the final step in digital retailing is not putting a car in a shopping cart. There has been much fanfare about the prospect of buying online, but consumer research doesn’t support the idea of end-to-end click-to-buy for the majority of consumers. However, most consumers will appreciate — and expect — the convenience of electronic paperwork and esignature after test-driving the vehicle.
By digitizing the F&I process, dealers can simultaneously solve the top car buyer frustrations, achieve higher F&I product penetration, and become more efficient and profitable. While we are still in the early adoption phase of digital retailing, we have surveyed people who have used existing digital tools and they report being two to three times more satisfied with the process. They are more satisfied with virtually communicating with the salesperson, negotiating the deal, and the amount of time spent in the dealership.
Research says that, rather than being a concern, online F&I presentations are an opportunity. Most consumers report that they are more likely to purchase certain F&I products if they do part or all of the research at home or online. Additionally, digital retailing can be a profit center for dealerships because we found that cars sell faster and average more gross profit. And, by eliminating that “valley of negative emotion” for consumers, you will have happier and more loyal customers who enjoy visiting the dealership for the delivery and service.