Today, it is possible to complete an entire car-buying transaction online without ever leaving one’s home. Not only are the purchased cars delivered to the buyer, but the buyer may return the purchase if he or she is unhappy with it.
With such innovation available at people’s fingertips, traditional brick & mortar dealerships may lose significant amounts of business. However, there are several things dealerships can do to keep up with the changing times and retain their customers.
Adapt to the changing times. “The market economy will prevail and market forces will adjust the price. It’s not whether dealers welcome it or not, it’s whether they’re willing to adjust with the times,” says Max Zanan, co-founder and CEO of IDDS Group, an auto dealership consultant.
The times have brought about two companies that threaten to cause a major disruption to new-car dealerships’ used car sales, which make up a healthy portion of these dealerships’ profits.
The first is Beepi.com, an online peer-to-peer marketplace. It acts in a similar fashion to companies like eBay or Airbnb by functioning as a facilitator for private-party deals. However, also like eBay and Airbnb, it adds inspections and warranties to make sure the buyer is treated fairly. These warranties come at a slight cost—the difference between the price the seller lists and the buyer sees—and that’s how the company makes its profit.
Vroom.com is the second threat. Unlike Beepi, Vroom itself is the seller, having its own inventory of used cars. It also takes buyer trade-ins. However, unlike a traditional brick & mortar dealership, Vroom does not have a physical lot potential buyers can walk through. The viewings and purchases are completed entirely online and the cars are delivered to the buyers. The test drive essentially occurs after delivery because the buyer may return the car if there is something wrong with it.
Zanan advises clients to adapt to these online companies by changing their sales tactics to include similar services. One of Chrysler’s largest dealerships in the Northeast is among Zanan’s clients and has heeded his advice. The dealership now guarantees a test drive and delivers a car to a potential buyer located within a 20-mile radius of the dealership within 45 minutes.
Retrain sales staff. Changing sales tactics is an important first step, but Zanan advises that an overall shift in sales practices is the best way to compete with online auto sellers. As sales staff are the individuals who are most steeped in sales practices, they should be retrained to approach auto sales from today’s perspective.
“Certain sales tactics that were effective yesterday might not be successful in [today’s] environment. It’s not limited to a particular generation – everyone uses technology,” Zanan says.
Part of the retraining should include instructing sales people to let go of haggling in favor of straight prices.
“No-haggle” pricing may be the way of the future. In 2015, Lexus began to experiment with “no-haggle” pricing at 12 of its dealerships spread throughout the United States. The goal of the experiment, according to Jeff Bracken, Lexus’ Group’s vice president and general manager, was to “further elevate transaction transparency and customer care.”
The experiment was not revolutionary, as General Motors’ failed Saturn brand had tried it before. However, Saturn’s failure was not due to its fixed pricing scheme, but—as suggested by strong sales of Mini and Tesla cars at fixed prices—its undesirable product.
Lexus’ experiment worked. Once customers got used to the sales model, they left Lexus’ Omaha, Nebraska dealership without feeling like they were cheated. This is because customers came to the dealership knowing exactly what their chosen car cost. If they left the dealership and came back another day, the price remained the same. Thus, they were relieved of the pressure to negotiate—something that is especially beneficial because most people are not great negotiators—and they did not have to wonder if they could have actually purchased the vehicle for less than they did. Although one customer was dissatisfied with the no-haggle policy because he felt he was a great negotiator, the dealership made 40 sales between implementation of the program on June 1, 2016 and mid-July of the same year.