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  • Americans love their cars, but one thing Americans don't seem to be crazy

  • about is the process of acquiring them.

  • The American car dealership experience is one many seem to regard as a

  • necessary evil.

  • Buying cars often feels like an anxiety inducing ordeal that can last

  • hours. Some surveys suggest Americans don't have a terribly high opinion

  • of automotive salespeople either.

  • Yet in the years since the American economy began recovering in the wake

  • of the financial crisis, new car sales have repeatedly reached record

  • levels. And industry analysts say Americans overall seem to be relatively

  • satisfied with their purchases once they drive away with them.

  • There certainly are things they would like to change about it, and some

  • already are using tools now available online.

  • Meanwhile, dealers face their own challenges, including a consolidating

  • landscape, tight competition and threats from new business models

  • promoting contactless virtual transactions which have thrived during the

  • age of covid-19 outbreaks.

  • To survive, dealers will have to keep up and find ways to accommodate

  • buyers less willing to go through the rigamarole they have endured in the

  • past. There are parts of America you can only scout if you come in

  • here for International Harvester dealer showroom, a rugged scout to 476

  • has great off road handling and snows a lot of gear.

  • You can choose a four cylinder engine and selective four wheel drive.

  • Come in for a test drive.

  • Scotty and the others pass.

  • In the U.S., the vast majority of automakers don't sell their cars directly

  • to consumers, they sell them to dealers, which are basically separately

  • owned franchises that fly the banner for a particular brand of cars, often

  • several, and have a close, if sometimes contentious, relationship with the

  • companies that produce those vehicles.

  • Cars made by any automaker operating in the U.S.

  • are considered sold to a certain dealer as soon as they roll off the

  • assembly line. Dealers are then tasked with turning those cars over to

  • buyers, preferably as fast as possible.

  • The franchise model saved automakers the expense and trouble of opening and

  • operating their own stores, allowing them to rapidly expand their reach

  • across the United States without footing the bill.

  • Every U.S. state, in turn, has dealer franchise laws designed to protect

  • dealers who have invested in building a brand's presence in a territory.

  • These were created to assuage the fear that manufacturers might move into

  • an area a dealer had already established and run them out of business.

  • These laws have become a point of controversy in the 21st century,

  • primarily because of one very disruptive company, Tesla.

  • The electric carmaker has long insisted on selling its cars directly to

  • customers over the Internet.

  • Tesla has been involved in legal battles in several states to set up its

  • own kiosks without creating franchised dealerships.

  • But when Tesla was still a fledgling electric carmaker, churning out a

  • tiny number of high end electric cars, other larger trends were already

  • shaking up the dealership landscape.

  • The industry has gone through a tremendous degree of consolidation over

  • the last few decades, and now there are massive publicly traded dealership

  • groups such as AutoNation and Lithium Motors, which have steadily bought

  • up many of the once independently owned dealerships that dotted the

  • country. The way Americans buy cars is also often quite different from the

  • way they are bought in other countries.

  • In Japan, for example, cars are typically custom ordered at a showroom and

  • then delivered to the buyer.

  • Later, while Americans can special order vehicles at dealerships, most car

  • shoppers in the U.S.

  • choose their cars from whatever is already available on the lot.

  • Of course, the dread that many consumers feel prior to a trip to the

  • dealership has long been widely known.

  • I think what's really interesting about car buying is that a number of

  • years ago, John Kravchuk, who was the head of U.S.

  • Hyundai Hyundai Automobiles and he was ahead of the group, said something

  • to the effect of it's almost a situation where people would rather go to

  • the dentist than go and buy a new car because of just how the consumer is

  • almost beaten down into submission just to then give their money over to

  • take home a product that they're then going to have to bring back to the

  • dealer on a regular basis for service and repairs and such.

  • And it's gotten better over the years because there's more information out

  • there. But it's almost a double edged sword because at the same time,

  • there's so much information out there, it's almost more confusing.

  • A 2014 study from industry research firm Edmunds found that people have

  • such low levels of enthusiasm for car buying.

  • Many shoppers said they would rather give up sex or do their taxes than go

  • through it. A Harris poll found that 52 percent of car shoppers said a

  • trip to the dealership makes them anxious.

  • One Gallup poll evaluating public perceptions of professions found that

  • car salespeople were rated the lowest in terms of their perceived

  • commitment to honesty and ethics.

  • They came in below chiropractors, insurance salespeople, advertisers,

  • lawyers and members of Congress.

  • About 65 percent of Americans think U.S.

  • car dealership practices are unethical, according to data cited in a 2008

  • paper from consulting firm KPMG.

  • But also, of course, there are plenty of buyers who are happy with their

  • purchases once they have them.

  • Most customers, they like their sales, so they might not like the process

  • of getting a price or the salesperson has to talk to the manager.

  • But in general, they like the sales consultants, probably why they buy

  • that specific dealer.

  • And I think they also believe that in most cases, the dealer does a pretty

  • good job of explaining the technical issues with the vehicle and products

  • and features of the vehicle.

  • A vehicle certainly got more complex over the years and I think for most

  • consumers, they feel that dealership does a good job in that the most

  • frequently cited pain points tend to be when customers are sitting in the

  • finance and insurance office, often for up to an hour or more, filling out

  • paperwork, applying for credit and negotiating terms of the deal.

  • Many customers feel they are deeply unprepared for this part of the

  • process and do not enjoy the hours long, complex discussion with sales

  • representatives. A car is among the few purchases shoppers have to haggle

  • for, and it also happens to be one of the biggest purchases a person will

  • make in their lifetime.

  • Many buyers don't have the experience negotiating they might like to have,

  • especially with professional salespeople.

  • And we don't negotiate for much besides houses and cars in the United

  • States, so it's not something that people are very used to a very

  • comfortable with. A lot of times they just want to get out of there.

  • During this time, customers are offered extended warranties and a whole

  • suite of add ons many of them don't expect to encounter and don't know

  • what to make sense of.

  • Like my pointed to dealers as well as lenders is is pull that information

  • up front because consumers can educate themselves.

  • What is the value of an extended service contract?

  • What is the value of an extended warranty?

  • Why do I need gap insurance and I might choose those products before I

  • even come to the dealership? Hey, this makes sense to me.

  • I'd like to buy this particular service contract.

  • And I know going to keep the car for this many years.

  • I like like the warranty.

  • I like the maintenance agreement.

  • By the way, I think Gap Insurance makes good sense for me because I'm

  • going to keep this car for a while and maybe it's a good product so that

  • education process can happen up front versus in dealership.

  • That said, fewer than five percent of shoppers have walked away from a sale

  • due to high pressure sales tactics.

  • According to J.D.

  • Power's sales satisfaction survey.

  • The most common reason for turning away from a purchase which 30 percent

  • of customers cited, is that a dealership didn't have the right model in

  • stock. And a lot of cases, it's just a model I shot grand in model way and

  • end up buying Model B because there were features or priced around that

  • model that they didn't like.

  • But for some customers, there's areas within the negotiation process.

  • They feel some of the back and forth.

  • The pricing can be a reason for rejection.

  • There are a few brands that do seem to stand out.

  • According to J.D. Power, among luxury consumers, Porsche owners seem to be

  • exceptionally happy with their car buying experience.

  • The brand ranked first in the luxury segment on J.D.

  • Power S.I.

  • three times between 2015 and 2019.

  • Mercedes came in second in 2019 among more mainstream brands, Buick and

  • GMC, which are both owned by General Motors, came in first and second in

  • 2019, and the quirky small car brand Mini came in third.

  • Like Porsche and luxury, Buick has topped the mainstream list three out of

  • four years between 2015 and 2019.

  • Despite the angst, Americans continue to buy cars during the economic

  • recovery. New sales in the United States reached record levels in some

  • years and even surpassed expectations in 2019.

  • Dealership giant lithium motors saw sales grow from about two billion in

  • 2010 to twelve point seven billion in 2019 as of August 18th, 2020.

  • Shares of Lithia had climbed nearly 24 percent since the company's 1996 IPO

  • and nearly 86 percent since the beginning of the year.

  • Likewise, sales at another dealer, giant AutoNation, grew from about

  • twelve point five dollars billion in 2010 to about twenty one point three

  • dollars billion in 2019.

  • Its shares rose about 20 percent from the beginning of twenty twenty to

  • August 18th and have risen more than 12000 percent over the course of its

  • entire history. Of course, sales levels like these are not expected to

  • last forever. The automotive industry is a cyclical business and there

  • have been concerns that younger buyers are not as interested in car

  • ownership as their elders.

  • But some economists have argued that the millennials killed the car.

  • Narrative has been overblown.

  • A 2013 analysis from MIT found that millennials are actually buying cars

  • at about the same rates as older generations.

  • However, there are some shifts taking place in the automotive market that

  • carmakers and dealers are watching.

  • Ride hailing apps such as Uber and Lyft have become popular around the

  • country. Companies continue to research and develop self-driving cars in

  • myriad other industries.

  • Businesses have increasingly looked for ways to reach customers through

  • their smartphones, where a growing share of shopping is done.

  • The Internet has also contributed considerably to the rise of membership

  • and service models of selling, and consumers have grown more interested in

  • the idea of paying monthly or annual fees for access to a product that is

  • periodically updated or replaced.

  • Even smartphone makers such as Apple have programs like this.

  • Carmakers and others in the automotive industry have rolled out their own

  • attempts to lure customers with models such as these online marketplaces

  • for cars and subscription services that are similar to Lease's but include

  • service plans, insurance and registration fees.

  • However, these new business models have so far attracted small portions of

  • the market, and strong new car sales over the last several years have

  • given dealers little incentive to invest heavily in them.

  • But online sales have seen a boost since the coronavirus pandemic began,

  • dealers have responded to retail shutdowns and crowd weary shoppers by

  • putting inventories on shopping sites, offering contactless test drives

  • and home delivery.

  • Automakers are also offering services for their dealer networks.

  • General Motors, for example, set up a program called Shop Click and Drive

  • that allows customers to configure vehicles online, get estimates for

  • their trade in, sort out their financing options, and either take delivery

  • at home or at a showroom.

  • Over the last several years, a number of companies have sprung up that

  • exclusively sell cars online.

  • One such firm called Vroom held its initial public offering in June right

  • in the middle of the coronavirus pandemic as of August 18th.

  • Shares of room were up more than twenty four percent in twenty nineteen

  • more than half of rooms.

  • Sales had come from traditional dealerships.

  • It offers contact, free transactions and seven day returns.

  • Highly unusual for car sales.

  • Perhaps the best known name among online only car sellers is Caravana,

  • which went public in late April 2017.

  • As of August 18th, shares had risen by more than 17 percent.

  • The stock was up more than 120 percent just since the beginning of 2020.

  • Some industry analysts do expect that some of the jump in online sales seen

  • during the pandemic may remain the piece of the process customers do seem

  • increasingly prefer doing online is the paperwork that they would

  • otherwise do at the dealership.

  • Surveys show customers want to have as much information about the financing

  • side of the transaction as possible before they step onto the lot

  • contents. I talked to dealers about the same thing is you need to build

  • your process around the idea that consumers no longer want to go sit in

  • the finance insurance office.

  • They don't want to be tied up for an hour signing documentation, nor are

  • they willing to sit through the sales pitch that your money manager, he or

  • she might provide because there's a number of products that they sell.

  • Do you think it's about transacts today?

  • Most dealerships make more money on their FANNI transaction than they do

  • on the sale. So dealers are changing how they sell cars, even if they are

  • doing it a bit more slowly than customers or other industry insiders would

  • like. But if these shifts take root, dealers may begin rethinking their

  • entire business models.

  • If customers keep moving online, for example.

  • It is plausible, say analysts, that dealers may ditch their centrally

  • located showrooms aside large lots lined with cars, SUVs and pickups.

  • They may opt instead for a smaller showroom space.

  • Coupled with an offsite distribution center.

  • Customers may in turn get used to the idea of having a car delivered to

  • their homes the way they would receive a package or a pizza.

Americans love their cars, but one thing Americans don't seem to be crazy

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B1 US dealer percent online insurance industry buying

Why Americans Buy Cars From Dealerships

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    joey joey posted on 2021/06/06