Why Americans Buy Cars From Dealerships

Americans love their

cars

, but one thing they don't seem to be excited about is the process of purchasing them. The American car dealership experience is one that many seem to consider a necessary evil. Buying

cars

often feels like an anxiety test that can last for hours. Some polls suggest that Americans don't think too highly of car salesmen either. However, in the years since the US economy began to recover from the financial crisis, new car sales have repeatedly reached record levels. And industry analysts say Americans overall appear to be relatively satisfied with their purchases once they walk away with them.

There are certainly things they would like to change and some are already using tools available online. Meanwhile, merchants face their own challenges, including a consolidating landscape, stiff competition and threats from new business models promoting contactless virtual transactions that have thrived during the era of Covid-19 outbreaks. To survive, merchants will have to keep up and find ways to please shoppers less willing to go through the rigmarole they have endured in the past. There are parts of America you can only explore if you come here to see the International Harvester dealer showroom, a rugged explorer for 476 has excellent off-road handling and snows a lot of gear.

You can choose a four-cylinder engine and selective all-wheel drive. Come and take a test drive. Scotty and the others pass. In the United States, the vast majority of automakers do not sell their cars directly to consumers, but to dealers, which are basically separately owned franchises that fly the flag of a particular brand of automobile, often several, and have a close, although sometimes conflictive, relationship with the companies that produce these vehicles. Cars made by any automaker doing business in the U.S. are considered sold to a given dealer as soon as they roll off the assembly line.

Dealers are then tasked with delivering those cars to buyers, preferably as quickly as possible. The franchise model saved automakers the expense and hassle of opening and operating their own stores, allowing them to quickly expand their reach throughout the United States without footing the bill. Each US state, in turn, has distributor franchise laws designed to protect distributors who have invested in building a brand's presence in a territory. These were created to alleviate the fear that manufacturers could move into an area that a distributor had already established and put them out of business. These laws have become a point of controversy in the 21st century, mainly due to a very disruptive company, Tesla.

The electric car manufacturer has long insisted on selling its cars directly to customers over the Internet. Tesla has been embroiled in legal battles in several states to set up its own kiosks without creating franchise

dealerships

. But when Tesla was still a fledgling electric car maker, producing a small number of high-end electric cars, other, bigger trends were already shaking up the dealership landscape. The industry has gone through a tremendous degree of consolidation in recent decades, and there are now huge publicly traded dealership groups, such as AutoNation and Lithium Motors, that have steadily bought up many of the once independently owned

dealerships

that They dotted the country.

The way Americans buy cars also tends to be quite different from the way they buy cars in other countries. In Japan, for example, cars are often custom-ordered in a showroom and then delivered to the buyer. Later, although Americans can special order vehicles at dealerships, most car buyers in the United States choose their cars from those already available on the lot. Of course, the fear that many consumers feel before going to the dealership has been widely known for a long time. I think what's really interesting about car buying is that several years ago, John Kravchuk, who was the head of Hyundai Hyundai Automobiles of the US and was at the head of the group, said something to the effect that it's almost a situation where people would rather go to the dentist than go buy a new car because the consumer is almost subjected to a beating only to then give up their money to take home a product that they will then have to take to the dealership regularly for service and repairs and so on.

And it has gotten better over the years because there is more information available. But it's almost a double-edged sword because, at the same time, there's so much information out there that it's almost more confusing. A 2014 study by industry research firm Edmunds found that people have very low levels of enthusiasm for buying cars. Many buyers said they would rather give up sex or pay their taxes than do it. A Harris Poll found that 52 percent of car buyers said a trip to the dealership makes them anxious. A Gallup poll assessing public perceptions of the professions found that car salespeople had the lowest ratings in terms of their perceived commitment to honesty and ethics.

They were below chiropractors, insurance salesmen, advertisers, lawyers and members of Congress. About 65 percent of Americans think the practices of American auto dealers are unethical, according to data cited in a 2008 article by consulting firm KPMG. But also, of course, there are many buyers who are happy with their purchases once they have them. Most customers like your sales, so they may not like the process of getting a price or the salesperson having to talk to the manager. But they generally like sales consultants, which is probably why they buy from that specific distributor. And I think they also believe that in most cases the dealership does a good job of explaining the vehicle's technical issues and the vehicle's products and features.

A vehicle has certainly become more complex over the years and I think most consumers feel that the dealership does a good job in that the most frequently cited weak points tend to be when customers are sitting in the finance and insurance office, often for up to an hour or more, completing paperwork, applying for credit and negotiating the terms of the deal. Many customers feel that they are not prepared for this part of the process and do not enjoy the long, complex discussions with sales representatives. A car is one of the few purchases that buyers have to haggle for, and it is also one of the most important purchases a person will ever make in their life.

Many buyers do not have the negotiating experience they would like to have, especially with professional sellers. And we don't deal much more than houses and cars in the United States, so it's not something that people are very used to and comfortable with. Many times they just want to get out of there. During this time, customers are offered extended warranties and a full suite of add-ons that many of them don't expect to find and don't know what to make sense of. What I pointed out to both dealers and lenders is to get 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 could I choose those products before even going to the dealership? Hey, this makes sense to me. I would like to purchase this particular service contract. And I know I will keep the car for many years. I like the guarantee. I like the maintenance agreement. By the way, I think Gap Insurance makes sense for me because I'm going to keep this car for a while and maybe it's a good product so the educational process can be done from the beginning and not at the dealership.

That said, less than five percent of buyers have abandoned a deal due to high-pressure sales tactics. According to the J.D. Sales Satisfaction Survey Power. The most common reason for declining a purchase, cited by 30 percent of customers, is that the dealership did not have the correct model in stock. And in many cases, it's just a model that I shot big as a model and ended up buying the Model B because there were features or prices on that model that they didn't like. But for some clients, there are areas within the negotiation process. They feel something of the coming and going.

The price may be a reason for rejection. There are a few brands that 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 at J.D. Power S.I. three times between 2015 and 2019. Mercedes took second place in 2019 among the most mainstream brands, Buick and GMC, both owned by General Motors, took first and second place in 2019. and the quirky small car brand Mini came in third place. Like Porsche and luxury, Buick topped the top list three out of four years between 2015 and 2019.

Despite the distress, Americans continue to buy cars during the economic recovery. New sales in the United States reached record levels in some years and even exceeded expectations in 2019. Sales of the giant lithium motor dealerships increased from about two billion in 2010 to twelve point seven billion in 2019 as of August 18. August 2020. Lithia shares had risen nearly 24 percent since the company's initial public offering in 1996 and nearly 86 percent since the beginning of the year. Similarly, sales at another dealership, giant AutoNation, grew from about $12.5 billion in 2010 to about $21.3 billion in 2019. Its stock is up about 20 percent since the beginning of twenty twenty until August 18 and they have gone up more. more than 12,000 percent throughout its history.

Of course, sales levels like these are not expected to last forever. The automotive industry is a cyclical business and there has been concern that younger buyers are not as interested in owning a car as their elders. But some economists have argued that millennials killed off the car. The narrative has been exaggerated. A 2013 analysis from MIT found that millennials actually buy cars at about the same rate as previous generations. However, there are some changes occurring in the automotive market that manufacturers and dealers are watching. Ride-hailing apps like Uber and Lyft have become popular across the country. Companies continue to research and develop autonomous vehicles in many other industries.

Companies have increasingly looked for ways to reach customers through their smartphones, where an increasing proportion of purchases are made. The Internet has also contributed significantly to the rise of membership and service sales models, and consumers have become more interested in the idea of ​​paying monthly or annual fees to access a product that is regularly updated or replaced. Even smartphone manufacturers like Apple have programs like this. Automakers and other auto industry players have launched their own attempts to attract customers with models like these online marketplaces for cars and subscription services that are similar to Lease but include service plans, insurance and registration fees. record.

However, these new business models have so far attracted small portions of the market, and strong sales of new cars in recent years have given dealers little incentive to invest heavily in them. But with online sales seeing a surge since the coronavirus pandemic began, distributors have responded to retail store closures and weary shoppers by placing inventory on shopping sites, offering contactless test drives and home delivery. . Car manufacturers also offer services for their dealer networks. General Motors, for example, created a program called Shop Click and Drive that allows customers to configure vehicles online, get estimates for their trade-in, sort through their financing options, and receive delivery at home or in a showroom.

In recent years, several companies have emerged that exclusively sell cars online. One such company called Vroom held its initial public offering in June, right in the middle of the coronavirus pandemic, on August 18. Room stocks are up more than twenty-four percent in twentynineteen, more than half of the rooms. Sales came from traditional dealers. It offers contact, free transactions and returns within seven days. Something very unusual in car sales. Perhaps the best-known name among exclusive online car sellers is Caravan, which went public in late April 2017. As of August 18, shares had risen more than 17 percent. The stock is up more than 120 percent since the beginning of 2020.

Some industry analysts expect that some of the surge in online sales seen during the pandemic may continue to be the part of the process that customers increasingly seem to prefer doing online. : the paperwork they would otherwise do at the dealership. Surveys show that customers want to have as much information as possible about the financial aspect of the transaction before getting into the contents of the lot. I talked to dealers about the same thing: You need to build your process around the idea that consumers no longer want to sit in the financial insurance office. They don't want to be busy for an hour signing paperwork, nor are they willing to listen to the sales pitch their money manager might give them because there are a number of products they sell.

Do you think today is all about transactions? Most dealers make more money on their FANNI transaction than on the sale. So dealers are changing the way they sell cars, even if they are doing so a little more slowly than customers or other industry experts would like. But if these changes take hold, dealerships could begin to rethink their entire business models. If customers keep moving online, for example. It's plausible, analysts say, that dealers will abandon their centrally located showrooms, leaving behind large lots filled with cars, SUVs and trucks. Instead, they may opt for a smaller exhibition space.

Along with an external distribution center. Customers, in turn, can get used to the idea of ​​having a car delivered to their homes the same way they would receive a package or a pizza.