Dealers wheel into online commerce
NEW YORK • The auto dealer — around for more than a century and viewed almost as negatively as members of Congress — looked like a ripe target for disruption when retailing moved online. Now that startups have tried and failed to beat the car sales- man, many are taking a different route: catering to them.
After watching predecessors like TrueCar Inc. and Ford Motor Co. stumble in their attempts to bring more Amazon- like e- commerce to car shopping, a new wave of auto finance upstarts has emerged. Rather than fight a dispersed and politically connected dealer industry, they’re bringing the country’s 17,000 new- car dealers into the digital age, meaning consumers aren’t going to be bypassing the dealership to buy new rides anytime soon.
“The market is so big that there’s nothing preventing someone from creating a new dealership model, but I want to go after the biggest part of the pie,” said Kevin Singer- man, founder of AutoFi, a twoyear-old San Francisco-based startup that began piloting its financing software with Ford dealerships this winter.
Almost 20 years after the Internet brought price transparency to the U. S.’s almost US$1 trillion-a-year new car sales market, several steps of the shopping process have migrated online. But as buyers turn to Kelley Blue Book and AutoTrader.com for price comparisons and Consumer Reports for model reviews, they remain unable to finish the car-buying process without a visit to the dealer. The average consumer visited about 2.8 dealerships before buying a car in 2016, compared to 3.5 in 2012, according to JD Power & Associates.
The portion of the buying process that’s yet to be cracked — solidifying financing and insurance — remains a profit centre for dealers and has become a target for startups, though most are now taking aim with dealers’ blessings. The new apps replace tedious paperwork with a few swipes on a smartphone, but the underlying economics are little changed.
In most of these digital-age car-financing apps, the same banks quote the same rates they would in a dealership, and the so-called “dealer reserve” — the fee the dealer gets for being an intermediary between lender and borrower — remains baked into the monthly car payment. That’s the case for Irvine, California- based mobile financing app AutoGravity, said chief marketing officer Serge Vartanov.
The startup counts several ex- finance executives from Daimler AG among its founders and is backed by the German carmaker. The founders visited dealerships and lenders before writing a single line of code, Vartanov said. AutoGravity is looking to improve the car- shopping experience “without disrupting anyone,” he said.
AutoGravity makes a “white label” version of its app that dealers can roll out with their own branding. It allows shoppers to pick a car, find a dealer and apply for credit approval all from their couch. AutoFi’s software — which it sells to dealers — also lets shoppers apply for financing from their phone before going into a dealership to sign the paperwork. Both make money by charging dealers and lenders a fee once a sale goes through.
Even the most futuristic of technologies are carving out a role for dealers. BMW AG and Fiat Chrysler Automobiles NV are rolling out augmented reality features for smartphones and several automakers are developing virtual reality goggles that let consumers inspect cars remotely but ultimately still steer them to a dealership, according to Accenture Plc.
“Car dealers will continue to play a vital role as the point of sale and delivery,” said Georg Bauer, a former BMW and Tesla executive who founded a mobile car-buying startup with TrueCar’s Painter. “They need to embrace and adopt new technologies and alternative ownership models to stay in the game.”
THE MARKET IS SO BIG THAT THERE’S NOTHING PREVENTING SOMEONE FROM CREATING A NEW DEALERSHIP MODEL, BUT I WANT TO GO AFTER THE BIGGEST PART OF THE PIE, WHICH IS HOW CONSUMERS BUY CARS TODAY. — KEVIN SINGERMAN, FOUNDER OF SAN FRANCISCO-BASED STARTUP