Dealership free online model could shift ‘painful’ car buying process up a gear
PEOPLE who buy Ferraris typically fall into one of three categories, quipped Enzo Ferrari in his autobiography: “the sportsmen, the 50-year olds and the exhibitionists”.
Each of these customers is quite distinct, he observed. But in one respect they’re no different to any other person looking to buy a car. Whether they drive away in a Ferrari or a Ford, nobody seems to enjoy the purchase process.
Pushy salesmen, unexpected fees, and missed delivery dates all add up to an experience somewhere between miserable and unbearable.
Impressions are even worse when it comes to used-car salesmen, whose reputation precedes them in all the wrong ways. If there’s one industry that millions of consumers would happily see disrupted, or at least reformed, it’s car dealerships.
This has big potential for several companies around the world whose business is advertising cars for sale: from Auto Trader in the UK, to Cargurus in the USA, to Carsales.com in Australia.
At face value each of these companies is little more than the online equivalent of the classified ad section that once appeared in the back of the newspaper. But these can make attractive businesses to invest in, as they tend to be “winner-takes-most” marketplaces where buyers attract sellers and vice versa.
There are also good reasons to believe these businesses are still in their infancy, with many years of potential growth ahead of them. Buyers today spend most of their time researching a vehicle on the internet, yet for every $100 spent on advertising cars, less than 15 per cent is online. That mismatch could lead to substantial growth in digital advertising revenue over time.
Where these businesses become most intriguing however is their potential to improve car dealers’ behaviours.
The most advanced online car sites, including the names above, have started analysing the data generated by their websites and apps, and discovered that dealers who respond quickly to customer enquiries enjoy dramatic sales increases.
Car dealers have taken note, and started responding to enquiries more promptly.
These companies also dramatically increase availability, which makes customers happier.
Rather than the used car salesman pushing a buyer into whichever vehicle they happen to have on the forecourt, the same salesperson can search for an exact match online and turn a profit by putting the customer into their perfect vehicle – whether a silver Volkswagen or a red Ferrari.
As investments, these companies are admittedly not without their question marks.
Potential competitors are emerging, such as Carwow in the UK. It has an interesting new business model that operates a reverse marketplace, where customers specify the car they want to buy online, following which dealers quote for the sale. Carwow also provides video content to help buyers choose the right car for their needs, then coordinates quotes from dealers
Whether they drive away in a Ferrari or a Ford, nobody seems to enjoy the purchase process.
while taking a commission. Meanwhile, manufacturers like Volvo are experimenting with selling cars direct to consumers, as
Tesla pioneered.
Could these sales cut out the middlemen altogether? Sceptics say no, arguing most buyers still want to undertake a test drive before putting down their money. But Tesla’s recent experience contradicts this, with tens of thousands of customers paying a deposit before its latest vehicle was launched.
All of this serves to highlight how the management team and board at each of the companies mentioned above, and the quality of the strategic decisions they take in an evolving industry, will be important determinants of their long-term success. For SAINTS’ portfolio we