How Auto Dealerships Can Compete in a Changing Market

The challenges facing auto dealerships today are driven largely by changes in consumer habits. Rather than visiting showrooms on weekends, more prospective buyers are beginning their customer journey online. Furthermore, urban-based Millennials and members of Generation Z are postponing their first car purchase, which is a major expenditure, until later in life, preferring to rely on public transportation and ride-hailing services.

Of course, shifting consumer trends aren’t the only catalyst for change. The automotive industry is undergoing a consolidation of smaller dealerships within larger dealership groups. Single point stores and family-owned dealerships have found themselves under greater competitive pressure with traditional ad dollars and marketing spend unable to keep pace with the buying power of dealership groups.

While these challenges aren’t trifling matters, they aren’t insurmountable either. Every dealership, big and small, needs to look at doing business differently to engage with potential customers where and when they prefer to connect. Let’s examine each of these challenges and see what this pivotal industry shift means for auto dealers. Along the way, we’ll share a few tips and tools to assist dealerships of any size during this transitional period for the industry.

Changes in Consumer Habits

According to Hedges & Company, an automotive digital marketing and research agency, the average age of a new auto buyer has increased over the past decade, hovering around 53 years of age. This trend is exacerbated by financial and lifestyle realities facings Millennials and members of Generation Z. The 16- to 39-year-old demographic, historically a reliable source of income for auto sellers, has been diluted due to hefty student loan obligations. These age groups also tend to gravitate towards urban areas for work where ride-hailing services and public transportation are prevalent.

That being said, the statistical delay in car purchases shouldn’t be misunderstood as an indefinite hiatus. Nor does this trend extend nationwide. There are many areas of the country where having a car is an absolute necessity in order to get from location to location. Rural and suburban areas often lack public transportation and access to ride-hailing services when compared to urban areas.

The Rise of Direct-to-Consumer Online Auto Sellers

The direct-to-consumer online auto sales model is still relatively new in the industry. But it plays on two key assumptions. The first, that auto buyers take most of their pre-purchase activities online; second, that consumers are becoming more comfortable with making big-ticket purchases over the Internet.

Do these assumptions match the facts though?

Research finds that 59 percent of car buyers spend time doing online research before ever stepping into a dealership. This means that car buyers are more educated about car costs, features and models by the time they reach a salesperson. This is not to say that consumer decisions are a done deal, however. Freckle IoT finds that six in 10 shoppers are undecided on a specific vehicle when they enter a dealership. Thus, the opportunity to close a deal with prospective buyers still lands on salespeople.

The most obvious disadvantage to this purchasing model is that consumers cannot test drive a car they’re eyeing when shopping exclusively online. While the market may be moving in the direction of a more Internet-friendly shopping experience, there is still plenty of space for brick-and-mortar dealerships to thrive.

Consolidation of Dealership Groups

The aforementioned challenges face big dealers and small dealers alike, but big dealers have more resources to take advantage of during this market disruption.

As large dealer groups acquire more single-point stores, family-owned dealerships become an exception rather than a rule. Smaller groups also occupy this ecosystem, controlling somewhere between three and 20 single-point stores. Even small-to-midsize dealership groups are joining the ranks of auto-retail giants and investment firms, however. This trend is expected to accelerate in the near future.

This isn’t the only fundamental change hitting the industry. There is also a shift in the way dealers operate their businesses. As the auto industry moves away from mom-and-pop stores to large-scale groups controlling dozens of individual dealerships across several regions, these mega dealers are beginning to look and behave more like Fortune 500 companies.

One reason for this shift is that auto-retail giants are no longer exclusively made up of “car guys” with decades of experience in automotive. Rather, these consolidated dealers are bringing on technology experts, bankers, and CEOs from the business world. This diverse and collective experience gives these dealerships a competitive edge. Not to mention that large dealerships have more marketing spend, can spread their influence across different regions, and enjoy heftier spends on new technologies.

The Way Forward: Technology & Client Service

With all the above information, it’s easy to assume that the deck is stacked against small dealers. But it’s important to note that the top five auto dealer groups combined only control about six percent of annual car sales. So, while the challenge for small dealerships is real, so is the opportunity. And the path to success runs straight through technology and customer service.

Curiously, the auto industry is often the last hold out for digital transformation which means there’s a lot of room for growth and innovation. Yes, the auto industry has embraced Dealer Management Systems (DMS) to automate daily tasks including sales, financing and service operations. But the question is, what can single-point stores and dealer groups do to go beyond these technologies in order to compete in today’s evolving market?

Believe it or not, Artificial Intelligence (AI) is within reach of every dealership, no matter their size. One such example is the Automotive AI Sales Assistant from Conversica which autonomously connects with every lead. This is especially helpful for small dealerships who do not have the time, resources, or personnel to follow up with every customer who requests information online.

Technologies like these are a perfect fit for auto sellers looking to match consumers’ habits. Through email and text conversations with the lead, the AI Assistant determines whether the prospective customer is ready to speak with a salesperson or if they need to be nurtured until they are ready to buy, all without human involvement. Even if the lead doesn’t respond during the first, second, or even third contact, the autonomous Intelligent Virtual Assistant will continue to be polite and persistent until the customer’s buying intent is determined. In this way, AI Assistants cost-effectively augment teams of people by following up with and nurturing leads. They then pass prospects along when they express interest in speaking with a salesperson or booking an appointment to come in for a test drive.

Another tech-enabled strategy is to employ digital retailing. As more of the car-buying process happens online, some vendors are pushing for clickable “buy now” buttons to get potential trade-in vehicles appraised and obtain pre-approved credit without requiring customers to come into the dealership. Of course, the majority of consumers will still visit dealerships in person for test drives and to sign paperwork. But for some dealers, it’s safe to assume that consumers will become more comfortable with online transactions in the near future.

While technology can automate many routine tasks including lead follow up and trade-in appraisals, dealerships small and large can boost the value their businesses provide by treating customers more like clients.

While enticing a customer might result in a single sale, dealerships that shift operations to reflect when a customer becomes a client do better at keeping them coming back to the same dealership for service and maintenance and their next vehicle purchase. To keep auto buyers in this loop, it helps to nurture your relationship with them through various channels including emails, text messages, marketing materials, customer satisfaction surveys and the like.

AI technologies can aid this process by managing customer success outreach and auto service reminders. Thus, marrying together stellar customer relations with technology. That way, when a past buyer considers their next car purchase for a family member or to get a tune-up, they’ll already have a positive association and relationship with your dealership.

The reality is that the auto landscape is changing. Dealers of all sizes need to embrace innovative solutions and adapt their strategies in the face of new challenges.