Why Americans Buy Cars From Dealerships

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I 100% agree, and you left out they have multiple ways to rip you off, starting with the price. Then they rip you off with options like nitrogen and window etching followed by ripping you off with the financing. The ripping is not done yet though, because they then rip you off with the maintenance and repair of your vehicle!

👍︎︎ 1 👤︎︎ u/parishhills 📅︎︎ Sep 09 2020 🗫︎ replies
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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.
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Channel: CNBC
Views: 1,756,296
Rating: 4.8177443 out of 5
Keywords: CNBC, business, news, finance stock, stock market, news channel, news station, breaking news, us news, world news, cable, cable news, finance news, money, money tips, financial news, Stock market news, stocks, top gear, motortrend channel, chrisfix, doug demuro, carwow, scotty kilmer, dealerships, buying cars, tesla dealership model
Id: 3U7qUXPtXnA
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Length: 14min 56sec (896 seconds)
Published: Thu Sep 03 2020
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