The Internet is Saving the Car Buyer

Previously we provided some perspective on car makers and car dealers, and the challenges they face in the modern economy. This post throws some love to car shoppers. Shopping for a car should be easy, exciting and fun. In reality, some people find it stressful, confusing and frustrating. Car buying can be stressful because it’s a big purchase, confusing because there are many choices, and frustrating because pricing is not transparent.

Since the birth of the independent car dealer, car salesmen have had a practice of not quoting a realistic price to a customer over the phone. For generations, car shoppers have had to visit a dealership to get a “real” price quote on an automobile. For salesmen, this policy has been a valuable showroom magnet. ‘In person pricing’ has generated customer loyalty by promoting shopper-salesman relationship formation, which increases the shopper’s likelihood of buying from a particular salesman or dealership. The growth of the internet has ignited a sustained push against this policy.

In the past 15 years the internet has improved many customer experiences by reducing information asymmetries (Kayak in airfare and Redfin in residential real estate, for example). In the automotive space, third party sites began by providing car research, and slowly convinced dealers to allow shoppers to connect to local inventory online. Suddenly online shoppers were not only able to research cars (compare models, access technical data, read expert and user reviews, etc.), they were also able to browse local dealership inventory. And although many dealers were slow to participate, they stood to benefit from cheap access to marketing platforms; besides, if their local competitors were participating in this new channel, they didn’t have a choice. Although online shoppers were able to research and connect, they still struggled to uncover realistic dealership pricing without a showroom visit. A company called Truecar changed that.

In 2008, Truecar began collecting, organizing and presenting bell curved transaction data from relationships with auto insurers. It made pricing filterable by make, model, year, and zip code, and today many other web portals offer the same services. Shoppers can now research, locate, and price a car without leaving their Lazyboy. The industry ramifications of price transparency transcend Truecar.

Today, dealerships are not only compelled to share inventory with third party sites, they’re increasingly obligated to share realistic pricing with third party sites, since online shoppers have access to local transaction data anyway. As dealer participation with online pricing has increased, a new generation of exciting automotive start ups has started to explore ways to leverage the new paradigm to make car buying and selling easier.

Regardless of which strategy catches hold of shoppers and dealers next, one thing is clear: in the world of car buying, stressful, confusing and frustrating are giving way to easy, exciting and fun. And that’s a very good thing for car buyers, car dealers and car makers.

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