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The Auto Dealership of the Future May Be Just a Year Away

July 31, 2018

Car dealerships are needing to evolve to meet consumer demands in an increasingly high-tech world.

The next time you buy a car, you may find the experience is completely different from what you expected. When you step into a dealership, you will see kiosks where you can configure and order your model. Rather than offering a hard sell, a dealership salesperson will merely be on hand to help you through the process and answer any questions you might have.

Using high-tech visualizations like holograms, the salesperson will show you a realistic representation of what your fully configured vehicle will look like. From there, you can take a no-pressure test drive or perhaps strap on a VR headset for a virtual test drive.

Don Flow, CEO of Flow Automotive, a network of 36 dealerships in North Carolina and Virginia, believes this vision is coming very soon. “I have a chance to test almost all the products coming down in our dealerships,” Flow said. “There's a whole group of products that are going to merge in the market in the next six to 12 months. They'll begin to digitize everything.”

For many consumers, that change is a long time coming. Research shows that a significant number of consumers don’t like sales pressure and dread the negotiating process. Consumers who are used to buying whatever they want online and having it shipped in a day or two find that the process of buying a new car hasn’t changed much in the last 50 years. But dealers like Flow are pushing for change and so are some automakers. “There’s probably more changing going on in the last three to four years in dealerships than there probably has been in the last hundred,” said Ian Beavis, chief strategy officer at AMCI.

The Enduring Dealership Model

Consumers can buy pretty much everything online these days, with one exception: cars. Carmakers launched the dealership model early on as a way to spread across a large geographic area with a minimum investment. As dealers tell it, they are advocates for the consumer. They also prop up local economies. That’s why dealers have been adept in creating laws that forbid direct sales. (For instance, Tesla can’t sell directly in Connecticut, Texas, West Virginia, Utah and Arizona.)

It also explains why the status quo is so enduring. “I don't see any substantial change in the model the dealerships are run at unless there's a substantial change in franchise law,” said Todd Turner, owner of Car Concepts, an auto industry analyst. “I don't expect that to happen in our lifetime.”

But the persistence of the dealership model isn’t just the result of some insidious plot. Some 80 percent of new car purchases involve a trade in, Turner said. “There's no car dealer in the world that's going to buy a car sight unseen,” he said. “You're not going to punch in the numbers and get a price because the dealer's going to want to see that car.” Another factor is that two thirds of consumers don’t really want to pay the same price as everyone else, Turner said. They’re going to want some sort of negotiation,” he said.

Finally, there’s the need to physically touch the cars and maybe take a test drive. “As good as everything is online, there is this moment when you're about to fork over fifty grand and you haven't physically touched this thing you're going to be living with for the next 10 years?” asked Beavis. “It's like marrying your wife without ever holding hands.”

Here Come the Millennials

Right now, the seemingly intractable dealership model is colliding head-on with Millennial buyers. Millennials will comprise 40 percent of buyers for new vehicles by 2020, but only 12 percent of Millennials visit dealerships to research their purchases. “I’d personally argue that young people shop online and ‘pick up’ in the store,” said Roger Lanctot, associate director in the automotive practice for Strategy Analytics. “Younger buyers use the Internet as a cudgel to beat dealers into submission.”

To add to dealers’ worries of disruption, there are new use cases for cars that put to question the assumption of car ownership. In addition to ride-sharing services, there’s are as a peer-to-peer car rental services or subscription plans for cars. Some top automakers now offer subscriptions for their models, which are distinct from leasing plans because their terms are open ended; drivers can opt in or out on a monthly basis.

How Dealers Are Responding

As Flow notes, many people don’t want to visit a dealership, no matter how great an experience it is purported to be. Flow believes that dealers will thrive by offering their consumers choices. Some may want to configure their car at home and then pick it up at their dealership. Some may want to do so and have their car shipped to their homes. Still others will want to come in and work with a sales rep to get their ideal configuration and price. “We’ll find out if the market prefers the new way or the more traditional way,” he said.

Part of making the dealership experience fun, Flow said, is to offer toys like VR and hologram visualizations. Making deals will no longer be a drawn-out war of wills between buyers and salespeople as even trade-ins will be automated. “Everything will be effectively automated,” he said. “There’s enough data in the market to put appraisals on cars.” Flow said the whole process of buying a car -- including securing financing -- could take a few minutes.

Meanwhile, dealers have a huge opportunity to maintain a relationship with customers after the sale. As Beavis notes, most dealers don’t make much on new car sales; most of their profit comes from the service department. “The connected car does change a lot of things, not the least of which is that it allows the dealers and allows the OEMs [carmakers] to be more or less in constant contact with that owner,” Beavis said.

“Dealers are whiffing on this opportunity,” Turner said. “They've tried to make things like quick oil changes and so forth, but their idea of a quick oil change is an hour and the consumer's idea of quick oil change is 10 minutes,” he said. “So, you can see the disconnect there.”

It’s possible that consumers will prompt a more radical change for dealerships. As Beavis points out, the U.S. is one of the few markets where customers actually pick up their cars at the dealership; everywhere else they get cars shipped to their homes. If consumers warm to that model, then dealerships can greatly slim down and offer a more Apple Store-like experience. (Audi’s Audi City has been employing this approach in Europe since 2012 with some success.)

On the other hand, if dealers can distance themselves from high-pressure sales tactics and present themselves as a resource to consumers, they may be able to reinvent themselves for the digital age. Flow said that’s just a question of using data analytics and trying different approaches to give consumers what they’re looking for. “My take is that there is enough genuine dissatisfaction in the current process,” he said. “If we can offer real alternatives we’ll see real momentum.”

Such alternatives are fueled by in-dealership WiFi, which customers can use to comparison shop. Ideally, a connected dealership would also provide entertainment distractions for spouses and children who might be part of the car-buying experience. WiFi is also transforming the servicing experience to make it more transparent and less of a chore.  “Virtually every dealership and every service department has got a tablet with the full-service history of your car that’s up to data and embedded video to show you what’s necessary [to maintain your vehicle],” Beavis said.

One dealership that has exploited those possibilities is Chapman Auto Stores in the Greater Philadelphia area. In addition to working with Comcast Business to upgrade the in-dealership WiFi to 150 Mbps (up from 100), Chapman has also used Comcast’s Business Phone service to provide a robust connection with customers and offer features like real-time displays of recent calls and seamless account management.  Keane Storey, director of business development at Chapman Auto Stores, said the robust connection helps the dealership deliver better service. “It allows our employees to focus on delivering industry-leading customer experiences and provides peace of mind that we’re ready and able to support increasing auto maintenance requirements as well as company growth,” he said.

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