How Auto Dealers Can Become More Customer-Centric Post-Pandemic

Over the past few years the auto dealer industry has seen macro-level changes, which may impact how cars are sold and potentially threaten the very existence of the industry in its current form. The emergence and success of the direct to customer model, mobility as a service (MaaS) and the available alternatives to car ownership have all had an effect, as has the advent of the millennial generation. 2020 posed even more immediate challenges for auto dealers, as pandemic-driven closures, slowdowns and inventory shortages drove down new sales by as much as 20%.

While many macro factors contributed to this change, the 2020 pandemic impact also magnified the gaps in the auto dealer business model, which would otherwise be overlooked. On the flip side, it also forced auto dealers to make changes, which allows them to take on not just the challenges but also well positions them for the macro level challenges facing the industry – if they take advantage of the new capabilities and change how they operate. 

Underlying Model Challenges

Online business models in other industries brought one major fundamental change: putting the customer first. In other sectors, these business models tailored customer interactions to individual needs, preferences and wants. The retail auto business, on the other hand, focused on what and how they sell, and not necessarily what the customer wants. The elements of customer experience, engagement, self-service and convenience for the car buyer are often overlooked.

Prior to the pandemic, video walkthroughs, sales deliveries and the ability to buy a car or schedule test drives online seemed like optional amenities for auto dealerships, and many dealers were more than willing to forgo these self-service improvements in favor of bigger ad spends or more recruiting. In fact, some auto dealers saw these amenities as deleterious to their business as they potentially lessen the time a prospect would spend on the lot. Most of the past digital investments were limited to lead generation and inventory placement. This attitude flies in the face of consumer preferences: Over half of Americans said they would love the ability to buy a car directly from their home in a survey taken before the pandemic’s onset. 

The sales model for most car dealers is also very reactive. Their first contact with a customer is when a customer picks a dealership for a walk-in; this happens nearly 50% of the time. While in a favorable economic environment, this problem may get masked, as demand remains consistent. However, when sales drop by 30%-40% or more, it becomes even more critical to adopt a proactive approach to sales.

There’s no question that 2020 fundamentally redefined the sales process for car dealers – in fact, the pace of this change is almost overwhelming. A McKinsey report found that e-commerce channels, including car dealerships, experienced 10 years’ worth of growth in just six months. Many dealers made significant investments in digitizing and providing end-to-end shopping capabilities online, including remote video walkthroughs, cross-country home delivery and more. This necessity-driven change is a big forward-step for the car-dealer industry. Dealerships that embrace the new capabilities brought about by digitization, and continue enhancing technology capabilities, will have a significant leg-up in the coming years.  

Customer First Approach

With the acquisition of new technology capabilities, dealerships can (finally) put customers and customer convenience first. Since automobiles are a major purchase, they require a great deal of paperwork for both the dealership and the buyer. It is also a major source of dissatisfaction among the car buyers, who are used to the efficient world of online shopping. With recent technology upgrades, this paperwork can be digitized, cutting down on the amount of forms a customer needs to sign, and reducing the time they spend completing the purchase. It also drives more efficiencies on the dealer side, as their salespeople can spend the time saved for customer engagement or prospecting new customers.

Most successful online businesses have a very strong idea of their customers’ individual preferences. The data consumers create in browsing and shopping products and services turns into better recommendations, which in turn increase sales. It’s no wonder, then, that these companies have become household names. Meanwhile, car dealerships know little about their customers’ online buying habits. Without the right data, they’re unable to provide tailored recommendations, directing customers to products and services they otherwise might not be aware of.

Part of this difficulty stems from the traditional model of car sales, which relied on getting to know the customer in-person in order to spontaneously personalize their service. Apart from the fact that online sales channels are proactive, not reactive, this model of personalization has one key flaw: It puts too much judgment into the hands of the salesperson.

Amazon, Netflix and other B2C tech companies employ thousands of workers, but they don’t rely on their workers to make recommendations for their customers. Rather, finely tuned algorithms and artificial intelligence (AI) work behind the scenes to turn every action into useful data, improving both the customer experience and the potential of increased sales.

The Customer Ownership Journey

Despite the modern benefits allowed by a proactive, online-first sales approach, automotive dealers may still remain skeptical of change. After all, the car-buying experience has remained largely the same for decades, yet it’s not the be-all, end-all of the car’s sale. Modern consumer cars last an average of 200,000 miles, and the average customer will buy a new car every three to five years or more. Yet the buying phase only represents one part of a sale’s lifetime value. It’s how a customer spends money on their car after the sale that increasingly matters most. Once the sale is made, the customer moves onto the ownership phase of their purchase. Here, they’ll typically visit the service center two to three times per year, for everything from maintenance, repairs, replacement parts, recalls and other needed services to keep their car running.

In the past, much emphasis was placed on the buying stage of the journey, and it’s easy to understand why: The initial purchase is typically the largest single sum a customer will pay. Yet the ownership phase drives spending in the long-term, drives up customer loyalty and dealership profitability as service is the most profitable part of the dealership. As long as the dealership maintains its position as the customer’s favored point of service, their place in the consumer’s continued ownership journey remains.

By implementing and building on new technology and digital capabilities, dealers have the opportunity to shift from a car-centric to a customer-centric buying process, and not only maintain success but thrive beyond the COVID-19 era. Successful dealerships will come out more efficient, customer-focused and much further down the line on their digital journey. This wake-up call will push the forward-looking dealerships to continue making changes and move them from a reactive Blockbuster-like model to a proactive Netflix-like model.