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Changing the Perception of Auto Dealers

A big problem in the automotive industry is distrust of auto dealers. This is an issue that is highly discussed but almost never addressed. 87% of Americans dislike car shopping at dealerships. 61% feel they’re taken advantage of while there (Jazel Automotive). I bet this percentage would be even higher if all of these shoppers were honest.

Many people, out of embarrassment, don’t want to admit they have been ripped off or taken advantage of, so I would bet more than 61% actually feel this way. I used to see this in previous positions I have held that involved writing, giving and analyzing surveys and questionnaires. Response bias is the tendency of survey and questionnaire participants to respond inaccurately or falsely to questions. This happens for various reasons, one being embarrassment.

To develop a plan to combat this issue it makes sense to want to start with the in-person interactions at the dealership. While this part of the shopping process is extremely important, it isn’t the first step in the process, nor is it the point when the negative aspects of the process begin to show-up. No, the negative aspects start to show-up at the very beginning of the process, the advertising and promotions.

The Price Is Right

I’ve heard countless stories from other consumers over the years about their trip to a dealership to inquire about a vehicle price they saw in advertising on television. Only to get there and be told that vehicle at that price was already sold. This is not a great way to start the relationship with a new customer of your dealership, but it is a classic contributor to the distrust consumers have in dealers.

Another good example can be found while online shopping. The prices consumers see online can vary greatly. Often times, you can find a different price on an OEM site, on a dealership site and in some display campaign, for the same model with the same trim level. This price inconsistency online fuels this problem of distrust with auto dealers. Perhaps the dealers and the OEMs themselves are to blame for these pricing and advertising issues. They should probably work together to solve it.

Inventory Errors

Another huge problem plaguing the automotive shopping process is inaccurate inventory listings. Many times, consumers will spend valuable time searching your inventory listings to find the right car for them. If you have inaccurate listings or leave listings up after the vehicle has been sold, you are setting yourself up for failure. Think about a consumer who has done their research and made the tough decision to purchase your brand, or purchase from your dealership. If you allow them to waste time identifying a vehicle you don’t have on your lot or is no longer available, you are providing that consumer with a terrible shopping experience.

This can be so frustrating to a consumer that they may decide to completely omit your dealership from consideration and may even go so far as to eliminate that model or brand from their consideration. Dealers need to make sure their inventory is listed correctly online. Scouring inventory listings to find the right vehicle, only to find out it’s no longer available, or was listed incorrectly, is an extremely negative experience for the consumer.

A Painful and Awkward Experience

Even as we turn our attention to the in-person dealership experience, the problem still revolves around price. There are three main areas where a dealer will look to maximize profit, or rip someone off, a consumer might say. Those areas are the price of the car being purchased, the financing terms for the new vehicle and the value of the vehicle the consumer is trading-in. If the consumer negotiates a better price on the vehicle being purchased, the dealer can offer less on the trade-in or recoup some of that money in the financing terms. Many consumers don’t understand these tactics and therefore are not ready for them when they visit the dealer. Falling victim to these tactics does not make you stupid, but it does make you unprepared.

Personal Tips for the In-Market Consumer

When I shop for a new vehicle I try to protect myself as best as I can. Now, there are several different ways to “purchase” a vehicle. First, you can buy new or used. Second, you can decide to purchase or lease (new vehicle). You can also decide to finance the vehicle through the dealership or get financing on your own from a bank or credit union. If you already have a vehicle to trade-in, you can decide to trade it in to the dealer you are purchasing the new vehicle from or you can shop it around to multiple dealers to get a better price.

The first thing I do is shop online and find the exact vehicle I want. I usually go to the dealership after hours to make sure the car is on the lot and listed correctly online. Lately, I’ve been a used car buyer, so I will also look the body of the vehicle over to make sure there are no dents or scratches. Once I’ve located and confirmed the vehicle, I then go out and get financing from a credit union. I have a credit union I prefer to work with, but from what I have seen, credit unions in general provide a better rate and experience than a traditional bank.

Once I have the financing lined up, I call the dealership and tell them I’m very interested in the car, but I will not come into the dealership until they give me the out-the-door price. I make sure to tell them that I’m going to hold them to that price and will walk away if there are other fees thrown in when I get there. I make sure to not tell them I have a trade-in or that I have my own financing. The last thing I do before I go into the dealership is look up the value of the vehicle online (KBB, Edmunds & others) to make sure the out-the-door price is fair. I also look up the value of my current car I’m trading-in, as I want to get the full value for that vehicle as well. I usually add at least $500 to the value I was quoted online and make the decision that I will not take anything less than $500 more.

That’s when I finally head into the dealership. I confirm the out-the-door price again in-person before I bring up my trade-in. Once I’m comfortable with the price of the vehicle I want to purchase, then I have them take a look at my trade-in. I still don’t tell them I have my own financing. The dealer may think they can go up on the trade-in offer to sweeten the deal, only to recoup that money in the financing terms. But, if they know you have your own financing, you lose that advantage. The dealer, or sales person, will always ask “what do you want for your trade-in?”. Your response should be, “I want your best offer. What would that be?”. If the offer is at or above my desired price for the trade-in, I take the offer. If it’s below my desired amount, I waste no time to tell them “I will accept nothing less than $X.”

Again, make sure that price is at least $500 more than what you were quoted online. Honestly, you may even be able to go up a full $1,000 instead of just $500. If you really want to get the full value of your trade-in, you can always decide to shop it around to other dealerships before including it in the transaction for the new vehicle.

Once the price of the new vehicle and the price of the trade-in are both agreed upon, then I sit down at the desk with the sales person and start the process. When we get to the financing part of the discussion, that’s when I tell them I already have financing lined-up for the exact out-the-door price I was quoted over the phone. At this point, you have done everything you can to not get ripped off. There still may be little things they try to throw in to increase the price and maximize their profit. You just have to stand firm and be prepared to walk-away if needed. Following these guidelines will help give you a better experience when purchasing that next vehicle.

Ideas for OEMs and Auto Dealers to Address the Issue

So, how can the auto industry address and fix these issues? The first thing OEMs can do is reduce the price inconsistency consumers see online. This simply takes better communication across the OEM, their marketing agency and the dealer base. The problem of pricing inconsistency may start at the OEM level within marketing and advertising campaigns, but this problem impacts the dealers the most. Even though it may not be the dealerships fault that the consumer saw multiple prices for the same model/trim, it falls on the dealer in the minds of the consumer. So, OEMs, agencies and dealers need to work on this problem together. Do your best to keep pricing consistent from the online ad campaigns, to the OEM website, and ultimately the dealer sites.

The inventory problem is something that the dealership needs to handle on their own. The dealer owners and managers need to hold sales people accountable to immediately update inventory when they sell the vehicle. This is a problem that is almost impossible for the OEM to help with, as the dealer knows their inventory far better than the OEM. Again, it’s all about the dealers holding their sales staff accountable.

The in-person issues are 100% the fault of the dealership. If dealers were open and honest about the prices of their vehicles, meaning prices don’t miraculously change and small fees are not added on, consumers would feel much better about the process. The fact that dealers have these three areas of opportunity (price of car, value of trade-in & financing terms) to pull the wool over the consumers’ eyes is a huge problem.

Dealers think if they supply some toys and a play area for the consumers’ kids, a TV and some coffee to the consumer, that they are providing a good shopping experience. Dealers could remove all those small perks and simply provide a straight-forward process and transparent pricing and they would immediately be improving the shopping process in the minds of the consumer. Honestly, keep your coffee, I just want a fair price on a car.

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Michael Thomas, Director of Analytics

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