Car Buying Needs a Reboot

Dealerships are uploading the worst parts of car buying to the cloud

What will it take to get you into this frustration? (Source: Shutterstock)

For the past few months, I have been shopping for that icon of American industrial might, a new pickup truck. Specifically, a Ford F-150. The F-150 is the most popular pickup truck on the market. Ford pumps out over 700,000 of these each year, which is way ahead of their nearest competitor the Ram 1500.

Buying a car or truck in the post-pandemic, supply-line disrupted market is an interesting experience to state it mildly. The traditional experience of haggling with a salesperson at a brick and mortar dealership is giving way to on-line sales. More buyers, especially younger people, are opting to conduct all or most of their car purchase on-line.

When I was building my business in the early 2000s, I spent a lot of time analyzing how people buy products and services. I did not sell cars, rather I sold computer security equipment. However, the basic structure of my business was similar to a dealership. My company was a retailer for global computer security and networking brands. We took orders, stocked equipment, and negotiated retail prices with customers, much like a dealership does.

About ten years ago, the demand for computer security technologies changed. Rather than purchasing on-premise equipment, customers were opting to use Internet-delivered subscriptions and cloud hosting. Fortunately, I saw this trend early and pivoted my company away from hardware to cloud security. I then built a more lucrative and scalable business (which I recently successfully exited.)

Similarly, about ten years ago Tesla burst into the car market selling their high-tech electric cars directly to consumers. They too saw the writing on the wall: the traditional car buying experience was flawed and in need of a new paradigm. Rather than sign-up thousands of local franchise dealerships, Tesla sold directly to consumers with no negotiation. Tesla was on to something and it was working.

Precision Chaos

Large, manufactured products, like trucks do not have the luxury of simply “moving to the cloud.” It takes a complex orchestration of physical parts and supply chains to make a truck come into existence.

Last summer, I had the pleasure of touring the Mercedes-Benz assembly plant in Sindelfingen Germany. Watching the precisely choreographed robots and people bring a new car to life was supremely satisfying. What surprised me was how adaptable the assembly lines were. Different car models, with different options, colors, and capabilities were all assembled in the same line. Computers and robots precisely serve up and install the correct tires, seats, and turn-signals. People oversee the process and ensure small details are done to perfection.

Daimler-Benz, Ford, GM, Toyota, etc. are all masters at the precision manufacturing of modern automobiles. It is amazing what these companies can accomplish. They can design, engineer, assemble, and deliver millions of complex machines that operate within extreme tolerances for quality and durability.

However, when it comes to selling these precisely built machines to the public, that precision is no where to be found. The buying process is pure chaos. The pandemic only made this worse, fueling automakers to reassess the dealership system and consider a direct model like Tesla.

Is car buying “moving to the cloud” at least in a figurative sense?

My Truck Shopping Experience

I started shopping on-line for a new truck in February 2022. I went into this process fully aware of the supply chain problems. Visits to Reddit’s /r/Askcarsales provided ample evidence. However, the situation was improving.

What I discovered was an industry in the middle of a massive transition. While, dealerships are migrating to on-line sales, they are replicating many of the miserable parts of in-person car buying on-line.

Some of my observations:

• Dealer websites are a mess. Like many physical dealerships, these sites are disorganized, riddled with errors, and overstuffed with useless content.
• Inventory data is extremely unreliable. It is irritating to locate a car you want on-line, contact the dealer, and then find out (after hours of back and forth) that car is already sold, does not have the features listed, or simply does not exist.
• Prices are meaningless. Most dealerships tack on all sorts of markups and fees, often with bizarre rationales.
• Price is hard to get. You must endure multiple conversations over the course of days to get a firm price on a car. I identified four layers of contacts (three human, one robot):

1. Chatbots: automated responses to email and text. Mostly useless.
2. Inside Sales / Internet Sales: Actual people who focus on screening questions to see if you are a serious buyer. These people will sometimes quote MSRP price, only to be overruled by…
3. Salesperson. These people will tell you MSRP is not correct. They will then say they are going to “check with the manager” only to return (sometimes days later) with a price that is well above MSRP.
4. Sales Manager. The person who decides everything but is responsible for nothing. This person will invariably call you after you walk away asking “how can I earn your business?” How about not wasting hours of my time? That would be nice.

• Everybody is frustrated. Most of the people I spoke with are equally frustrated. They want to help but are stuck in a confusing, messy, error-prone system that makes being helpful nearly impossible.
• Pricing games. While most dealerships were open about prices (after a lot of back and forth), some still engage in deception. A few dealerships attempted to hide their markup on a truck in taxes. When pressed for details on the tax, they would make up excuses about “climate change taxes” and “Joe Biden tax on hard working Americans.” Companies that lie like this do not deserve legal protections for their business.

The most common complaint about dealerships is that once you are there at the showroom, the salespeople will pressure you to buy and play games with prices. What I discovered is that dealers have replicated this miserable experience on-line. In other words, unlike Tesla, they took the worst part of car buying and “moved it to the cloud.”

Why must the experience be so unpleasant? Why is the data on cars so disorganized an inaccurate?

Ford Throws Down the Gauntlet

This is where Tesla enters the chat. I have mixed feelings about Tesla. On one hand, their cars and sales model are, to use a tired cliché, game changing. On the other hand, the company has become distracted lately with Elon Musk’s antics buying Twitter and raging about all things “woke.” Some of Tesla’s design choices (like the profoundly stupid steering yoke) are also questionable.

However, the buying experience with Tesla is profoundly more enjoyable. Prices are all on-line, inventory data is accurate, and the people never have to “check with the manager” to find out if they can do anything. Buying a Tesla is a rewarding experience. Owning a Tesla is a little less fun, but that is another story for another time.

Which brings Ford into the chat. Just a few months ago, CEO Jim Farley announced a massive restructuring of how Ford goes to market. Ford intends to sell all their new electric vehicles direct, like Tesla. They intend to embrace an entirely new model that does away with the old dealership experience. Moreover, they have told their dealerships either get on board with this new model, or get out.

This was big news. One of the titans of the auto industry has also seen the writing on the wall and is taking on their own dealer network. Ford’s move is bold and not without controversy. Ford dealers are reeling from this ultimatum and making threats.

However, the reality is clear as day: car buying is miserable. Change must happen. With Ford’s move, it is a forgone conclusion that GM, Fiat-Chrysler, Toyota, and others will follow suit and begin selling direct.

I Have Some Thoughts On That…

Having pivoted my own company multiple times, I have some experience with these big, bold business model changes.

Here are my thoughts on that.

• Direct sales. Ford and Tesla are correct, there needs to be a direct sales option where prices are set fixed and sales are simple(r).
• Dealerships are not dead. There is still an important role for dealerships in service and support. They also can sell used cars and provide certification services for used cars.
• Inventory data. In today’s world, there is no excuse for not having accurate inventory listed on sites. This is a simple database problem that novice programmers could solve.
• Experience centers. One of Tesla’s best ideas was to place showrooms in malls and other high-traffic areas. These locations were showrooms only. They allowed customers to look at the cars, drive them, and talk to representatives (who were not on commission). I visited these a few times, and they were fun, engaging, and exactly what all manufacturers should do. I noticed these same kinds of “experience centers” are common in Europe in other countries.
• Regional warehousing. This is an idea from Amazon. Rather than stocking cars at dealerships spread out all over the country, stock them at regional warehouses. Then ship them out on demand. This would allow for greater efficiency and allow dealerships to reclaim lot space for used cars.
• Over the air updates. Another Tesla idea, manufacture cars that all have the exact same components (just different colors). Unlock options based on what the customer buys. This is not only feasible it is significantly more efficient. Likewise, make it where customers can upgrade the options on their car at any time. Even if modules were required to be installed, this still seems feasible.
• Abolish the state franchise laws. One of the most significant impediments for auto sales in the USA are the state franchise laws which forbid auto manufacturers from selling cars directly. These laws are from a bygone era and need to be abolished. No other product enjoys such legally enforced inefficiencies. The idea of unwinding the state franchise laws is gaining traction, as this 2015 study from George Mason University shows.
• Add-on Regulation. While I do not like or generally support additional governmental regulation in any industry, the car sales industry has traditionally been incapable of policing itself. It is inexcusable for dealerships to tack on ridiculous add-ons of dubious value. There must be regulation around these that require full disclosure and a simple way for consumers to deny these add-ons.

Conclusion

While some people may still enjoy the endless back and forth negotiation with dealerships, many do not. The time has come for the auto sales industry to modernize. Buying a car must be fun and exciting, not a miserable slog through misinformation and high-pressure sales. Ford’s recent announcement is a signal that this transformation is underway.