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Carvana is expanding into dozens of new markets and although it has yet to turn a profit, its vehicle unit sales more than doubled and gross profit nearly tripled in Q3 2018. The retailer just announced $2 billion in financing from Ally Financial.
Large dealer groups have recognized the opportunity and are jumping on the bandwagon. AutoNation has invested in Vroom and Lithia Motors has invested in Shift.
But assuming you're not a huge dealer group with millions of dollars to invest, how can you compete with online used vehicle retailers? Carvana certainly doesn't offer the lowest prices, so what attracts consumers to their brand, as well as other brands?
The answer is simple. Customer experience. What consumers want more than anything in a shopping experience is information and pricing transparency. When dealers withhold these items, many people choose to shop elsewhere.
In virtually every other industry, retailers post prices online and give information freely. Consumers expect similar transparency in the auto industry but many dealerships are still reluctant to give customers what they want.
But the way consumers shop today is never going to change. The Internet has changed that forever.
Years ago, when my wife and I were looking for a new house, we filled up a Manila envelope with information about desirable neighborhoods, school districts and proximity to venues, restaurants and other places that we thought we might frequent. Ninety percent of the shopping was done before we called a realtor. When it was time, all we had to do was find a house in our price range in the neighborhood we liked.
Of course, today's consumers don't use Manila envelopes to store research. Everything is done online, but it's the same concept. They know what they want and the last step is to call a dealership to get the final pieces of information they need in order to make a decision.
This information includes:
When a car shopper has this information on two or three vehicles in consideration, it's easy to make a final decision.
Once that decision is made, the consumer is more than willing to visit the dealership to see the vehicle, do a test drive, validate the trade-in and finalize paperwork. Ideally this final part of the process should take no more than one hour.
So, back to the original question. How can individual franchises and smaller dealer groups compete with online used vehicle retailers?
Be transparent. Invest in technology that gets your customers 90 percent of the way through the purchase transaction. Several affordable technology options exist so it doesn't require a huge up-front investment.
And don't forget what you can offer these pre-owned customers that Carvana and other online used vehicle retailers can't. Service. In fact, the four- to six- year old vehicle market is a prime target for dealerships looking to grow service revenue.
If you're worried whether pricing transparency will erode your used-vehicle margins in the same way that it has affected new vehicle margins, you're worrying about the wrong thing.
When you create a transparent and customer-friendly used-vehicle purchasing process, you create more opportunities to service those vehicles and build lasting customer relationships. That's where the real, long-term profit potential lies.