You and the Dealer

How will you buy your next vehicle? Will you click on an online buying service, gather some information and then fill out a computer form to make your purchase? Or will you make the more traditional trek from dealership to dealership parrying with car salespeople before making your purchase? Or will your experience be some combination of these two extremes?

One thing is certain: the business of selling vehicles is changing minute-by-minute, but just what the process will morph into no one, not even the purported experts, is quite sure. There are those who suggest that in the future consumers will get their pre-purchase information from online services, take a test drive at a facility designed just for that activity with no salespeople or sales pressure, and purchase the vehicle via computer. The computer purchase process will include specifying the vehicle, color and options, arriving at a price and securing financing, and in this scenario the first time the consumer would see her or his vehicle would be when it’s delivered to home or office.

Others say that, though the Internet has generated a lot of heat and noise lately, the actual buying process won’t change very much in the next decade. Sure, they argue, consumers are arming themselves with more information than ever before, getting much of it from the Internet. And sure, some people are getting a firm transaction price from a dealer via the online services like Auto-by-tel. But when it comes to actually test-driving the vehicle and making the deal, the traditional dealership will remain the only game in town.

Does the Car-Buying Process Need to Change?

With the number of auto brands competing in the U.S., consumer demands are clearly driving changes in the market. But there is some controversy over whether the current system needs a big overhaul. One group that recently took a look at the issue is Automotive Retailing Today (ART), a non-profit organization of new-vehicle dealer associations and car manufacturers. An ART-funded study conducted by The Gallup Organization found that 76% of consumers were either very or extremely satisfied with their most recent experience at a new-car dealership.

Interestingly, however, while three-quarters of consumers felt well-satisfied with their most recent experience with a car dealership, they don’t think the experience others have in car dealerships is as good as the one they had. When consumers were asked, "In general, how do consumers feel about the new car buying/leasing experience?" less than half (42%) felt it was positive. And when 100 members of the automotive media were asked the same question, only 2% said they believed the experience was positive. Obviously, the media impression of the process differs from the reality. But the fact that less than half of consumers suspected the general experience in the dealership was a good one indicates that there is room for positive change in the industry.

That view is reinforced by a recent study of 33,000 new-car buyers by Strategic Vision, a San Diego-based market research firm. In its fourth annual study on the auto sales experience, the firm asserted, "Despite all the buzz about changes in automotive retailing, new-vehicle dealerships are making little headway in improving buyers sales and service experiences."

Strategic Vision’s just-released 1999 Dealer Total Quality Index (DTQI) reinforces that opinion. The DTQI compares consumers’ experiences with various car brands’ dealers against consumers' collective ideal of how the process should work.

The 1999 industry average was 839 out of a possible 1,000 -- not bad by grading standards. One might call it a solid B. It suggests that despite general media negativity about the vehicle purchase experience, the typical car buyer doesn’t think it’s all that bad.

One problem pointed up by the study, though, is the fact that the experience doesn’t appear to be getting any better. In 1998, the DTQI was an almost identical 838 and in 1997 it was 837, so progress has been moving at a crawl if at all.

If there is one area where there seems to be a disconnect between seller and buyer in the car acquisition process it’s in the area of trust.

"It’s important to people that they feel secure in their relationship with the dealer," Daniel Gorrell, vice president for Strategic Vision, "but in the current process there are obstacles in that path."

Despite being funded by car manufacturers and dealer organizations, the ART study pointed to the same basic issue. Some 89% of consumers said they considered dealer trustworthiness very important, yet only 45% were satisfied with their dealer’s trustworthiness in their most recent transaction.

One of the biggest obstacles to mutual trust, according to Gorrell, is the negotiation process. He asserted that just 10-15% of consumers actually like to negotiate purchase prices; the rest either simply put up with the process or actively dislike it.

Whether dealers diagnose this difficulty and affect a change is open to debate. Gorrell suggests a different type of automobile distribution, perhaps using the Internet, might be required to make the change that consumers seem to want.

As the Strategic Vision study pointed out, "The most interesting trend was the increase in buyers using the Internet to search for vehicle information. From 13 percent in 1997 and 26 percent in 1998, that has grown to 35 percent in 1999." Others recent studies have suggested Internet use is even higher. Armed with more information, consumers seem to be forcing a change in the traditional ways of doing business.

"More informed consumers are changing the negotiation process," says Gorrell. "Often they know exactly what the dealer paid, which is making the bargaining process more straightforward. They also feel greater freedom because Internet information makes them feel more in control of the process. Interestingly, this improvement in dealer relations is being driven by third parties."

Some would argue that the availability of information like invoice pricing hasn’t improved the level of trust between buyer and dealer. In fact, some say it has just added one more element of conflict.

At this point, with car-buying services springing up like dandelions on a suburban lawn, it remains to be seen if the information available online will change the entire dynamics of the car-buying process. But surely, it is helping to make a change that many consumers feel is for the better. And even more surely, the process will continue to evolve.
by Jack Nerad