Car Dealers Lose Negotiating Leverage & Profits…and Like it
The Chicago Tribune recently ran a story that will in large part not surprise anyone – car buyers are armed with more information before they walk onto a lot than ever before. But there are some aspects about the article that will surprise people.
For example, at least some dealers like having customers who are more informed than ever. These dealers claim to prefer the openness and transparency of the transactions and relationships. However, one has to wonder how much the dealers prefer this situation, and how much they are simply making the best of the situation. One of the obvious results of this flood of information available from web sites like Edmunds and Kelly Blue Book is that profit margins have fallen. For now, those lost profits have been made up by high volumes as industry sales continue to surge. One has to wonder if dealers will feel the same when volumes decline.
Dealers are adapting according to the article. One such dealer took sales employees off of commission and paid them hourly, plus incentives. As the ability to “sell” becomes ever more obsolete, it seems only a matter of time before sales staff are relegated to part-time employees as dealers seek to save even more on their costs, to boost profits. “Selling” is far less important than it used to be – the article notes that the average person visits 1.3 dealerships to buy a car, compared with 4.1 as recently as 2006! This means that buyers know precisely what they want, show up at the dealer, dictate prices to a large degree, and walk off with vehicles.
This relationship between dealers and customers is rapidly changing. I can recall years ago asking a dealer what the “invoice” was on a vehicle I wanted to purchase. He laughed at me. Now, anyone buying a car without that information is putting themselves at a disadvantage. At what point will people be buying cars without ever visiting a lot? It might be sooner than we think.