The automotive industry experienced a tsunami of disruption over the last two years. But with this disruption came opportunities for innovation and advancement, says Kristin Thompson, director of sales for Autotrader.
She divides the disruptions into three buckets: the COVID-19 pandemic, the global shortage of semiconductor chips, and tightened inventory constraints.
“With the changes came opportunities for innovation and advancement, “she says. “These three things catapulted the industry ahead. The automotive industry is now moving ahead at a much faster pace.”
COVID-19 represents the top disruptor in the market, according to Thompson.
The government did not immediately categorize retail automotive as essential, so automotive dealers found their dealerships closed along with the rest of the country. This shift required dealerships to pivot from in-person operations to virtual just to stay in business.
“COVID pushed everything online because a lot of dealer showrooms were closed,” she says. “This scenario rapidly advanced industry products like digital retailing, where dealerships met the customer online and took the deal from there.”
The lockdowns led to a critical chip shortage, which also drove change within the market. As automotive factories and plants hit the pause button, they stopped placing orders for chips. The electronics industry scooped up these additional chips and when the auto industry reopened, manufacturers found chips in short supply.
“The chip shortage will not go away soon because of the logistics issues in the world today,” Thompson adds.
The chip shortage has tightened production and led to critical inventory shortages within automotive retailing. This has driven up demand and set record prices for new vehicles.
“The chip shortage took the industry from a buyer’s market to a seller’s market,” she says. “With a lot of inventory, a buyer can choose what they want. “But the chip shortage transitioned the retail market into a seller’s market, driving prices up. It’s still competitive, however. Whoever has or can get the inventory captures market share.”
The chip shortage drove pipeline issues, she adds. “How do they get inventory? How do they buy inventory at the right price? Dealers must buy vehicles at the right price to make money.
The shortage also pushed the wholesale market into the digital realm. In-person vehicle auctions transitioned to online auctions and heightened competition for vehicles.
Thompson expects inventory levels will remain low on car lots because “OEMs and dealers are finding they don’t have to have 600 vehicles on a lot to sell cars. Consumers are adjusting to ordering vehicles and waiting 8-10 weeks to get them, which was once unheard of,” she says.
Consumers, she says, are also adjusting to paying higher prices for these vehicles. According to J.D. Power research, June 2022 represented the eighth consecutive month that retail inventory closed below 900,000 units. Meanwhile, new vehicle prices continued to set records with the average transaction price hitting $45,844, a 14.5% increase over the previous year.
The disruptors in the marketplace also changed consumer buying behavior, adds Thompson, who hosted a panel titled “Consumer Buying Behavior: Insights and Trends” at the 2022 NIADA Convention & Expo in Las Vegas.
“Consumer satisfaction has grown along with the ability to purchase a vehicle online,” she says. “It used to be unheard of to buy a car online.”
She cites the Cox Automotive Car Buyer Financing Journey Study to support her comments. This research revealed buyers who completed key financing steps online saved time and were more satisfied with their time at the dealership than buyers who completed the same steps in person.
“Consumers like being able to buy a car online because it makes the process more efficient and shortens the time they spend in the dealership,” she says.
Digital retailing became the norm during the pandemic, she says, and “consumers demand that it stay that way. Consumers want to see that process move forward so they can buy a car completely online. There are dealerships where you can do this already. But consumers want this to be the norm rather than the exception.”
Today’s consumer buying behavior presents an opportunity for dealers to differentiate their dealerships to stay top of mind and win market share, Thompson adds.
“Ask, ‘What can I do to win that customer? Because they are going to buy. It’s just a matter of whether they will buy from you.”
“Dealers need to ask themselves: What can I do to differentiate my dealership? What can I do to stay top of mind? What can I do to win market share?” she says. “These three things are what a dealership needs to succeed.”
This begins with understanding today’s car buyer, who spends less time in the market and the purchase process. Today’s consumer spends just 83 days in the new car market versus 101 days in 2019. The purchase process declined to 92 days in 2021. And used car buyers traveled 88 miles from home to buy a car versus 98 in 2020.
The number of miles consumers will drive to buy a car indicates customers are using digital retailing tools to start deals online, Thompson stresses. Dealers once advertised within a 25-50-mile radius. Now it’s critical to expand the advertising footprint and get vehicles in front of customers 100, 200 or 300 miles away, she adds.
“The dealer who has the best and most information in front of the consumer the fastest is the one who will differentiate itself with customers,” she adds, noting it is essential to be different in the digital realm.
“With consumers shopping online, you want photos, videos of the vehicle and custom comments online,” she says. “You want to tell customers what differentiates this car and your dealership and provide this knowledge in a digital environment.”
She stresses, “The dealership with the most information and the best information will win market share.”
Consistent messaging and consistent pricing are also important, she adds. Third party sites still get more traffic than dealership sites. KBB and Autotrader remain in the Top 3 Most Visited Sites and Cox Automotive has seen an increase of 17% in traffic relating to the car buyer journey. And Kelley Blue Book is the most used trade-in tool.
“Consumers will hop from site to site, whether that be Kelley Blue Book or Autotrader or some other site, to look at the fair market range for that vehicle,” she says. “Then they will look at whether the vehicle you are selling matches up to that price. Consistent messaging and pricing across all platforms is vital. It differentiates a dealer by building trust with the consumer.”
She adds, “Consumers want to have confidence and trust in the information that you are giving to them. Here, consistency of messaging is important because it builds consumer trust and keeps the dealership top of mind.”
It’s also essential to partner with third parties to “get your vehicles out there and expand your digital footprint,” she stresses.
Retargeting with consistent messaging also expands a dealership’s footprint and helps build trust, she adds. Retargeting is an online marketing strategy that involves serving customers who previously visited a dealership website with relevant ads as they browse external websites. To do this, dealers must place retargeting pixels on their websites to capture customer browsing information, which is held in user profiles kept by ad networks and tracked with cookies.
“When you retarget, the message follows the consumer, so they see it in other places,” she says. “This way your message always stays in front of the consumer.”
She adds, “Some people say, ‘Well, automotive is a different type of purchase.’ But it really isn’t. We are all searching and shopping for everything online. So, using retargeting like other industries do will really help you win market share.”
To win in auto retailing, one must gain market share. “Dealers must ask what they can do to win market share and be proactive and conscious about their efforts to do so,” she says. “There are only so many shoppers in the market that are going to buy a vehicle. Are they going to buy it from you or someone else?”
Another step to differentiating a dealership is to enhance customer service. “This is where you stay proactive and establish your customer service as something that sets yourself apart,” she says. “Ask, ‘What can I do to win that customer? Because they are going to buy. It’s just a matter of whether they will buy from you.”
Originally posted on Auto Dealer Today