Are You Ready for the Digital-First Car Buying Experience?

Uber, Amazon, Airbnb. Different industries, different business models but one common theme: each has taken leading-edge technology and used it to alter the traditional way that goods and services have been delivered. So, what industry is ripe for the next digital disruption? Automotive.

Technology Drives Business Innovation

Technology has altered the way that many products are delivered and consumed. How many people do you know who still sit and read the morning newspaper to get their news? Industry disruption promises to continue at a breakneck pace because technology continues to quickly evolve with no slowdown in sight. Mary Barra, CEO of General Motors, puts it best: “I think there’s going to be more change in the next five to ten years than there’s been in the last 50.”

Some major differences are already apparent. The salesperson is no longer the gatekeeper to vehicle information. According to Ernst and Young, the typical consumer spends an average of 10 hours online during the research stage before stepping foot into the showroom. Prospective car buyers search through virtual inventory, determine the value of their trade-in, evaluate financing options, and receive quotes from dealers all online from their digital device of choice.

Online Steers Car Buyers to Radically Different Purchasing and Consumption Models

For decades the car buying process has been inefficient for both consumers and dealers. Frequent visits to showrooms and confusing financing options are now be a thing of the past as technology innovation in the automotive arena has dramatically changed how consumers acquire a new set of wheels. According to a study by Bain & Company, 65% of car shoppers would consider buying entirely online. Increasingly, consumers find the perfect car that fits their lifestyle and pay for it all from the convenience of their living room while still in their pajamas.

New business models like Carvana offer the full end-to-end, pre-owned, car buying process online. Consumers shopping on Carvana use search filters to narrow down available makes, models, and prices. A virtual spin enables customers to examine all of the car’s latest features — as well as any imperfections. A vehicle history report pops up after a few clicks followed by their financing options. Carvana has taken the US market by storm with placement in over 80 cities nationwide and a 270% stock price increase since their IPO last year. More recently, Shift, a San Francisco Bay area startup, has raised $140M from investors like Lithia Motors, a publicly traded dealer franchise group. The partnership between Shift and Lithia allows both companies to share and scale technology, data, inventory, business relationships and physical network to capture a larger portion of the domestic pre-owned market.

The Rise of Subscriptions and CaaS

New consumption models like CaaS (Car as a Service) are also emerging. Rather than an outright purchase or a 36-month term lease, subscription models are increasingly available for both new and used inventory. Subscription models allow buyers to have the flexibility of shorter ownership periods without being locked into one specific vehicle. It’s estimated that by 2025, 10% of vehicle sales will be through subscription services.

On the new car front, BMW and Porsche offer subscription services with month-to-month commitments and the ability to “flip” inventory; their services have no mileage limits and includes maintenance and insurance as well. The only drawback is high cost. For instance, Porsche allows customers to utilize seven models with its top-of-the-line Accelerate plan that starts at $3,000 per month. The majority of subscription services from brands like Porsche and BMW are geared towards the higher end of the luxury market to a niche segment of consumers. In fact, Edmunds this year studied subscription services and found that, even with insurance, maintenance and other fees factored into monthly payments, the costs exceed the price of a traditional lease.

Similar options are being extended to the used car market as well. Companies like Flex Drive and Fair.com offer similar options for pre-owned inventory. Fair.com has raised over a billion dollars in debt in equity from top tier VC’s and strategic investors with a model that is complementary to traditional dealerships. Both companies partner and source inventory from local dealerships and facilitate the subscription transaction all through an app. For example, a consumer who uses Fair: downloads the app, gets approved for credit and selects between inventory located at a local dealership to leverage on a subscription basis. The company is founded by Scott Painter, the visionary behind TrueCar and has over 3,700 active dealer partners.

Flex Drive is another subscription-based service run by auto industry behemoth Cox Automotive. They have recently spun off a mobility unit that includes freshly acquired Clutch Technologies. Clutch is the backend behind the Porsche Passport service and also enables dealerships to manage their own subscription programs.

Dealers Reap Benefits with Accelerating Marketing Channels

A growing number of startup companies like Drive Motors and Roadster have developed robust e-commerce suites known as digital retail platforms that integrate with dealer websites as well as CRM solutions. These platforms empower dealers to streamline and automate the traditional paper-centric car buying process by providing a Carvana like experience on the dealership website. This levels the playing field for disrupters and traditional auto dealerships.

New dealer friendly marketing channels continue to emerge as well with Facebook now a new player within auto retail. Facebook has taken aim at businesses like Craigslist and eBay in the classified advertising market striking partnerships with Cars.com and others to enable potential buyers to browse their pre-owned inventory on the Facebook marketplace. The fast-growing Facebook Marketplace is used by over 500 million monthly and is becoming one of the fastest growing destinations for car buyers. Additionally, features like Facebook Messenger offer consumers a quicker and relatively frictionless experience than just following up on a classified ad.

A Win/Win Scenario

Technology has changed many markets for the better and digital disruption is leaving tread marks on the old school car buying process. The changes are providing customers with more options and convenience, and providing dealers with new ways to differentiate their services creating a win/win for everyone involved in the car purchasing process.