The Future of Used Car Dealerships and the Auto Industry




The automotive eCommerce industry saw an enormous boost when both buyers and sellers were forced to adapt and go online. Several companies worldwide, such as Carvana, Cars24, etc., offer the convenience of shopping for cars from the comfort of your home via computers and mobile phones. These portals had the added advantage of fast doorstep delivery and easy returns. Also, they offer an extensive range of car brands and models, making them an attractive destination for all kinds of buyers.

 

Well, then, why is it that these “new age” dealerships and marketplaces are struggling? Until last year, everyone was singing the praises of these portals, but now, they are on the verge of bankruptcy.

 

Here, we explore the rise and fall of the new-age car retail model, the future of the automotive industry, and what your dealership needs to do to survive these turbulent times.

 

New-Age Dealerships in the Current Car Market

Carvana, Vroom, Shift, Cazoo, Auto1, and Carlotz are all automobile dealerships established in the last decade or so, often referred to as “new-age car dealerships”. All these retailers were expected to disrupt the automobile retailing market in the 21st century.

 

However, in recent years, the market capitalizations of these retailers have declined by up to 98%.

 

In November 2022, Carvana’s market cap stood at around $2.4 billion, a massive fall from its peak of $62.3 billion – more than a 97% drop! Vroom’s market cap declined by over 98%, from $8.19 billion to nearly $140 million. Shift’s peak market cap was $870 million, and it is now $46.6 million – a 95% decline. Carlotz’s market cap was $1.19 billion, and it is $33.3 million now (a 96% decline). While Cazoo’s market cap was $7 billion, it has now decreased by 96% to $240 million. And Auto1 is down from $12.61 billion with a 90% decline to $1.52 billion.

Why Car Dealerships Could be Facing a Disappointing Future

The new-age used car retailers were supposed to disrupt the global automobile market, worth around $3.7 trillion in 2022 (source: IBISWorld). But now, they are struggling to stay afloat. Why? Well, investors and market experts believed that these retailers could disrupt the existing automobile industry model, looking at automotive industry trends of the past few years. Carvana, Vroom, Shift, Carlotz, Cazoo, and Auto1 – the evaluation and market cap of all these companies went through the roof between 2019 to 2021.

Disappoints for Car Dealerships

However, the post-pandemic world had a few surprises.

 

The new-age automobile retailers had to establish a physical store network as well. Some went overboard; Carvana has 34 state-of-the-art car vending machines scattered across the US, which were supposed to be a major branding tool for the company.

 

All these companies had to hire teams, set up a supply chain for sourcing cars and parts, and build customer touchpoints along with a vehicle home-delivery network. The expenses added up.

 

When Carvana’s market evaluation rose astronomically between 2019 and 2021, global investors spotted this apparent new-age automobile retailing disruptive model and started looking for similar opportunities in different countries.

 

More often than not, massive checks were written to small, unproven, and inexperienced automobile retailers who had shown a tiny inkling of interest in becoming “the next Carvana”, so to speak. However, the plans they all set rolling wouldn’t hold up.

 

While these new-age retailers had the first-mover advantage in the online car market space a few years ago, they don’t anymore. The existing, older dealerships and retailers have also made the jump online now, which has fiercely toughened up the competition. Sellers with an existing sales and service network have a much easier time going online, compared to the other way around.

 

Due to all these factors, the new-age automobile retail model has come crashing down.

 

Automotive E-Commerce: Why Going Online is Still Worth the Effort

The demand may have been soft, and the automotive industry has faced some downturns, but most analysts believe that auto sales globally and in the US will rise in 2023. The future of car dealerships still lies in the online space, despite what the prior paragraphs suggest! Let’s take a deeper look at why that is. Used car dealerships face the following major challenges:

 

Inventory sourcing and management

Inventory showcase/cataloging

Managing consumer expectations

Automotive E-Commerce growth

1. Inventory sourcing and management: One of the biggest problems for a used vehicle retailer is finding cars to sell. It isn’t easy sourcing vehicles and refurbishing them, especially if you only operate offline. Buying cars and setting up trade-in options online makes sourcing cars much easier, as it greatly increases your audience reach-out potential.

 

Also, the longer a car stays in your lot, the more it loses value. You also need to keep it maintained, which adds to your expenses. Online retail introduces your business to many more people than offline retail, increasing the sales potential.

 

2. Inventory showcase/cataloging: In a brick-and-mortar dealership, you need to show cars physically to visitors. This means that each car in your lot needs to be presentable for maximum impact. However, it is easier said than done.

 

If you have a large lot, keeping each car in shape is a challenge. If you have multiple dealerships, you might need to drive cars to and fro between them as required. Online car listings are much simpler in comparison; people can check out every car in your lot (and affiliate lots if you cross-sell) on your website.

 

3. Managing consumer expectations: Apart from good vehicles, people also want a good customer experience. Well, this remains a challenge for both offline and online car sellers. However, the latter group has a small advantage in this regard – all the contact forms and details are available on the retailer’s website (or the online marketplace), right next to the car listings, making it easier for people to reach out and be heard.

 

The used car market is quite large – in the U.S., for the sale of every new car, 2.8 used cars are being sold, and the average price of transaction of used cars is approximately 2/3rd of a new car. Neglecting to offer good customer service in the pre-owned car market could lose you a lot of business.

 

If you are planning to start a new dealership for used cars, the online sales model makes a lot of sense. For existing dealerships, going online is but a natural evolution. Here’s why people are steadily moving towards automotive e-commerce:

 

It saves time and energy: On a digital portal, buyers can narrow their search by selecting the appropriate filters, and then flip through the available options quickly. Also, there’s no need to jump between different showrooms.

Wide range to choose from: Online car buying opens people up to a lot more options compared to searching physically among different dealerships.

Easy to compare models: One of the biggest benefits of online shopping is product comparison; it is much easier to compare different car models listed on an online portal (or even across multiple portals).

Buyers can shop on their own terms: People usually dislike talking to car salespeople. The haggling and being pressured into making a purchase ruins the experience. Well, online buying is much simpler; buyers can do it at their own pace.

Test Drive Service at Doorstep: Not every used car dealership has the option to book a test drive. However, the ones that do improve their brand image and offer a much better customer experience.

Transparency in the process: One of the major advantages of buying a used car online is that customers can better check the dealer’s credentials. Hence, they can ensure that the process and dealership are trustworthy before buying.

 

How to Win Where the New-Age Dealerships Couldn’t

So, how can your car dealership succeed where these “new age” powerhouses are failing? For that, you need to understand how online automotive retail works and what strategies to implement. Here’s how you can capture your customers:

How to win New-Age Dealerships

 

Visual merchandising: Visuals are the most important part of any digital retail strategy. As per studies, 63% of consumers believe that good product images are more important than even product descriptions. Also, good-quality images make your business seem more professional, which improves your brand image as well as sales potential.

Customer-centric approach: The “customer is king” philosophy goes a long way in ensuring your success, especially in the online space. Customer reviews are crucial for building your brand, as people are more likely to trust other consumers over your official communication. After completing a sale, always request happy customers to leave a positive review. Also, if you get a bad review, work on resolving the issue and turning the negative feedback into a positive one. Great customer experience also breeds brand loyalty and brings Word-of-Mouth marketing.

Product discovery: The average time spent by a car buyer on online research is 8.5 hours! How can you ensure that these hours are spent exploring the options available at your digital dealership? Using AI-powered product discovery on your website. With Netflix-like recommendations for your website visitors, you can capture their attention for longer, increasing your sales potential. Right now, customers need to undergo an extensive research process by jumping to different sites and asking people around.

Dominate with good SEO: Yes, you need top-notch SEO if you wish to be successful online. You need to dominate search engine results to capture your market share organically.

Geo-targeted advertisements: Although the online car market is vast and the possibilities are endless, it’s smart to only operate where your sales and service network can easily reach. Operating out of your bounds can leave your customers dissatisfied with your services, which will impact your business negatively. That’s why the advertisements and promotions you run online should be geo-targeted – covering areas within your network.

Omni-channel experience: Setting up a website isn’t enough; you’ll need to ensure that it offers a consistently good experience across different platforms – web browser, mobile browser, smartphone app (if you have one), third-party online marketplaces, and even brick-and-mortar dealerships.

How SimpSocial Can Help You Win the Online Shopping Experience

Professional car photography is quite expensive. In fact, a lot of used car dealerships skip it, as the costs involved don’t seem justified. The ones that don’t skip it end up investing a lot of money, which reduces their profit margins.

 

Well, this doesn’t have to be the case! SimpSocial’s AI-powered cataloging platform makes things easier for your dealership!

 

Use the SimpSocial smartphone app to shoot car pictures

SimpSocial smartphone app (available for iOS and Android) makes it easy to shoot studio-quality images using your mobile device. The app offers guided photoshoots; you get simple instructions via overlays on the screen when shooting through the app camera. By matching the vehicle with the overlay sketch, you can click pictures at all the correct angles. Apart from that, you also get instructions about the correct lighting, proper framing, and even blurring.

 

Use SimpSocial darkroom and smartphone app to edit car pictures

Once you’ve shot the images using the SimpSocial app, you can prompt the system to edit them for you. Just choose the background you want in your pictures, and our state-of-the-art AI replaces the original backdrop with a high-quality, virtual studio setup. If you already have a collection of car pictures shot, you can use SimpSocial to edit them! Simply upload the photographs on your SimpSocial app, or to SimpSocial Darkroom through your web browser. Then, select the virtual studio background you want, and VOILA!

 

It’s not just a car background replacement! SimpSocial’s AI photo editor offers plenty more:

 

Cleaning up the car’s windows and windscreen (removing reflections, adding tint)

Generating realistic shadows and reflections on the floor

Number Plate masking (with logo placement option)

Optional brand placement in the background or foreground of the image

You can even add custom backdrops for your car images, which is great for branding your VDPs and vehicle pictures! Not only that, but SimpSocial also offers SDK and API solutions.

Benefits of using SimpSocial

Faster time-to-market: With guided photoshoots and automated image editing, you can speed up your digital cataloging process by up to 80%!

Reduction in costs: SimpSocial AI eliminates the need for expensive studios or professional photography crews! A simple smartphone with a good camera would do the trick! You can reduce cataloging costs by 75%!

Higher sales conversion: High-quality images on your VDPs make your business look professional and improve consumer trust in your brand. This results in better conversion rates – around 40% on average.

Consistent results: Manual dealership photography and editing always leave the possibility of errors. We are human, after all! Artificial intelligence, however, doesn’t have that problem. No matter the volume of work, the output is always consistent, adhering to high-quality standards.

SimpSocial understands the future of AI in the automotive industry. It empowers car dealerships and marketplaces with tools that help create a winning digital retail experience. Our aim is to disrupt the way companies create their eCommerce product catalogs, through the power of AI.

“Don’t just survive, thrive in the digital world!”

Our solutions for automotive retailers include:

  • Virtual studio
  • Spin car
  • Car Inspection

You can learn more about our services by booking a discovery call at your convenience.