The Evolving Car Dealership Business Model

The times they are a changing

Long before the arrival of the pandemic, the traditional car dealership business model was being challenged to change. But the disruption and uncertainty generated by Covid-19 has been on an unprecedented scale, and now, it’s not just a case of evolving with the times – it’s survival of the fittest.

We are definitely in an age dominated by digital. And SnapCell has developed powerful video tools to enable dealers to engage with digital audiences. It is without doubt part of the path ahead. It’s just one example of how we are helping dealers adapt towards a new type of customer experience – one that does away with the hang ups your customers might have when it comes to buying a car from a dealer.

Embracing digital isn’t enough though. The buying journey as we know it is old-hat, and viewed with suspicion by the consumer. Not only that, they are well-informed, price educated and orientated, and savvy to the ways of old.

Today’s modern car buyer is shying away from the pressure tactics and intimidation. Instead, they want to be engaged and put at ease in a comfortable environment. We need to ask ourselves if the traditional – largely existing car dealership business model, can do that. Maybe, but it certainly has its work cut out if so.

Trouble in-store (or in dealership?)

The problem with property – any property, from your home to gin palace dealerships, is that they cost money. In the case of the latter, a lot of money. Just keeping the lights on 24/7, like the industrial estate beacon so many dealerships seem to be, is significant. Then there are the personnel in the customer-facing “wings” of a dealership – usually sales, service, and parts. And we haven’t even gotten to things like administration, accounts, marketing etc. The point is, even the smallest physical dealership isn’t actually that small an operation. It’s multi-faceted and high cost. And that’s before they’ve even convinced anyone to come and visit them. The pressure is on dealers to sell from the start, and that pressure transfers on to customers.

This is the first hurdle and problem with the traditional car dealership business model. It expects the consumer to come to it, and preferably buy there and then. It wouldn’t be overstating things to suggest some dealerships expect and hope to lure unsuspecting customers onto their own familiar turf, where they can apply the pressure behind closed doors. And whereas this might not be the case generally, it’s how the industry is perceived.

Other industries have been much quicker to embrace new ways to engage customers. In turn, our customers have learnt to transact in a different way; in their own time, from the comfort of their own home, and researched to the hilt before they go near a till – whether online or in person.

Changing the consumer experience by creating an environment that is welcoming, open, transparent, accommodating, and more understanding of a customer’s needs (and apprehension), transfers control to them from the salesperson, just as these other industries do. This goes a long way to instilling trust and changing the traditional car dealership business model to something better. Show – don’t tell – how you are different, with interactive walkarounds, personalised messaging, or even simply offering the option of a video call over a showroom visit. Choice is key, and SnapCell is one way you can offer that choice to a customer in an unpressured environment, via video.

The sales funnel is no fun

On one hand, you could say the sales process (as part of the traditional car dealership business model), is tried and tested. On the other hand, you could say it’s archaic and centuries old, and no longer fools anyone.

We’ve already established that a controlled environment is one your customers are likely to have little empathy with. And being forced down a sales funnel is unlikely to be something they’ll continue to accept when alternatives are being laid at their feet. Companies like CarWow aren’t just attracting customers – they’re also attracting millions of dollars in investment. And they’re doing it by making the buying journey hassle-free and more in line with those of other retail industries – like Amazon.

Sticking to this draconian concept of a sales process fails to acknowledge how much better educated the average consumer is. Of course, it’s understandable that dealers want to be profitable. You work hard, and that of course should be rewarded. But although profit is our language, it’s not the language of the consumer. Customers are not a means to an end. They are not just how we make money; they are why we make any money at all. And they need to be treated as such.

Spending Priorities – ours and theirs

Brand – at least when it comes to vehicle and manufacturer, is becoming less of a consideration for buyers. More and more online portals are offering the ability to search vehicles by budget – monthly or overall. Value for money is beating brand and desirability.

The thing is, franchised, generic-looking dealerships aren’t where brand immersion and recognition has the most impact. Digital channels and social media are considerably more successful at that, not to mention cheaper and much more cost-effective. Car buyers don’t really care if you conform and maintain a global identity. They care that you have conveniently wrapped it around a product they’re interested in, so they can look at it in the warm and dry.

It’s nice to feel premium – but at what cost? Does stunning signage and architecture really draw customers in? It’s unlikely. That’s not the experience they’re after. What consumers want today is much simpler – choice and control. They’re buying habits have been coerced by the likes of Amazon, or closer to home, sites like Cinch and Cazoo. The modern car dealership business model needs to echo this much more.

Luckily, most dealers know their customers are more willing to transact this way going forward. SnapCell is one dealer partner creating the tools to help the transition. Our video marketing offering is designed specifically for automotive, and to increase revenue through your digital channels. Video is the preferred way of receiving information for most buyers. With SnapCell, you can produce highly detailed walkarounds, meet the team vlogs, and showcase your products and services straight from the app. Integrating these videos into your digital channels will show your customers not just who you are – but that you are delivering the buying experience they demand.

The Way Forward

In short, it’s by joining up the online and offline experience that the car dealership business model will change to combat dropping showroom traffic. The research, brand bonding, loyalty and trust, will be built online. Even the test drive is changing. Buyers want to see how a vehicle fits into the real world – their world. They want to see what it’s like on the school run, not round the block. With manufacturers and online specialists from outside the industry offering 24-hour test drives from home, they have one less reason to head to the nearest showroom. So, you need to give them something else.

A good, dealer-led alternative to this is a virtual test drive. With SnapCell, you can create a video for a specific vehicle in minutes, and integrate it to an email or social media channel with ease. It’s also a further example of how you can take your business to the customer and help equip a potential buyer with the right information, at the right time in the buying journey.

And let’s not forget, buyers are still going to want to visit a showroom. But, more and more, it will be for the end part of the buying journey – the handover. From a dealer point of view, the online revolution has already started with used cars, which are seeing huge surges month on month when it comes to digital sales. But new cars are next. The set-up, partnership work, financial implications, and channel distribution all need to be considered as both dealers and manufacturers take the next steps together.

The likely way forward for new cars, is a change from the traditional, wholesale car dealership business model, to an agency one. This will ultimately reduce the pressure on both dealers and consumers, as, instead of there being built in margin to each car, there will simply be a (set) fee paid for each car sold. If haggle-free car buying is what both manufacturers and buyers want, then an agency model will deliver that.

The current car dealership buying model is based on purchasing inventory at well below market price to create margin. But ultimately, a great deal of that margin is usually discounted away to achieve a competitive sale. By changing to an agency model, pricing is controlled by the manufacturer, and dealer profit is set in stone regardless. Trials by Mercedes Benz and BMW in South Africa and New Zealand have reported impressive acceptance of the agency model by dealers. It’s a more transparent process for the customer with less negotiation, which can only be a good thing for all involved.

In the here and now though, that same transparency and improved margins can be achieved by presenting as much of your business online as possible. Show what you offer beyond a place to make the sale. Build your brand – and the trust of your buyers, by being service orientated and sharing knowledge and expertise. Post reviews, rave about a new upcoming model, or simply tell your customers you’re there to help when they need you. All, of course, which can be done through the simple, effective video marketing tools provided by SnapCell.

Talk to a member of the team about future-proofing your car dealership business model today.