The Coronavirus Pandemic Is Dramatically Changing the Way We Buy Cars

Emilee Geist

It took three phone calls to realize how little car shopping has changed in the COVID economy. 

In early August, I resigned myself to buying a new minivan; I knew precisely the one I wanted and found several online that were nearby and listed at fair prices. Yet, I could not manage to click my way to a “buy” button. Time and again, the digital threads ended with the promise of a phone call to finalize the details. That’s when the salesmen (they were all men) stepped in with near identical lines of patter. First, they asked what vehicle I was inquiring about to “make sure it was still available.” Second, they said that I would have to qualify for the price listed online. Finally, the kicker: “When can you come in?”

The dialogue was so dismissive of both the pandemic and contemporary digital retail that it was almost as nostalgic as it was irritating — almost. 

A couple days later I spent $29,900 on a two-year-old Chrysler Pacifica Hybrid listed on Vroom, an online-only car dealership launched in 2013. The entire transaction, which included some financing and a trade-in, took slightly longer than ordering a pair of shoes on Zappos.

My experience, it turns out, is not an anomaly. A trio of automotive web stores — Carvana Corp., Shift Technologies Inc., and Vroom — have the accelerator pinned, as COVID lockdowns played into business models that are socially distanced by design. Take a look at the charts in our deep-dive on the space. In the next few years, analysts expect 8% to 20% of vehicles to be bought via computer or phone.

“Our biggest challenge is people that don’t know we exist,” Shift CEO George Arison told me. “Once they know we exist, it’s very hard to go back to buying a car the old way.”

Old-school dealers, meanwhile, are trying to build (or buy) digital stores before its too late. Last month, CarMax, an empire of no-haggle used-vehicle lots, finally finished rolling out digital purchases nationwide, some seven years after Carvana sold its first machine. 

“The resistance to this business model is amazing to me,” says Gartner analyst Mike Ramsay. “It’s like an IT problem and a culture problem.” Yes, dealerships lose some haggling leverage online, Ramsay says, but they only have to pay servers to close a sale, not a parade of warm bodies peddling everything from floor-mats to financing. 

The auto business, meanwhile, is still extremely fragmented; the largest dealer groups hold far less than 5% of the market. That’s critical for two reasons. First, one of these startups could quickly dominate the industry. Carvana is bent on selling 2 million cars and trucks a year, which would be about 4% of the total U.S. auto market — used and new. 

Secondly, the vast majority of car dealers are relatively small businesses operating at thin margins. As such, many will lack the tools — or the capital — to win on the Internet, or even keep up.

Vroom CEO Paul Hennessy, who made his name at the helm of Priceline.com, says there’s a big difference between throwing up a web site and running an e-commerce empire. 

“We have over 40 data scientists and engineers trying to decide what vehicles to buy on a daily basis all over the country,” he told me. “Imagine Paul’s Chevrolet trying to solve that problem?” 

A reckoning is neigh in the land of inflatable dancing tube men. 

Since August, the pace of online car buying has only accelerated. Old-school dealerships, meanwhile, are very much open for close-range, analog business. I know this because they keep calling, asking when I can come in.

relates to Sunday Strategist: The Internet Comes Calling for Car Salesmen

Featured in Bloomberg Businessweek, Oct. 26, 2020. Subscribe now.

 

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