Closing the Sale: Market Shifts and the Automobile Dealership Transformation

The swift change in all aspects of automotive retail has forced dealers to respond with rapid shifts at every point of their operations. One of the most critical changes automotive retailers face is in the way car buyers shop for used- and new-vehicles and complete their purchases, often combining a blend of internet and in-showroom activity. That means dealers must ensure they have the processes and technology in place that allow customers to enter and proceed through the sales funnel any way they wish to – and to do so seamlessly. That includes finding multi-media images and detailed descriptions of available vehicles, securing financing and warranties, and negotiating a trade-in online, as well as test driving vehicles and taking final delivery right at their doorsteps. In addition, dealers need to rethink floor plans and evaluate used-car acquisitions. They also must prepare for the transition to electric vehicles by training sales, F&I and service staff to understand, sell, repair and maintain EVs while still selling and servicing internal-combustion-engine vehicles.

A lot has happened in the years since many of today’s automobile dealers – who reportedly now collectively have a median age of 73 – launched their businesses. Perhaps one of the most challenging changes for dealers is that they now encounter four distinct car-buying generations in their showrooms, each with their own preferred communication and buying styles. Baby boomer (ages 59-77), Gen X (43-58), millennial (27-42) and Gen Z (11-26) consumers are all part of the mix, with millennials arguably the key to auto retail success now and well into the next few decades. During the COVID-19 pandemic, many cultural aspects – including auto retail – evolved, requiring new approaches to reaching customers. A chip shortage resulted in a dearth of new vehicles on dealer lots, further pressuring the market. At the same time, consumers who were quarantined accumulated the extra cash and the desire to make major purchases, including new vehicles, often regardless of cost. Many buyers found themselves jostling for first dibs on quality used cars. Those factors led to rapidly rising prices, speedy throughput of inventory and notably higher margins for both automakers and automobile dealers.

In addition, consumers had dramatically changed their lifestyles – including acquiring a new affinity for shopping and conducting business virtually online. In some cases, that left dealers without a chance for traditional in-person discussions, which are generally key to winning sales. As a result, dealers now need to reach consumers in their preferred manner – virtually, in person or a hybrid combination – and overcome their objections and the pain points they experience during the sales process. That adjustment is particularly important when it comes to the key millennial buyer group, whose faith in the future vitality of the car dealership continues to sink.

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The New Car Buyer

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As consumers and dealers adapt to auto retail changes, including the shift to EVs, dealership revenue streams are being bolstered by the high demand for service and parts required by car owners, now keeping vehicles on average for more than 12 years. However, just over one-third (35%) of consumers consider dealer service departments better values than their independent counterparts, a sharp drop from 42% in 2022, the Urban Science survey shows. And surprisingly, an increasing number of car dealers agree with that sentiment.

Keeping Service Booming

Buying Options Win Business

However, preferences for online car shopping are highest among the key buyer group of millennials, as well as males and consumers living in the western U.S. And that means the shift to omnichannel purchasing will accelerate in the near future. Dealers must adapt quickly or miss sales to the key millennial and younger-generation buyers entering the market. On these opportunities, dealer respondents note digital retailing benefits include increased overall sales (57%), keeping pace with digital brands (57%), offering customers flexibility (56%) and allowing the dealer to reach more potential buyers (53%). More than half of the dealers (51%) report an omnichannel approach will allow them to compete with non-traditional sellers (CarMax, Carvana).

One of the paths to maintaining and growing service business is by drawing in more new-vehicle buyers, many of whom desire innovative ways to purchase service contracts either 100% virtually or through a hybrid process of online and face-to-face. As dealers scramble to meet those challenges, they realize it won’t be easy to attain the flexibility needed to succeed. The good news for dealers is that automobile buyers still prefer in-person transactions when purchasing vehicles, at least for some aspects of the process.

However, the door is still open when it comes to drawing even today’s consumers into the showroom. Survey respondents say it would take as little as a $35 incentive to bring their cars to dealerships to resolve recalls (84%) or take test drives (82%). And that low incentive can also persuade consumers to remain loyal to a dealership, even if they encounter delays in getting their vehicle serviced or have to wait a bit to take delivery of a new vehicle because their preferred model is out of stock.

Tuning In to Customer Preferences

Dealership Performance Tracking

It’s understandable if dealers become frustrated trying to satisfy the buying demands and preferences of consumers that come from four main generations (millennials (ages 27-42), Baby Boomers (ages 59-77), Gen X (ages 43-58) and Gen Z (ages 11-26). Dealer survey respondents who are “very satisfied” with their ability to keep pace with changing auto buyer demands and preferences for vehicle types sunk 13 percentage points to 33% in this recent survey. That compares to 46% in 2022. Perhaps even more concerning is that fewer dealers are satisfied with their ability to generate quality traffic/leads, with that number dropping to 32% from 42% in 2022.

Is bigger better? A growing number of dealers think so when it comes to dealer groups. In 2022, buy-sell transactions were brisk, with 566 dealerships acquired, according to Haig Partners. That number includes 526 dealerships bought by private buyers, 7% more than in 2021. Haig analysts predict that 2023 transactions will continue to pace above 2019 levels.

Putting Mergers and Acquisitions into Perspective

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Earlier this year, Urban Science partnered with The Harris Poll on its annual survey that takes the pulse of the fast-changing automotive retail environment. The findings spotlight roadblocks dealers and consumers face and offer guideposts to developing successful strategies. This report, compiled from the Urban Science research, is designed to help educate and guide dealers and automakers toward potential improvements in their approach to sales, service, F&I and overall dealership and customer management.

Importantly, when it comes to issues surrounding BEVs, auto buyers across all age groups have an increasingly positive view of automobile dealers. This year, 50% of respondents say dealers are keeping up with understanding and advising the marketplace on EVs, compared with just 41% in 2022. Both dealers and auto buyers surveyed agree lack of range is the most significant barrier to purchasing an EV, with cost a close second. The good news is both of those limitations appear to be lessening. Prices are expected to ease as battery costs come down, manufacturing efficiencies improve, EV volumes begin to reach scale and competition increases – and there are government incentives that can help bring down purchase prices in the meantime.

One way dealers can boost millennials’ interest in their services is to diligently pursue as much EV knowledge as possible, the Urban Science survey suggests. Although EVs still represent a minimal share of new light-vehicle sales in the U.S., at least half of the auto-buying public and 70% of dealers say they believe EVs are the primary driver of change in the future of automobiles.

EVs: Another Pressure Point

It’s not surprising most buyers – 93% – want in-person test drives. That’s up four points from a year ago. Other in-person preferences include vehicle set-up and orientation (76%), price and term negotiations (67%), working with F&I contracts and other paperwork (65%), and even selecting the vehicle they want to buy or lease (63%). Half of the buyer respondents want to learn about new vehicle features and specifications, and half want to choose vehicle accessories during in-person meetings. Those interactions offer opportunities for dealers to understand best what their specific customer base needs in terms of communication options.

Millenials Drive Confidence Decline in Auto Manufacturers and Dealerships Keeping Up with the Changing Needs of the Future

The downside? Dealers citing OEM-led digital retailing as a “threat” increased from 17% in 2022 to 25% in 2023. That indicates a growing percentage don’t believe they will benefit from omnichannel communications direct to consumers from automakers. This trend is expected to grow as OEMs take a more hands-on approach to selling EVs.

It may seem odd that technology can help dealers target weak spots in their stores and find solutions when almost half (49%) of dealer survey respondents report they spend too much time with management tools. Another significant number of respondents (46%) don’t bother using such tools. A look at the respondents’ commentary indicates that dissatisfied dealers may have the wrong management systems.

In this most recent survey, nearly half (49%) of consumer respondents report they know the existence of megadealer groups. And overall, they like the larger dealerships due to the selection of brands and models (72%), accessibility of vehicle parts and accessories (69%) and quality of the service department’s tools and diagnostic equipment (63%).

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Confidence in Ability to Keep Up with Changing Needs of Future [Very Confident (Top Box)]

Only 37% of millennials surveyed believe dealers are keeping up with the changing requirements in retailing, a precipitous decline of 13 points from a year ago. That compares to mostly stable scores year-to-year from the three other age groups. In addition, just 35% of millennials think dealers provide the tools, resources and technology that make car buying easier, down from 48% only a year ago. And although millennials tend to score dealers higher than other age groups when evaluating the expertise of the dealership sales team in helping them navigate the complex vehicle purchase process, fewer in this key age group are as confident in that dealership expertise as they were a year ago.

All three dealer relevance attributes declined significantly YoY.

Auto Buyers’ Perceived Essentialness of Dealers Down From 2022 Levels

Millennials also are more likely to purchase a vehicle from a non-traditional retailer. The Urban Science/Harris Poll survey shows 38% of millennials do not think dealers play an essential role in the car buying journey. That’s down from 48% 2022. In addition, only 35% of millennials indicated today’s dealers provide the resources, tools and tech needed to make buying easy. That’s down from 48% in 2022.

Format Auto-Buyers Would Consider

Auto-buyers prefer in-person shopping at traditional dealerships. This trend is strongest among gen x and boomer auto-buyers.

Battery Range and Cost Are Tied for Auto-buyers’ Top Barrier to Considering an EV

Top Barriers Preventing EV Consideration

Attitudes About Servicing - 10-point Scale Agreement

Are Financial Stressors Influencing Servicing?

Think about the last time you had your vehicle serviced at a dealership. Did a member(s) of the staff do any of the following?

Service Trends Among the Auto-Buying Public

In-person vs. Online Preference for Aspects of New Purchase Process

Auto-Buyers Still Prefer In-person for Most Purchasing Steps

How motivating would a cash incentive of [$35-$250]* be to get you do to do the following?

Nearly 8 in 10 Auto-buyers Would Be Motivated by a $35 Incentive to Get Them to Bring Their Vehicle in for Maintenance

The Challenge:

How to compete with mega dealers that are part of larger groups.

Remember that some areas will always prefer smaller dealerships. If your dealership is not in such an area, it’s wise to consider the positives that draw consumers to mega dealers and determine if joining forces is right for you.

The Solution:

Urban Science: Our unrivaled near-real-time industry sales data, and consulting and technology offerings, have driven innovation, efficiency and profitability in every corner of the automotive industry. Our capabilities and industry expertise help OEMs and dealers and the advertising technology firms that support them, stay ahead of industry trends and achieve business certainty in even the most chaotic market conditions.

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Dealers Who Tune Into Customer Preferences Can Score Major Payoffs

Dealers Can Keep Service Booming

A Roadmap for Dealers to Win Over Millennial Buyers

Dealers, Customers See Positives in Megadealer Trend

now its a group

This report, compiled from the Urban Science research, is designed to help educate and guide dealers and automakers toward potential improvements in their approach to sales, service, F&I and overall dealership and customer management.

the fast-changing automotive retail environment. The findings spotlight roadblocks dealers and consumers face and offer guideposts to developing successful strategies. This report, compiled from the Urban Science research, is designed to help educate and guide dealers and automakers toward potential improvements in their approach to sales, service, F&I and overall dealership and customer management.