Industry Analysis

Consumer Behavior in the Car Buying Process

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The move away from traditional car buying, which at times was confrontational, began long before the COVID pandemic. Double-digit gains in online shopping and research for cars has been realized in the recent past. Today, COVID requires the car buying process to be seamless and to a certain extent, touchless. Many car dealers, brands and direct to consumer companies all over the globe are making a change in this direction, and the future will see the acceleration of current digital trends. Weak dealerships and brands will be footnotes in historical industry journals as buyers today and in the future will demand continued improvements to the car buying process.

Pre-Covid

  • Prior to the pandemic, an estimated 32% of consumers expressed a desire to buy a car online, however, it is now estimated that 61%, a majority, of consumers are willing to purchase a vehicle sight unseen.
  • In 2015, Greenpath Financial Wellness listed the car buying process as 1) research a car option, 2) identify financing, 3) do not be in a rush, 4) negotiate, 5) precautions are important, 6) analyze the monthly payment terms for time and amount, and 7) consider other costs. The car buying process focused more on research as little as 5 years ago and hardly mentioned digital.
  • In January of last year, US News & World Report published a much more detailed explanation of the car buying process. It included ten aspects: 1) determine what is wanted in a car, 2) decide if buying or leasing is preferred, 3) budget and approve financing, 4) find a vehicle nearby, 5) test drive, 6) obtain the history of the car, 7) look for cash rebates or low-interest financing from manufacturers, 8) negotiate, 9) take delivery of the auto. Once again, digital is missing.
  • A mid-2019 study revealed new data pertaining to the car buying process. The study details, “Car buyers are spending less time shopping and spending fewer days in market, making decisions more quickly. They are also visiting fewer dealerships, while the number of car buyers visiting only one dealership has increased significantly to 41% (up from 30% two years ago). With car buyers making more decisions online and ahead of time, by the time many of them arrive at the dealership, they are ready to buy.”
  • The report also revealed, “Among those buyers visiting multiple websites, 65% visited a third-party site first, and 58% went to a third-party site last. Dealer sites also play an important role, especially at the end of the shopping process, where 32% of car buyers finish their online research.”

  • As of 2019, “83% of consumers want to do one or more steps of the purchase process online, and 7 out of 10 are more likely to buy from a dealership if they could start the process online.”
  • The study also points out, “49% of new car buyers and 53% of used car buyers do not contact the dealership prior to their first visit. However, the way car buyers prefer to communicate with dealerships is gradually changing with the expanded use of technology. Phone and email contact is down since 2018, while online chat and text have grown as the first point of contact.”
  • A different 2019 report from the UK explained, “23% of car buyers spending more time on the (car buying) process, 19% becoming bored, 16% confused, and 15% dreading buying a car. Most worryingly, 42% are less likely to carry on in the process.”
  • Lab42 reported in 2018 that 48% of car buyers surveyed spent 1 to 3 months on average shopping before making a purchase, and 43% remained loyal to a specific car brand they had previously purchased. In addition, 52% did not make a firm decision on the type of vehicle they intended to buy when they initially arrived at the dealership.

Pre-COVID in Asia

  • Very strict regulations on car purchases in urban zones in many Chinese cities was reported as severely hurting the auto industry in China, and many people had foregone purchasing personal vehicles. In fact, some cities required obtaining an officially recognized license plate before being able to obtain legal permission to purchase an auto, and annual quotas for license plates were very restrictive.
  • “According to the Global Times, car buyers in Beijing must register for a license plate lottery, while in Shanghai, the country’s financial center, prospective buyers have to enter into an auction process, in which the highest bidders win the plates.” One prominent trend in the Chinese market is the movement towards electric vehicles.
  • A McKinsey report showed the reasons consumers purchased vehicles in China as, “the guarantee vehicle ownership gives of being able to meet daily travel needs (62 percent), followed by the sense of safety the car provides (48 percent). Passion for driving ranked third, with 41 percent indicating a love for being behind the wheel as a key reason they would buy a car, rising to 47 percent among 18-to-24-year-olds.”
  • A critical aspect of the car buying journey in China shows consumers start with fewer than 3 brands in mind, which leads to 60% of car buyers purchasing one of the 3 brands. For most car buying cohorts, foreign brands are most frequently among the initial 3 brands chosen.
  • Malaysia-based Carsome has disrupted the car buying process in Southeast Asia by bringing car owners and used-car dealers together through their digital platform marketplace. Carsome “inspects the car in-house, and then invites bids from dealers on its platform. The company also takes care of all the paperwork on both sides.”
  • BeliMobilGue, from Jakarta, Indonesia, takes a slightly different approach in disrupting the car buying experience. They provide a marketplace where people can list their used vehicles, and in an eBay fashion let dealerships bid on the auto. Usually, an inspection takes about 30 minutes and the winning dealership pays for the service.

2020

  • 46% of car buyers want to minimize visiting dealerships to compare deals and mainly use online channels for information search and purchase through prevalent contactless and touchless experiences.
  • Many U.S. based car dealers are now offering a seamless buying process, mostly online, and virtually contactless. These dealer programs “include convenient and contactless test drives, virtual showrooms or video-based car walkarounds, and home delivery or contactless pickup.”
  • BCG explains, “Many consumers find car buying to be a confusing and sometimes frustrating experience. That makes it especially important to clearly communicate the process to shoppers looking to avoid brick-and-mortar dealerships.” Particular aspects of a seamless online buying experience frequently include searchable inventory, accurate pricing, flexible delivery and returns, and online financing.
  • A McKinsey survey showed digital’s importance will increase and become “more important along the entire purchase funnel; less than a third of younger consumers prefer conducting car sales & after sales in person at a dealership; Respondents are even more interested in contactless services, approximately half of respondents willing to pay extra for this service.”
  • Another recent survey showed 18% of people reported they’d buy a car sooner if they could do it online.
  • As of March 2020, only 59% of surveyed U.S. car dealers offered home delivery of newly purchased autos. However, 29% more intimated they were adding the service, which would result in a total of almost 90% of dealers offering home delivery.
  • “Home delivery also includes contactless purchasing, a high priority for people during the pandemic. Digital focused auto companies were already offering contactless home delivery options prior to the onset of the pandemic. Since then, other traditional car manufactures have implemented this preferred offering, including Fiat Chrysler’s Online Retail Experience, Honda’s Shop Simple program and Porsche’s Online Retail Pilot.”
  • Likewise, third-party platform CarGurus reported an uptick of 43% in dealers offering contactless delivery through their online service. In fact, 76% of current prospective buyers surveyed would now prefer to shop from home and make use of contactless buying tools.
  • CarGurus also reported “66% of those intending to buy in 2020 would prefer to use contactless services”.
  • The Times of India detailed new aspects of the car buying process brought on by the pandemic, “Plastic wraps on steering wheels and seats, driveway drop-offs for test drives, and personalized new-car deliveries are all on the table for dealerships motivated to support safety-sensitive customers.” These new ways of doing business are here to stay.

  • Changes directly from pandemic social distancing requirements have forever changed the car buying process. Of the more than 3,000 Ford dealers in the U.S., 93% offer virtual online sales processes, which include virtual product walkarounds, video chats, online credit applications and DocuSign capabilities. In fact, more than 90% offer home delivery of purchased vehicles.

2020 Across the Globe

  • Today’s consumers “expect automotive e-commerce platforms to be easy-to-navigate and comprehensive, something more than an online catalog.” Integration of online and ‘at-dealer’ buying experiences are also increasing. In a recent survey, 63% of German car buyers are willing to purchase their vehicle online directly from car makers, while 50% are willing to purchase from third-party sites.
  • The Internet Advertising Bureau stated “84 percent of consumers in the UK use their mobile to research a car.”
  • In Asia, innovative solutions are being implemented. “Geely delivers car keys by drone to its customers as part of its fully contactless vehicle sales in China, and BMW Asia’s digital showrooms allow customers to browse model ranges and schedule doorstep test drives.”
  • Automotive consulting firm Berylls Strategy Advisors demonstrated in a recent survey, “COVID-19 was changing car buying behavior worldwide, causing budgets to shrink, purchases to be postponed and switch to cheaper models.”
  • Changes in the process brought on by COVID have seen different rates of adoption in different countries. For example, a poll conducted last summer revealed that 54% of recent buyers in the UK said “they would continue to do the bulk of their car buying online from now on, against 45% in Spain and 38% per cent in Germany.” UK based Carwow reported that 43% of recent buyers purchased “a new car without visiting a showroom, versus 23% in Germany and 13% in Spain.”
  • Chief strategy officer of Cars.com Matthew Gold proclaims the entire car buying process will be fully online by 2030; the entire customer journey from discovery and research through delivery. He stated dealers must build “a digital-portal-type experience, that starts with targeting and discovery and ends with delivery, and that is seamless and easy and all works together,” which will be a vital requirement to stay competitive in the future.
  • Gold also professed, “Personalization is the future of not only auto retail but also retail as a whole. And the leveraging of big data—the incredible stitching together of data about customers—will be the future of the car-buying experience. That means a bunch of different things.”
  • In May, Bloomberg proclaimed, “Everything from test drives to sales pitches is likely to be transformed by the pandemic and the safety concerns stemming from it.” They also explained how coronavirus will weed out bad dealerships that are unable to change moving forward by offering a seamless car buying experience since they are unable to adapt to new customer buying preferences.
  • The next four years will see existing trends, such as e-commerce, accelerate, and many of the changes brought on by the COVID pandemic will stick in the car buying experience. In addition, it is estimated that seven-year auto loans will become entrenched in markets like the U.S.
  • Arthur D Little analysis shows, “Showroom visits from car buyers, which had fallen from four to 1.5 on average before the crisis, could drop even below one. A growing share of buyers are expected to complete their purchases with no in-person dealer visits.”
  • Four important steps in the car buying process stand to be changed moving forward: searching for information and configuration of the car (personalization); negotiations and contracts as pricing moves into light; test-driving as virtual reality becomes more prevalent; and direct to home delivery.
  • It is reported that in Asia “virtual reality car showrooms, 3D virtual car tours and price negotiations through videoconferencing” will be part of the car buying experience.
  • Carwow CEO James Hind explained, “What we are seeing, however, is that alongside an increase in consumer willingness to transact digitally is a need for the purchase to be supported by a wider range of remote support services. An end-to-end digital purchase process is almost expected, whilst tools that empower buyers to make decisions, such as virtual vehicle tours and from-home test drives, are growing in demand.”
  • Jeff Pope, Group vice president at INFINITI America stated, “Car dealerships will forever be changed. Just as we have all become accustomed to home deliveries for practically everything, contactless transactions and pickup and drop-off services for car purchases, parts and repair will certainly become the norm.” And he added, “Car buying will become more streamlined and much less time-consuming. Now, one employee can oversee the entire purchasing process, from the test drive, to arranging financing and finalizing paperwork, to delivering the vehicle to its new owner at home.”
  • AAA proclaims the wave of the future is buying cars from vending machines, like those used today at Carvana. In addition, their article explains how buyers can use AR: “augmented reality is a technology that virtually overlays images and information onto a physical environment. With this technology, consumers can use their smartphones or tablets to place a life-size, three-dimensional image of the prospective vehicle in their driveway.”
GLENN TREVOR
Glenn is the Lead Operations Research Analyst at Simple Manifestation with experience in research, statistical data analysis and interview techniques. A holder of degree in Economics. A true specialist in quantitative and qualitative research.

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