It’s fair to say that the advent of new technologies and the rise of pricing transparency have forever changed the used vehicle business. Today, the most successful used vehicle dealers rely on technology/tools to determine the vehicles they should stock, the asking prices they promote, and the profit they can expect from any vehicle. This reliance on technology is necessary due to the Internet-driven rise in transparency. Used vehicle buyers are much more circumspect and savvy about what constitutes a “fair deal” than they were in the past. Thus, dealers use technology/ tools to efficiently align their vehicles, asking prices, and sales processes to meet market-defined buyer expectations.
This transformation of used vehicle retailing is difficult for some dealers, particularly those who follow tradition-based stocking, pricing, and sales practices. The most telling signs of their struggle include aging inventory, diminished sales volumes, and less-than-ideal profitability — all symptoms of a disconnect between their retailing strategy and potential buyers.
I share this backdrop because I’m increasingly convinced that the new vehicle market for dealers is following a similar trajectory. My conviction flows from three key developments in the new car market:
- The advance of new vehicle inventory management and pricing technology/tools. A year ago, it was pretty much impossible for dealers to efficiently determine the specific vehicles (down to color, equipment, and trim) that would resonate best with potential buyers. Likewise, dealers couldn’t easily identify the pricing “sweet spot” for individual vehicles in a market. As a result, most dealers followed their instincts when ordering vehicles from the factory, and avoided promoting asking prices other than the Manufacturer’s Suggested Retail Price (MSRP).
Buyers’ increasing thirst for transparency. With just a few clicks online, new vehicle buyers today can easily access sites like KBB.com, TrueCar, and others to answer the age-old question tradition-minded dealers don’t want them to know — how much should I pay for this new car? While many dealers might want these third-party price resources to disappear, it’s likely that their influence will only increase as buyers seek to gain advantage in a market where dealers typically resist sharing anything close to a transaction price unless the buyer is seated in the showroom.
Similar dynamics have been in play the past several years in used vehicles with one key distinction: As dealers adopted technology/tools to help them price their vehicles to the market, the influence of the third-party sites seems less profound. I envision a similar outcome in the new vehicle market as dealers use technology/tools to quench buyer thirst for transparency in their pricing and promotion strategies.
The early successes of dealers who embrace technology/tools to manage and price their new vehicle inventories. In the used vehicle market, dealers who were early adopters of inventory management and pricing technology gained two advantages over their competitors. First, they often saw an increase in buyer traffic and sales as they stocked and priced used vehicles that more closely aligned to market demand. Second, their experience using the technology/ tools gave them the ability to stay a step ahead as competing dealers began using the same or similar tools.
In the new car market, the first prong of this early adopter advantage is taking shape. I’m hearing from dealers who are earning more buyer attention, and selling more cars at better grosses, as they use technology/tools to stock the cars buyers really want and satisfy their desires for greater pricing transparency.
In addition, the new vehicle inventory management technology/tools appear to give these dealers the market data they need to push back when factory reps want them to take cars that clearly don’t fit well in their markets — a dynamic that’s very similar to the way technology-enabled dealers break the habit of used vehicle buyers purchasing the wrong cars.
To be sure, the technology and transparency driven transformation of the new vehicle market is nascent. Likewise, the current strength of new car sales serves to mask the transformation’s negative effects on dealers. The transformation is underway and just as we saw in used vehicles, the dealers who respond first will prosper the most.