What to look out for in 2018 - Car-as-a-Service, Digital Retail, and Customer Experience

March 18, 2018| Zach Klempf

 

 

 

Wow, I can’t believe the end of Q1 2018 is almost here and NADA is fast approaching! Last year, automotive retail experienced everything from the implosion of Beepi to digital retail hysteria. On the public market front, it was a strong year for industry IPOs including Cars.com (NYSE: CARS), Carvana (NYSE: CVNA), and Car Gurus (NASDAQ: CARG). Customer experience was the major focus for automotive retail in 2017. The tech-savvy consumer in today's market demands transparency and wants a mesh of Apple and Amazon from retailers. Consequently, this has driven dealerships and vendors to explore new solutions and reconsider old practices.

Digital Retail was the buzzword of 2017. According to Ernst and Young, on average 10 hours is spent by potential car buyers online during the shopping and research stage. Moreover, 46% of surveyed buyers were willing to finance or purchase a car online. Digital retail has also become a hot VC play with Drive Motors, Prodigy, Roadster Tag Rail, Fast Lane, and others raising venture capital to build digital retail solutions for auto dealerships. Some dealers have had reservations about adopting these platforms for fear of losing back-end gross. I believe that over time these tools will become more ingrained in dealership processes and of the 20+ (not joking) digital retail startups today, only a couple of them will become winners in the space.

The CaaS (Cars as a Service) subscription model has received a lot of exposure lately as an alternative to traditional leasing. On the new car front, Cadillac and Porsche (Powered by Clutch) offer subscription services for vehicles with month-to-month commitments and the ability to “flip” vehicles. Companies like Flex Drive and Fair.com also offer their brand of CaaS focused on pre-owned dealership inventory; Fair raised nearly $1B in debt and equity during 2017 from BMW’s iVentures, Penske Automotive Group, and Mercedes Benz, amongst other investors.

Digital marketing in automotive retail is going through a renaissance as well. Vendors like Dealer Teamwork are offering compelling solutions for dealerships’ digital marketing efforts. Historically, dealers have struggled with transparency through marketing agencies and effectively measuring the ROI of their ad dollars. New solutions will allow dealers to automate and optimize campaigns with deeper reporting. Large players like Cars.com are also entering the space via the acquisition of Dealer Inspire in Q1, strategically expanding their offerings with websites and marketing services. Even Facebook is becoming more involved in the auto retail industry via their marketplace announcement earlier this year which will allow dealers to list their used car inventory and compete with legacy solutions like Craigslist.

Defragmenting Independent/BHPH dealerships is the next frontier for retail automotive software vendors. This market has been historically difficult to tackle due to the high-touch nature of the customer base and average account sizes significantly lower than in the franchise world. For context, in the US alone there are over 50 different DMS companies serving independent and BHPH auto dealerships. These range from DOS-based (circa 1989) regional providers to larger players like Frazer Computing.

Personally, I’m very bullish on the industry as a whole and am excited about the opportunity we have to partner with dealerships and vendors in the industry. I started working at a dealership when I was 19 while attending Emory University in the days where customers had to bring printed versions of the VDP (Vehicle Display Page) to get the internet price and they were just starting to “showroom” salespeople via mobile phones. When I was 23 years old, I started Selly and since then have seen many new business models, solutions, and vendors enter the marketplace promising to disrupt the entire industry. Most of them here today, gone tomorrow. In my opinion, “anti-dealer” is the wrong approach; vendors taking cheap shots at dealerships based on stereotypes to win customer mindshare usually doesn’t work out.

Moreover, regardless of what many disrupters believe, especially with used cars, not everything can be sold 100% online. For example, if I wanted to know the difference in the way a V6 Toyota Highlander and a Hybrid Toyota Highlander drive, I would need to physically drive both cars. I can read about the two vehicles online and watch a YouTube walk around but that can only do so much. Traditional brick and mortar dealerships still add tremendous value and are here to stay for the foreseeable future!

Tags: carvana cargurus cars.com, caas car as a service clutch

Follow Us

  • facebook
  • twitter
  • google+