The automotive retail industry has been on a rollercoaster ride since early 2021, when inventory levels were at an unprecedented low. Now, with recovering improvements on days’ supply and affordability concerns, dealerships face challenges they haven’t seen in years, along with increasing pressure from customers and a pending federal ruling to offer more transparency in pricing.
The industry shift over the last three years has created some challenges, and now customers’ expectations are changing the game.
Industry Shifts: Customer Expectations and a New Rule
Selling vehicles was never easier than when COVID-19 swept across the country in 2020 – if you had them to sell. As many automotive workers stayed home, the industry faced inventory shortages and, later, a semiconductor shortage, resulting in production delays and deliveries as near-finished vehicles sat idle waiting for chips. This allowed dealerships to sell the little inventory they had at a premium as customers fought to find vehicles that fit their lifestyles.
Since then, dealer advertised inventory has grown, though inflation, interest rates and record high prices have created affordability challenges for consumers. As customers face rising prices on everything from groceries to homes, many are putting off previously planned vehicle
purchases. Dealer advertised inventory is high for some brands to start the year, and while sales are also on the rise, inventories are projected to outpace sales as of January 2024.
To add to the challenge, some OEMs have cut back on the production of entry-level vehicles, instead focusing on larger vehicles or models equipped with all the latest technology at higher trim levels and price points. Customers searching for base models at a low price without all the bells and whistles are largely out of luck, as the remaining new and used cars like this have been snatched up over the past three years and aren’t currently being produced.
Even customers who plan to purchase despite these challenges are more hesitant. In a world dominated by online shopping, customers often begin their car buying journey online to gauge dealership inventory and vehicle features. However, the online automotive retail environment is different than shopping online for other products. The price customers see online is not traditionally the price they pay to purchase the vehicle due to inaccuracies or missing information for dealer-specific factors such as sales incentives and taxes.
As our culture shifts, consumers want transparent and complete payment quotes throughout the entire sales process, from browsing online to driving the car off the dealer lot. They expect the first quote they see to be what they end up paying at the dealership.
This idea isn’t just centered on customer preferences. The U.S. Federal Trade Commission (FTC) is also looking to crack down through its Combating Auto Retail Scams (CARS) Rule, which aims to “add truth and transparency to the car buying and leasing process by making it clear that certain deceptive or unfair practices are illegal – for example, bait-and-switch tactics, hidden charges and other conduct that harms consumers and honest dealers.”
According to Forbes, the FTC gets more than 100,000 complaints per year about extra charges and scams that buyers face at dealerships, topping the list of complaints filed annually. These scams cost consumers more than $3 billion each year and, Forbes says, includes customers buying warranties for vehicles that already have them, paying for a subscription they can’t use or, in a worst-case scenario, thinking they were buying one car but are sold another.
Specifically, the rule aims to prohibit misrepresentation about price and cost as well as adding fees for products or services that consumers cannot benefit from. While the ruling has not yet been put into place as of February 2024, dealers can still benefit from implementing processes that prioritize transparency to build trust with customers.
Changes to FTC rules can be frustrating, especially for honest dealerships. However, smart dealers evolve to meet the needs and preferences of their customers. In a world where customers are used to pricing transparency across all of their purchases, it makes sense for automotive retail to follow the same path.
Addressing Frustrations for Both Customers and Dealers
Customers ultimately keep any business alive, and those who are consistently satisfied become loyal customers and help a dealership thrive. There’s more to it than that, however; a lack of transparency can make it difficult for dealers to see inaccuracies during the purchasing process that might hurt the dealership.
Errors stemming from incorrectly applied incentives, tax rules and dealer settings can lead to chargebacks or lost sales, reducing profits. The back-and-forth negotiating process that many dealerships often use to establish a final price can also erode customer trust and satisfaction by making customers wonder whether dealership pricing is arbitrary. This can ultimately lead to a drop in customer loyalty. Additionally, customers often see discrepancies in quotes online versus in-store.
There’s also a disconnect between how dealerships and consumers think about vehicle pricing. Many dealership software platforms focus on the vehicle brand and overall price. However, customers considering affordability usually use the cost of the monthly payment to determine whether the vehicle price will fit into their budgets.
Meanwhile, customers facing a lack of pricing transparency tend to experience a long sales process. Disconnected dealership platforms increase the likelihood of errors due to manual data input, and existing tools often require dealers to calculate payments one vehicle at a time, making it difficult for customers to compare vehicle options. Existing shopping tools don’t facilitate easy analysis between vehicle prices and payment options, leading to a lack of transparency and poor customer experience.
Businesses are built on relationships, and these relationships are even more essential for businesses that sell products as expensive and life changing as vehicles. Ensuring a smoother, more transparent buying process supports customers who, in turn, support dealerships that listen and care enough to adjust business practices.
Solutions for Prioritizing Transparency While Increasing Profits
A great first step for a dealership to implement increased transparency is to focus first and foremost on the customer, changing dealership strategies and practices to align with their needs and preferences. Consistency is key as dealerships shift their business practices.
First, dealers should ensure the price of each vehicle is consistent across digital platforms and is the same as the price in the dealership. There should be no blanket approaches, with each vehicle priced based on its unique features, wear and tear (when considering used vehicles) and place in the market. This way, customers know the price of the vehicles they are interested in, regardless of whether they start their car buying journey online, wait a few days or weeks to purchase, or if they begin working with a different salesperson than their first point of contact.
Once consistencies are in place across the dealership and sales team to understand and practice related expectations, it’s important to get to know customers, ideally before they arrive at the dealership. Discussing their needs, wants and any vehicles they’ve already been eyeing helps salespeople show customers the most relevant vehicles and pull comparisons between features and prices before they arrive, streamlining the process. Involving customers in the vehicle selection process before they even step foot in the dealership empowers them and provides a sense of control, contributing to a positive purchasing experience.
To further this trust, dealers can also show overall pricing as well as pricing based on a monthly payment. Both prices should be all-inclusive calculations that integrate any deals, discounts and incentives from OEMs, lenders, dealers and municipalities, ensuring a complete and transparent view for the customer.
Precise, All-Inclusive Pricing Online and in the Showroom
At Market Scan, we offer a solution for dealers to help them present customers with an all- inclusive, accurate monthly payment, whether they begin their journey online or in the dealership. By harnessing our proprietary comprehensive payment data calculation technology, Market Scan technology complements dealers’ existing sales tools for a modern, seamless retail experience.
By entering a customer’s desired payment, term preferences and credit history, this technology presents customers with a list of all available vehicles they qualify for and that fit their unique criteria. At the same time, dealers can maximize profitability on each deal and eliminate costly errors such as misapplied incentives, giving them the ability to present the best payment to the customer in a shortened sales process.
For in-dealership desking, mDesking analyzes billions of combinations and iterations of lender and OEM programs available in the marketplace to provide customers with payment-based pricing that sales teams can rely on for precision, consistency and transparency on any channel.
With the right data and technology in place, dealers ensure a streamlined approach that improves the customer experience by quickly refining vehicle choices, which accelerates the sales cycle and increases dealerships sales.
All businesses must change their operations to meet customers’ expectations, and dealerships are no different. Shifting business models can be a challenge, but the changes themselves will offer new opportunities for dealerships ready to embrace them. Increased transparency will do more than just keep dealerships in compliance down the road – it will also foster strong relationships with the current generation of car buyers as they face a challenging economic environment and seek clarity and honesty. Dealers who align with consumer expectations early can establish themselves as team players and build loyalty long before more hesitant competitors seek solutions in the face of compliance requirements.
Book a demo today to see how Market Scan can help improve your customer experience through transparent, precise pricing.
