How Auto Market Optimization Leaves Luxury Cars Stranded
I’m a long time auto enthusiast and grew up around cars coming and going. At one point I think there were almost 30 cars sprawled across my childhood house and various warehouses in Houston. I’m normally a quick study, but even with all that going on the purchase process was still a bit of a blur to me. With 85% of Americans disliking something about the dealership experience, it seems I wasn’t alone.
As technology has advanced and car buying moved online in recent years, new options have sprung up to put pressure on prices across the board and shrink what were historically very high dealer margins. Similar to what we saw with Ecommerce with Amazon and the taxi industry with Uber, we have Carvana and Vroom coming up big against the incumbents. Their hockey-stick like success has made it quite clear that there is room in this engrained industry to do something other than the usual run around.
Amazingly, if you look at the automotive market, the 2 breakouts still only account for 0.625% of annual sales in the US. We exchange more than 40 million cars each year in the US, and the newcomers handle about 250k of those. Carvana has their eyes set on hitting 2M cars a year in the near-long term.
The improvements that these options provide that market have been incredible. Finally the dealers have competition from options other than other dealers (technically you can also consider car dealers or private sellers). Sure, in the past it used to be ‘I’ll go to your competition down the street’ but they would give you essentially the same runaround. With massive lobbying and quasi price fixing of dealership doc and filing fees, the average consumer would walk out of a dealership feeling used, poor, and confused.
When I bought my used 911 — the first car purchased totally on my own — I was slapped with a $750 doc fee at the 11th hour after weeks of negotiating. I’m literally sitting at the table to buy the car and this is the first time I’ve seen it. What do you do? Throw the whole thing away and fight? Maybe I should have, but at that point I wanted the car. They know that. They use that. So somehow, I walked out of a place where I spent some $80k feeling like an idiot. Where else on earth would this happen?
I think many, many people could provide similar experiences. Albeit on a different car. I told you, I’m an enthusiast. I’d rather live on a couch and have a fast car than drive something I don’t enjoy. So here we have a massive industry that totals close to a trillion dollars a year, yet the vast majority of people hate the experience. Carvana saw this and made a move.
The problem for enthusiasts like me is that they overly focus on the mid range options that move quickly. Don’t get me wrong — I’m a startup founder and understand WHY they chose that. I just think it leaves a lot of area in between. Essentially, if you have a mid-range 3 year old vehicle you are in luck with their purchase program. However, if you own any number of the higher end foreign cars that cater to some of the more engaged drivers you are likely out of luck.
The more expensive and unique your vehicle is, the longer it will take the dealers or tech companies to unload. That means they have to finance the cost of it over a longer period of time and the amount financed is higher. If it takes 3 months to sell, they have to finance the $50k they paid you over those 3 months. That cost is passed on to the seller, even though it has nothing to do with the actual value of the car and is instead just a relic of the current dealer model. Making things worse is that the focus on mid range cars lends the buyer demographic to be looking for those cars. So without a market for high end vehicles, dealers have even less desire to buy them. Dock a few more thousand for that as many of them will go straight to auction.
So, that’s a lot of complaining, Quinn. I can feel you thinking that, and am getting somewhere.
The obvious and most effective solution to this is just to sell your car directly to the person who would like to buy it. Duh. This is the process for almost everything else in our lives, including real estate, but has become blurry due to how effective dealerships have been in chastising private sales.
Go to any dealer site that has a blog and I can almost guarantee they have an article on how dangerous buying and selling privately can be. The thing is though, it’s really not that hard. Arm yourself with a used car checklist, and then make sure to pay attention to the required documents and you’re good to go.
Sadly, only a small portion of people do that right now because they’re afraid of doing something wrong. That’s fair. The average person sells a car every 6 years and doesn’t want to get overly educated for the process. That’s why I’m working on Topmarq for those who don’t want to handle the servicing of the car or listing and handling money exchange. Not only do I think it serves a large customer need, but I am quite passionate about creating a process that people can look back at and say, ‘woah, car buying can be easy and fun?’ That’s how I’ll be measuring myself going forward. Jury’s out on whether I can get there.
Keep an eye out for future posts about my passionate dislike and distrust of Dealerships.
