Although buying a car online was available to consumers before 2020, the circumstances born of the COVID-19 pandemic response brought it to the doorstep of car shoppers and car dealers. With many car dealerships locked down, car shoppers discovered online purchasing as the most convenient and safest method for buying a car. In other words, online car purchasing was legitimized in many people’s minds.
The global management consulting firm McKinsey & Co. stated that 29% of consumers say they want to buy their next car entirely online. Another 23% want to order online but still have some contact with a dealer. That’s a far cry from the 3% of survey respondents who currently claim to buy their vehicles online. This begs the question: Are carmakers and their dealers prepared for this sea change?
Today, some dealerships provide an in-house internet manager to work with remote shoppers. However, this feature is not widespread. More often than not, if you have questions during the online buying process, you will find yourself speaking to a showroom salesperson. For the most part, online purchases funnel through a franchised dealer, beyond some electric vehicle mavericks like Tesla
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Rivian
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and Lucid
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See: Tesla’s $25,000 mystery car could open new roads for the EV maker and for drivers
Buying a car online will evolve
However, we see a shift coming over the next few years that may turn online buying on its ear. We aren’t alone. According to Allied Market Research, globally, the value of the online car-buying market will grow from $238 billion in 2020 to $723 billion in 2030. We’ll do the math: That’s an increase of more than 300%.
Again, from the McKinsey survey, 42% of consumers who would consider buying their next car online also indicate they would switch brands if their current brand’s online experience wasn’t good. The question then is, as carmakers and dealers adjust to this new normal, what will online car buying look like down the road? Here, we’re going to give you our best guess.
Buying new cars online, today
Traditional carmakers are deeply embedded in the franchise system in which dealerships are owned independently of the brands. That is, the brands (Ford
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Toyota
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Kia
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and so forth) don’t own dealerships. Although a brand and its dealers work together in many ways, a dealer runs the dealership as a small business. Even in the case of a mega-dealer like AutoNation
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with more than 300 dealerships coast-to-coast, the ultimate management of those stores is done at corporate headquarters in Ft. Lauderdale, Florida.
Consequently, the act of buying online today is a transaction between you (the buyer) and a franchised dealer. This is true whether you use the carmaker’s website to find your dream car or utilize the website of a local dealer. The nitty-gritty of the actual process (settling on the transaction price, down payment, trade-in, and so on) is between the buyer and a franchised automobile dealer. And that’s the way it’s been for more than 100 years. In fact, most states prohibit car companies from selling directly to the public.
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Current innovations for buying a car online
If you have gotten more than ankle-deep in shopping online for a car, you have probably encountered some amazing tech and features many dealers now offer to online shoppers.
- View inventory – Whether you use the build-and-price tool on a carmaker’s website or skip right to clicking “Current Inventory” for whichever model you want. You can look at the inventory in your local area, state, or nationwide, for that matter.
- Detailed information – As you peruse the available stock, you can pick a vehicle and often learn its details. Such data can include standard features, specifications, warranty information, and more. You can determine the vehicle’s identification number (VIN) and often access a copy of the Monroney window price sticker in many cases.
- Virtual walkaround – Where we used to travel to a dealership or settle for a series of online photos, today, many dealer websites offer a 360-degree virtual tour of the vehicle. These tours aren’t only for the exterior but for the interior, as well.
- More information – You can usually schedule a test drive, request a price quote from a dealer, and receive an estimated monthly payment online.
See: How to test drive a car: Your complete checklist
Market headwinds
According to the consumer credit experts at Experian
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the average new-car-loan interest rate was 6.07% at the end of 2022. That rate is up from 3.88% at the end of 2021. Until the Federal Reserve gets inflation under control, the vehicle marketplace will suffer from high-interest rates on car loans. Kelley Blue Book recently pegged the average price of a new car at $49,507, which will also keep some shoppers on the sideline.
Consequently, market conditions in 2023 may not offer a clear picture of the evolving state of car buying online in the U.S. But, evolving it is.
Buying new cars online in the future
Generally, we think carmakers and their franchised dealers will develop a fresh, more coordinated relationship in the coming years. Although more of the transactional aspects will slowly migrate to the carmakers, franchise dealers will remain the boots-on-the-ground face of the brand. In other words, the franchised dealer will still interact with customers while providing services like test drives and scheduled maintenance.
Franchise system
Confounding the ability of traditional carmakers to sell directly to the consumer is the franchise-dealer system. The fight to defeat the legal realities entrenching the franchise system in this county has left countless plaintiffs with substantial legal bills and not much more. Over and over again, the courts have upheld the current franchise system. Each state has its franchise laws; consequently, any effort to overturn the system must be waged state by state.
Read: What do car dealers have to be worried about? Plenty, survey says.
Without some drastic event, we don’t believe the franchise system will look much different in five years than it does today. However, we think there will be technological advances that streamline the online process and a changing attitude about the dealership’s role in the process.
Tesla: The great disrupter
Flying in the face of the franchise system, Tesla does sell cars directly to consumers online. You can order, secure financing, value your trade-in, and take delivery without setting foot in a Tesla store. There is no such thing as a traditional Tesla dealership. In most states, even where you find a Tesla store, you must order a Tesla online. Most Tesla stores provide information, answer questions, sell Tesla-branded apparel, etc. Many of these stores also include a service center and charging stations. Stores in a few states like California, Virginia, New Hampshire, and Colorado can sell you a car.
Ordering a Tesla online
Because there are few decisions to make once you are on the Tesla website, ordering requires very little time. You simply choose the model, the color, the amount of speed and range you want, the wheels, and whether you want the Autopilot option or Full Self-Driving Capability. Nothing to it, really.
If you’d like to test-drive the model you’re interested in during your decision-making process, you can find the nearest Tesla store and make a test-drive appointment.
Don’t miss: Before buying an EV, consider these hidden costs of ownership
Having checked off all the appropriate boxes tailoring your Tesla to your taste, the website will prompt you to “Continue to Payment.” Once on that page, you pick among the “Cash, Lease, and Loan” options. Tesla provides the details and monthly payment of a lease or loan, which you may adjust for a larger down payment or a shorter term than 72 months. You can apply for the lease or loan anytime after submitting the order and paying the $250 deposit. Approvals are valid for 60 days.
Tip: Delivery of your Tesla may require weeks or months. If you apply for financing through a lease or a loan too early, you may have to reapply if the 60-day approval window has closed.
If you have a vehicle to trade in, enter the requested details into the proper online form, and Tesla will issue an offer. Accepting that offer means having that vehicle at the drop-off site if Tesla is delivering your new car or driving your trade-in to a Tesla store when picking up your new model.
Once your Tesla is ready, you determine if you want to go to the closest Tesla store to take delivery or have Tesla bring it to your door.
Tip: Currently, Tesla doesn’t have a return policy; therefore, be sure it’s exactly what you want before taking delivery.
Also see: 18 new EVs to watch for in 2024
Buying a car online
Much of the Tesla process holds true for any online car purchase. There are four distinct pieces to the car-buying pie. All of them can often be completed online.
- Final transaction price.
- Negotiating the trade-in.
- Negotiating the down payment.
- Securing the financing.
If the dealer provides a delivery service for online purchases, you don’t even need to visit the showroom to sign the paperwork. The dealer’s team member making the delivery can bring the paperwork to you.
The dealer’s role when buying a car online
With the exceptions already mentioned, nearly every online car purchase will involve a franchised dealer. As the consumer, you determine the degree of that involvement. You might get through the entire process without ever setting foot inside the showroom if you don’t need a test drive and the dealer delivers.
Read next: The electric car vs. plug-in hybrid debate: Which should you buy?
Boosters of e-commerce would have us believe that soon the franchised dealer will be little more than an observer of the online buying process. In other words, the dealer’s role will be to supply test-drive vehicles, deliver purchased cars, and perform scheduled maintenance and repairs. Far in the future, that might be the case; however, in the foreseeable future, the dealers have a dependable ally in the franchise system and the courts that steadfastly uphold it. That’s not going to change anytime soon.
This story originally ran on Autotrader.com.
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