Why do so many of us believe that we can successfully haggle the price of a new car with a professional salesman?
After all, it’s not like they do it for a living or are educated or have decades of experience, is it?
But a lot is happening on the forecourt. British car dealerships, currently largely independently owned, face a number of threats.
The coronavirus pandemic was the driving force behind an already existing trend that is now rapidly transforming the automotive industry.
Instead of visiting one or more of the 4,500 dealerships across the UK, test driving, then choosing a car and haggling with the sales team, customers are increasingly trying something new.
Nowadays, people are much more likely to search online for the car they want and choose two or three to look at. They then just visit the showroom to make their final choice and maybe try to get a discount on the price advertised online.
“The pandemic has rather accelerated this,” says Christian Stadler, professor of strategy at Warwick Business School. “For customers, it is an easy and simple way into the online world.
“You find your vehicle on the big car company’s website, you trust their brand, but you still get it delivered through a local outlet, you can meet someone when you get the car.”
However, Sue Robinson, executive director of the National Franchised Dealers Association, disagrees. She points out that “people still like going to the showroom and make an average of 3.1 trips there before buying a new car.”
But the number of visits to exhibitions before buying a car is falling. People shop online a lot more and are therefore much less influenced by the sales force.
This new hybrid buying model, where you look online first and then go to a showroom, is becoming increasingly popular. That’s exactly how I bought my new car last year.
My wife and I researched what type of car we wanted, found the perfect model, and then looked for the used car that we could afford and for sale near us, all online. Only then did we visit a showroom, examine the car, take a test drive and decide to take the vehicle home with us.
We could have gone further as 10% of sales in the UK are now said to be completed entirely online, with the buyer not seeing the car until it is delivered to their doorstep.
Those sales are lost to dealership owners, and this new method of buying is here to stay.
So is the trend towards electric vehicles. Pure electric and plug-in hybrids now account for 20% of all new cars, and this share can only increase in the coming years.
Not only has the massive increase in fuel prices fueled this trend, but the sale of new petrol and diesel cars will be banned in the UK by 2030. That means dealerships have to spend money to retrain their employees to repair and maintain electric and hybrid vehicles.
And since electric vehicles have far fewer moving parts, they should require less maintenance.
That could also endanger the classic car dealership, says Professor Stadler. “When maintenance becomes less of an issue, the dealership relationship may become less important.
“Retailers and service could be separated more. Now we buy a car and have it serviced and repaired at the same place. That could separate in the future.”
But Robert Forrester is not so convinced of this argument. He is CEO of Vertu Motors, which has 160 dealerships selling cars for BMW, Audi, Nissan, Ford and several others. It holds 4% of the UK new car market and employs 6,500 people.
As he points out, today’s cars may need less maintenance, but they can no longer be serviced at home. “The only people who can repair and fix cars in the future will be franchise dealers who have the expertise,” he says.
Who is right, the shift to EV servicing will fundamentally change the industry. The need to retrain staff will accelerate, and traders who don’t invest in the latest technology will lose out.
The independent car dealerships are also coming under pressure from some automakers who are deciding to abolish such franchises and instead open their own company-owned showrooms.
Tesla, which has the advantage of being a newcomer to the market, adopted this direct-sales model from the start.
Two other car manufacturers are now also opening their own showrooms – Audi and DS. And others, including VW, Audi and Mercedes, are said to be thinking about following suit.
Franchisees have historically made about 7% profit on each car sold, but auto companies are now said to be feeling too generous and want some of that money back.
“There are some car manufacturers who have come a long way [the journey to owning their own dealerships]and others are waiting to see if it works,” says Ms. Robinson.
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Although taking over the dealerships means taking on the costs of property, staff and advertising, automakers are free to sell their products at a set price of their choosing. You don’t have to offer discounts to merchants to move stock and they get other benefits as well.
“It gives you more data, and by doing sales directly you get a better sense of what customers are doing,” says Prof. Stadler.
In the coming years, this data will become increasingly important as the way people own cars is likely to change.
In the future, cars could be seen more as a “mobility solution”, i.e. something to rent for a limited time rather than to buy. For example, you have the opportunity to exchange your city car for a larger car during the holidays or to take a convertible for the weekend.
There could be car clubs or pay by the hour or by the mile. All of this becomes much easier when the car companies have your data and can use it to create a business that works for you and, of course, for them.
At Vertu Motors, however, Robert Forrester isn’t worried. He says automakers will still need showrooms and salespeople, but they’ll be paid a lump sum by the automaker rather than trying to make a profit on every car sale.
He adds that the only difference customers will notice is that “the bill comes from the manufacturer and not the retailer.”
But it could well mean there’s less room for haggling and less competition between showrooms selling the same make and model. Haggle while you can, it may not be an option for much longer.
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