Data, Technology and Insight: Digital Trends in Auto Retailing - October 2014
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
October 2014 Data, Technology and Insight: Digital Trends in Auto Retailing
Perspective | October 2014
TABLE OF CONTENTS
Introduction ................................................................................................................................. 2
Auto Shopping in the Past ........................................................................................................... 3
Auto Shopping Today ................................................................................................................... 5
A Modern Approach to Pricing .................................................................................................... 7
Conclusion .................................................................................................................................... 9
References ................................................................................................................................... 10
At NADA Used Car Guide ............................................................................................................. 11
Data, Technology and Insight: Digital Trends in
Auto Retailing
In March 1989, British computer scientist Tim Berners-Lee drafted a document
concerning the difficulties of accessing and managing information stored on individual
computers at his then-employer, the European Organization for Nuclear Research
(CERN). To address the problem, he proposed linking information systems with
hypertext to “allow a pool of information to develop which could grow and evolve with
the organisation and the projects it describes.” Berner-Lee’s ideas laid the foundation for
what would eventually become the World Wide Web (WWW), or the method of
connecting documents (i.e., web pages) to one another using the Internet*.
Over the past quarter century, the Internet has thoroughly transformed how consumers
and businesses interact with one another by removing physical constraints and providing
access to an exceptional depth and breadth of information. Consumers now know more
than ever about the products they buy, where to buy them and how much to pay. This
knowledge presents many challenges and opportunities for businesses, including
franchised automobile dealers. However, the Internet has also provided vast amounts of
quantifiable data on consumer purchase behavior that dealers are using to direct
strategy toward developing stronger relationships with consumers.
*The World Wide Web and the Internet are, in fact, two distinct entities. The Internet is a network of inter-
connected computers where information resides, while the WWW is the system of interconnected web
pages that allow access to stored information.
NADA Used Car Guide | 8400 Westpark Drive | McLean, VA 22102 | 800.544.6232 | nada.com/b2b 2
© 2014 NADA Used Car Guide
Perspective | October 2014
NADA’s latest edition of Perspective brings together internal analysis and insight from
industry-leading information providers such as J.D. Power, Polk, AutoTrader.com and
Google to explore how the Internet has shaped consumer and dealer engagement, and
the critical roles that technology and price transparency are playing in used vehicle
operations today.
Auto Shopping in the Past
Limited choices influenced by a small sphere
Before the Internet, consumer consideration for a new or used automobile was based
on a limited number of influencing factors: previous brand experience (likely supported
by family and friends), traditional media (TV, newspaper and radio) and local dealership
experiences. Dealerships were, by and large, the only source for information on specific
models, trim levels and optional equipment, as conveyed through a combination of
printed brochures and dealership personnel.
The vehicle ultimately purchased was usually among those initially considered, due in
part to the inconvenience of driving from dealer to dealer to gather information on a
wider variety of alternatives. The price paid for the vehicle was also impacted by the
consumer’s willingness to travel from one dealership to another to compare prices, as
well as their desire and ability to negotiate with the salesperson.
This type of shopping process is commonly referred to as a “purchase funnel,” a
metaphor suggesting a linear path that begins with numerous brands under
consideration and ends with a specific vehicle. Once a purchase was made, the
evaluation of competing products generally ceased, and the focus was isolated to the
product that was bought.
Source: McKinsey & Company
NADA Used Car Guide | 8400 Westpark Drive | McLean, VA 22102 | 800.544.6232 | nada.com/b2b 3
© 2014 NADA Used Car Guide
Perspective | October 2014
Digital expands choice and broadens knowledge
The rise of the Internet, however, quickly changed all of this.
Research has shown that today’s better-informed buyer starts with a much smaller
consideration set and then adds and subtracts from it throughout the evaluation phase
using a wide variety of online touch points before settling on a vehicle to buy. Post-
purchase, consumers share their experiences and absorb those of others, and these
opinions play a large role in shaping what they buy in the future.
Today's "Consumer Decision Journey"
Source: McKinsey & Company
Changes in the auto shopping process demonstrate how the digital age has transformed
purchase habits.
Manufacturer, dealer and third-party websites initially focused on new vehicles and
gave consumers the means to easily and efficiently cross-shop numerous brands and
segments from the comforts of home. Shoppers were able to build vehicles based on
desired colors and optional equipment. Most importantly, the Internet exposed dealer
invoice prices and Manufacturer Suggested Retail Prices (MSRPs) on a wide scale.
Referral services helped consumers reach an even broader range of dealers via email.
Eventually, used vehicle information gained similar exposure, as online listing sites such
as AutoTrader.com and Cars.com allowed buyers to compare dealer asking prices within
their local area and assess vehicle condition by viewing multiple photos. Consumers
could also access used vehicle trade-in and retail values online from sources such as
NADAguides.com, further adding to the number of data points available to them.
NADA Used Car Guide | 8400 Westpark Drive | McLean, VA 22102 | 800.544.6232 | nada.com/b2b 4
© 2014 NADA Used Car Guide
Perspective | October 2014
Auto Shopping Today
Majority of buyers use the Internet to shop
The J.D. Power 2013 New Autoshopper Study revealed that nearly 80% of new vehicle
buyers used the Internet to assist with the shopping process in 2013, up 26 percentage
points from 2000’s figure of 54%*. Additional information gathered through the study
emphasized the Internet’s impact on consumers’ ability to cross-shop. Specifically, 50%
of buyers were initially open to any brand and only 43% of buyers purchased the make
or model they initially considered.
Research consistently shows that consumers spend considerably more time looking for a
new or used vehicle online than offline. For example, the 2013 Polk/AutoTrader.com
Automotive Buyer Influence Study revealed that new and used vehicle shoppers spent an
average of 10 and 11.75 hours, respectively, online during the car buying process. In
contrast, new and used buyers spent averages of 3.75 and 3.5 hours, respectively,
shopping offline.
Dealer contact has gone virtual
While estimates differ across sources, many agree that the increased amount of time
spent online means that consumers visit fewer dealerships to acquire the basic
information necessary to support a purchase. A survey by DMEautomotive found that
71% and 62% of new and used vehicle buyers, respectively, visited no more than two
dealerships before buying. Similarly, AutoTrader.com’s 2012 Have Internet Will Travel
report stated that 58% of car buyers visited just one to two dealerships before making a
purchase.
That’s not to say that consumers are no longer reliant on dealers to provide information
— much of the gathering process has simply shifted to the virtual world. In fact, dealer
sites were ranked ahead of manufacturer sites, search engines and third-party sites as
the number-one source of information for consumers during the shopping process in a
Google research study titled Digital Drives Auto Shopping. And while dealership visits
have become less frequent, they haven’t become less important, as consumers in the
Google study ranked “dealer visit, test drive, and salesperson” well above “family and
friends” as the primary in-person sources of information most influential in determining
what to purchase. Numerous other studies have drawn similar conclusions.
*J.D. Power and Associates. (2011). Online Auto Shoppers: Who Are They and How Do You Meet Their
Needs. http://autos.jdpower.com/content/white-paper/PZtzGWd/online-auto-shoppers-who-are-they-
and-how-do-you-meet-their-needs.htm
NADA Used Car Guide | 8400 Westpark Drive | McLean, VA 22102 | 800.544.6232 | nada.com/b2b 5
© 2014 NADA Used Car Guide
Perspective | October 2014
Most Influential Auto Shopping Information Sources
Test drive 89%
Dealer visit 89% In Person
Salesperson 82%
Family & Friends 59%
Dealer sites 83%
Manufacturer Sites 81%
Search engines 77%
Third party sites 69%
Professional review sites 62%
Consumer review sites 57%
Regional dealer sites 56% Online
Online mapping tools 43%
Classified/listing sites 40%
Social media 37%
Video sites 37%
Newspaper sites 32%
Auction sites 26%
TV 53%
Newspapers 38%
Magazines 35% Offline
Flyers & brochures 27%
Radio 19%
Source: Google "Digital Drives Auto Shopping" Study, November 2013
Mobile technology is expanding the Internet’s influence
The J.D. Power 2013 New Autoshopper Study shows that the percentage of automotive
Internet users (AIUs) shopping for new vehicles on smartphones and tablets reached
23% and 25%, respectively, in 2013, up 3 and 7 percentage points from 2012 levels.
Figures for younger Generation Y shoppers were much higher in these areas, with 47%
reporting using smartphones and 29% using tablets when shopping. At 96%, nearly all
shoppers surveyed reported using PCs (desktops or laptops). However, this was 3 ppts
lower than what was recorded in 2012.
Of particular interest to dealers, 46% of Gen Y and 40% of non-Gen Y AIUs reported
accessing vehicle content on their smartphone at the dealership, both second only to in-
home use. In addition, vehicle pricing was the number-one type of content accessed for
both groups while at the dealership, with an overwhelming 65% of tablet and
smartphone shoppers reporting this activity.
Putting the last statistic in context, mobile technology further empowers consumers by
letting them compare prices while engaging a dealer in the showroom. Considering the
rapidly expanding use of smartphones, the Internet will continue to wield considerable
clout in shaping vehicle pricing moving forward.
NADA Used Car Guide | 8400 Westpark Drive | McLean, VA 22102 | 800.544.6232 | nada.com/b2b 6
© 2014 NADA Used Car Guide
Perspective | October 2014
A Modern Approach to Pricing
Shoppers today routinely access used vehicle retail and trade-in prices from a variety of
sources and use them as benchmarks when negotiating with dealers. Similarly, dealer
pricing decisions have also improved through advances in technology and increased
exposure to, and consumption of, market data.
In the past, dealers relied on guidebooks, newspaper ads, printed auction post-sale
reports, wholesaler offers and qualitative experience to determine used wholesale
(including trade-in) and retail prices. The decision-making process was time-consuming
and increased the likelihood that a dealer would either over- or underprice a given
vehicle.
Today’s dealer accesses pricing data derived from thousands of actual sales
transactions, with data delivered through applications that facilitate efficient, educated
pricing and inventory management decisions. These robust solutions give dealers far
greater insight into the makes and models that have proven to be most desirable in
their local market and most profitable at their specific dealership.
Information available from auto auctions has also become more widespread. Auction
groups such as Manheim, Adesa and ServNet have invested heavily in online platforms
that include photos, videos and detailed condition reports, allowing dealers to bid
confidently on vehicles located anywhere and at any time.
Narrower used listing price spreads, but healthier margins
NADA’s analysis of wholesale auction prices and online listing prices reveals that the
widespread availability of data has had a major impact on pricing strategy in the used
vehicle market. In 2008, the average spread between the price paid at auction and the
retail listing price for a given vehicle was approximately $5,000. Since then, however,
the spread between the two has steadily decreased and now stands at roughly $4,000.
Not only have wholesale-to-asking price spreads decreased, but so too has the
variability around average listing prices. In 2008 for example, dealers listed similar
vehicles with like-mileage (e.g. a single 2007 Toyota Camry LE versus all 2007 Camry LEs)
at prices that varied by 10% from the overall average — a roughly $3,000 high-to-low
spread. This variation now stands at 8%. While the 2-percentage point drop may seem
small, it is in fact significant given the variability associated with other factors such as
vehicle condition.
A quick glance at this information may lead one to think that used vehicle profitability
has fallen, with dealers having lost about $1,000 of their margin since 2008. This isn’t
NADA Used Car Guide | 8400 Westpark Drive | McLean, VA 22102 | 800.544.6232 | nada.com/b2b 7
© 2014 NADA Used Car GuidePerspective | October 2014
Average Wholesale Auction-to-Retail Listing Price Spread
$6,000
$5,500
$5,000
$4,500
Average Spread
$4,000
$3,500
$3,000
$2,500
$2,000
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jan-08
Jan-11
Jan-12
Jan-14
Jan-09
Jan-10
Jan-13
Period
Source: NADA Used Ca r Guide
the case, however. Dealership data collected by NADA shows that following decades of
declines, gross profit margins on used vehicles finally began to inch up with the advent
of the digital age in the mid-2000s. Used vehicle margins have improved markedly since,
growing from an average of 11.4% prior to the recession to 13% today, which is among
the highest they’ve been in nearly 25 years.
Simply put, the insight gained through technology and data has led to healthier used
vehicle profit margins, despite the fact that dealers are operating in a more competitive
pricing environment.
Used Vehicle Gross Profit as a Percentage of Selling Price
2014 data through June.
16.0%
15.0%
14.0%
Gross as a % of Selling Price
13.0%
12.0%
11.0%
10.0%
9.0%
8.0%
1978
1979
1982
1983
1986
1987
1990
1991
1992
1995
1996
1999
2000
2003
2004
2007
2008
2009
2012
2013
2014 YTD
1980
1981
1984
1985
1988
1989
1993
1994
1997
1998
2001
2002
2005
2006
2010
2011
Source: NADA Calendar Year
NADA Used Car Guide | 8400 Westpark Drive | McLean, VA 22102 | 800.544.6232 | nada.com/b2b 8
© 2014 NADA Used Car GuidePerspective | October 2014
Conclusion
The digital age has exponentially increased access to information and shattered
longstanding knowledge barriers. YouTube provides a perfect example of this. With a
few keystrokes and clicks of the mouse, anyone can find videos with detailed answers to
questions on virtually any topic, no matter how obscure.
Pricing data for autos is similarly widespread. Whether at home or on a dealer’s lot, the
Internet allows consumers to quickly hone in on a range of prices indicative of their
market. But rather than perceiving empowered consumers as a threat, dealers are
embracing this real-world reality and using it to their advantage.
Leveraging the knowledge that they too have gained through data and technology,
dealers are increasingly adopting a market-based approach to pricing, which they share
with consumers through price comparison tools on their web sites and in real-time
pricing reports at the sales desk. This transparent approach reduces the friction
associated with the most painful part of the car buying process, price negotiation, and in
turn fosters the key to future loyalty – trust.
Alongside pricing transparency, technology-driven conveniences like tablets in the
showroom, online chat, product videos, and text message service reminders are helping
dealers to develop stronger, more lasting connections with consumers. Dealers are also
investing heavily in facility upgrades as dark, closed-in showrooms are being
transformed into light airy spaces arrayed with plush seating, expansive coffee bars,
multiple flat-screen televisions and dedicated play areas for kids.
Studies support the link between buying experience and loyalty. In Google’s Digital
Drives Auto Shopping study, 62% of vehicle owners said customer service at the
dealership would influence future purchases, ahead of both cost of maintenance and
convenience of location. J.D. Power’s 2011 Online Auto Shopper white paper contained
similar results, as dealer treatment — rather than lowest price — was the top reason
both Internet and non-Internet users chose to purchase from a given dealer.
Moving forward, consumer preference for an auto shopping experience based on
transparency, appreciation for time and strong product knowledge will undoubtedly
spread, especially as more Gen Y buyers enter the market. Armed with the tools and
information necessary to make smarter pricing decisions along with an ingrained
entrepreneurial spirit, the modern digital age dealer is more than prepared to meet the
challenge.
NADA Used Car Guide | 8400 Westpark Drive | McLean, VA 22102 | 800.544.6232 | nada.com/b2b 9
© 2014 NADA Used Car GuidePerspective | October 2014
References
J.D. Power and Associates. (2013). 2013 New Autoshopper Study. http://
www.jdpower.com/resource/jd-power-2014-new-autoshopper-study
J.D. Power and Associates. (2011). Online Auto Shoppers: Who Are They and How
Do You Meet Their Needs. http://autos.jdpower.com/content/white-paper/
PZtzGWd/online-auto-shoppers-who-are-they-and-how-do-you-meet-their-
needs.htm
Polk and AutoTrader.com. (2013). 2013 Automotive Buyer Influence Study. http://
www.weworkforyou.com/files/insights/
pdf/2013PolkAutomotiveBuyerInfluenceStudyBrochure.pdf
DMEAutomotive. (2014). 1 in 6 Car Buyers Skips Test-Drive; Nearly Half Visit Just
One (Or No) Dealership Prior to Purchase. http://www.dmeautomotive.com/
announcements/1-in-6-car-buyers-skips-test-drive-nearly-half-visit-just-one-or-no-
dealership-prior-to-purchase#.U1_p3k0U-Hs
AutoTrader.com. (2012). Have Internet, Will Travel. http://
www.weworkforyou.com/files/insights/pdf/Geo-
DistanceWhitePaperFINALNoCrops11-1-12.pdf
Google. (2013). Digital Drives Auto Shopping. http://www.thinkwithgoogle.com/
research-studies/digital-drives-auto-shopping.html
J.D. Power and Associates. (2011). Online Auto Shoppers: Who Are They and How
Do You Meet Their Needs. http://autos.jdpower.com/content/white-paper/
PZtzGWd/online-auto-shoppers-who-are-they-and-how-do-you-meet-their-
needs.htm
NADA Used Car Guide | 8400 Westpark Drive | McLean, VA 22102 | 800.544.6232 | nada.com/b2b 10
© 2014 NADA Used Car GuidePerspective | October 2014
AT NADA USED CAR GUIDE
What’s New
The NADA Appraisal Suite is launched for NADA member dealers! Tired of the back and forth? Turn your
entire appraisal process into something your customers can truly understand. Select NADA Appraisal,
starting at $99/month with an annual subscription, or upgrade to NADA AppraisalPRO to include
additional market data from trusted industry sources. Both provide you with an official appraisal
document, backed by NADA, which gives customers the confidence to sign. Learn more at nada.com/
appraisal or call 866.974.6232.
NADA Online delivers values from 10 different NADA guidebooks including commercial trucks. Starting at
$385 per year, NADA Online is comprehensive, easy to use and includes mobile web access free with
your subscription. And since it’s web-based, there is no software to install and your whole staff can use it
at the same time without the need for additional user licenses. Learn more at nada.com/b2b or call
866.974.6232.
On the Road
November Events:
Chris Visser is attending and exhibiting at the 15th Annual UTA Convention, November 5-7 in Scottsdale, AZ. Stop by booth #24 and learn about the
various services NADA Used Car Guide provides to support your business needs.
Jonathan Banks and Larry Dixon are attending and speaking at the Used Car Week Conferences from November 10-14 in Las Vegas, NV. Larry
Dixon is on the panel “CPO Market Intelligence and Analysis” on Tuesday, November 11 at 2:30. Jonathan Banks is on the panel “Used Car Prices
and Valuations: An Interactive discussion on the pre-owned market” on Wednesday, November 12 at 2:00. Both Jonathan and Larry are presenting
at the general session on Thursday, November 13 at 2:45. They will discuss “The Used Vehicle Market: Impending Collapse or Continued Success?”
About NADA Used Car Guide
Since 1933, NADA Used Car Guide has earned its reputation as the leading provider of vehicle valuation products,
services and information to businesses throughout the United States and worldwide. NADA’s team collects and
analyzes over one million combined automotive and truck wholesale and retail transactions per month. Its
guidebooks, auction data, analysis and data solutions offer automotive/truck, finance, insurance and government
professionals, the timely information and reliable solutions they need to make better business decisions. Visit
nada.com/b2b to learn more.
Financial Industry, Credit Unions, Fleet, Automotive Dealers, Business Development
Accounting, Legal, Lease, Rental Industry, Auctions, Insurance Manager
OEM Captive Government Jim Dodd James Gibson
Steve Stafford Doug Ott 800.248.6232 x7115 800.248.6232 x7136
800.248.6232 x7275 800.248.6232 x4710 jdodd@nada.org jgibson@nada.org
sstafford@nada.org dott@nada.org
Director, Sales Automotive OEMs Marketing Manager
and Customer Service Stu Zalud Jill Pritchard
Dan Ruddy 800.248.6232 x4636 800.248.6232 x4630
800.248.6232 x4707 szalud@nada.org jpritchard@nada.org
druddy@nada.org
NADA Used Car Guide | 8400 Westpark Drive | McLean, VA 22102 | 800.544.6232 | nada.com/b2b 11
© 2014 NADA Used Car GuidePerspective | October 2014
NADA CONSULTING SERVICES
NADA’s market intelligence team leverages a database of nearly 200 million automotive transactions and more than
100 economic and automotive market-related series to describe the factors driving current trends to help industry
stakeholders make more informed decisions. Analyzing data at both wholesale and retail levels, the team continuously
provides content that is both useful and usable to the automotive industry, financial institutions, businesses and
consumers.
Complemented by NADA’s analytics team, which maintains and advances NADA’s internal forecasting models and
develops customized forecasting solutions for automotive clients, the market intelligence team is responsible for
publishing white papers, special reports and the Used Car & Truck Blog. Throughout every piece of content, the team
strives to go beyond what is happening in the automotive industry to confidently answer why it is happening and how it
will impact the market in the future.
Senior Director, Vehicle Senior Manager, Automotive Analyst Automotive Analyst
Analysis & Analytics Market Intelligence David Paris Joseph Choi
Jonathan Banks Larry Dixon 800.248.6232 x7044 800.248.6232 x4706
800.248.6232 x4709 800.248.6232 x4713 dparis@nada.org jchoi@nada.org
jbanks@nada.org ldixon@nada.org
ADDITIONAL RESOURCES
Guidelines White Papers
Updated monthly with a robust data set NADA’s white papers and special reports
from various industry sources and aim to inform industry stakeholders on
NADA’s own proprietary analytical tool, current and expected used vehicle price
Guidelines provides the insight needed movement to better maximize today’s
to make decisions in today’s market. opportunities and manage tomorrow’s risk.
NADA Perspective Used Car & Truck Blog
Leveraging data from various industry Written and managed by the Market
sources and NADA’s analysts, NADA Intelligence team, the Used Car & Truck
Perspective takes a deep dive into a Blog analyzes market data, lends insight
range of industry trends to determine into industry trends and highlights
why they are happening and what to relevant events.
expect in the future.
Connect with NADA
Read our Blog Follow Us on Twitter Find Us on Facebook Watch Us on YouTube
nada.com/usedcar @NADAUsedCarGde Facebook.com/NADAUsedCarGuide Youtube.com/NADAUsedCarGuide
Disclaimer: NADA Used Car Guide makes no representations about future performance or results based on the data and the contents available in this report (“Guidelines”). Guidelines is
provided for informational purposes only and is provided AS IS without warranty or guarantee of any kind. By accessing Guidelines via email or the NADA website, you agree not to reprint,
reproduce, or distribute Guidelines without the express written permission of NADA Used Car Guide.
NADA Used Car Guide | 8400 Westpark Drive | McLean, VA 22102 | 800.544.6232 | nada.com/b2b 12
© 2014 NADA Used Car GuideYou can also read
