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How car dealerships must change to stop upsetting customers Add to ...

You go to Amazon.com to buy a book or a television. You can pick up a couch at Etsy.com. You can purchase an entire vacation – flights, hotels and a rental car – at Expedia.com. The opportunities to empty your wallet are but a few clicks away.

But are you willing to spend tens of thousands of dollars over the Internet on your next set of wheels? According to many recent studies, an increasing number say, bring it on. In a poll of 1,002 people in the U.S. by Edmunds.com conducted this year, 83 per cent indicated they would love to avoid the haggle associated with purchasing a car in a dealership; one in five said they would rather give up sex for a month than go through the traditional car-buying experience. Another worldwide study of 10,000 people by Capgemini (a global consulting and technology firm based in France) for Cars Online found that 44 per cent of car buyers expect to purchase their next vehicle over the Internet.

While the options for purchasing a vehicle online are relatively limited, auto makers and dealerships are slowly recognizing consumers’ embrace of the Internet when it comes to making their second-largest purchase. But all of this still doesn’t mean the end of the brick-and-mortar dealership just yet.

In August, Volvo opened sales for its latest XC90 SUV model online and sold the first lot of 1,927 in just 47 hours, with 61 of those going to Canadian buyers. After paying a deposit online, the buyer was obligated to visit a local dealership to secure financing before picking up the XC90 vehicle early next year.

“In Canada, the core business of most car retailers is the service, and if you ask retailers where they sustain their business, it’s on the service side,” says Margareta Mahlstedt, vice-president of marketing with Volvo Canada. “So, for us, it’s a way of making the time invested in the upfront purchase less from a retailer’s perspective and, at the same time, increasing their car park and opportunities for service.

“We don’t want it to ever be a pure retail transaction online, at least not now because that’s not what the market is ready for.”

The internet is already a driving force for car consumers, whether they buy online or not. McKinsey Global Institute research showed that the average number of dealership visits by car buyers has dropped from five in 2005 to less than two today, a result of people visiting manufacturers’ websites and reading car reviews before actually going to see any car.

And this should be good for the car business, says Michael Hatch, chief economist for the Canadian Automobile Dealers Association (CADA). “It means that the person walking through the doors is already nearer to purchasing a car, whereas, in the past, people just came in to kick the tires and take a look.”

Still, a car is not a computer nor a pair of jeans. Most customers want to touch the leather, see the sparkle of the paint and take in that new-car smell before they lay down their money. More and more, however, Many dealers are coping with the new realities by adapting the Apple retail sales model, notably by equipping their sales reps with tablet computers, as Audi Downtown in Toronto will soon do. The car maker itself offers an interactive app, the Audi Configurator, enabling consumers to spec and price a vehicle, and point them to nearby dealers. BMW is placing product geniuses on the front line at dealerships to answer questions before handing over customers to a sales person, averting the pressure of the initial interaction. Lexus and Mercedes are developing similar models with “Lexperts” and “product concierges.”

Customers are walking through the doors with more knowledge than ever. Some websites provide prices, sales incentives and even compare deals on the same car from different dealerships. Unhaggle.com claims an ability to provide the dealer’s wholesale cost and the average price consumers have paid. It works as a “bridge” between the seller and the consumer.

“I remember sitting in a dealership and seeing my parents negotiate when they were buying a car; I felt it was crazy that the car-buying experience hasn’t really changed that much,” says Andrew Tai, who co-founded Unhaggle in 2011 with two associates. “If you were buying a big-screen TV or a computer, you could go to three or four different websites and get different prices to find a fair price to pay, but you couldn’t do that with new cars.”

While the buyer benefits from no-haggle pricing and comparison shopping online, Tai says his website also helps dealers, even though they may sell cars for less money than if they could negotiate with the consumer.

“A lot of consumers today still think when you’re buying a $30,000 car, there’s a 40-50 per cent margin, and maybe they can get a $10,000 discount,” he says. “Most margins on new cars are a heck of a lot thinner, so the transparency that we provide helps set the … goal posts for negotiating.”

I tried a cost comparison of an Audi S4 on Unhaggle. Not five minutes later, my telephone rang; it was Scott Drew, sales manager for Audi Downtown Toronto. “I’ve been in the business for 10 years, and the awareness on the Internet has been growing every year,” Drew says. “Every month, I would say 10 to 15 sales – about 10 per cent of our volume – is through Internet sales. It’s substantial enough that we have a dedicated e-commerce manager.”

Other manufacturers are also experimenting with online-only sales incentives. The 2015 Volkswagen Golf GTI was introduced to Canadians in mid-April through the “Countdown to a GTI” promotion, which used a timer that applied a one-cent-per-second discount on the price of the car, for savings of up to $1,000. As soon as anyone clicked on the discounted amount, Volkswagen reset the timer and the potential savings to zero, restarting the process. During the promotion, 265 Canadians secured a discount, on condition of agreeing to order a GTI within six months.

The success of the online promotion is a reflection of the changing nature of car sales, says Thomas Tetzlaff, media relations manager for Volkswagen Canada. “Twenty years ago, dealers had all the information. Today, a kid with a smartphone can get the dealer invoice on a car and nine different reviews from nine different countries immediately.”

But according to Peter MacDonald, owner of MacDonald Auto Group dealerships in Prince Edward Island, the success or failure of traditional dealerships is not up to the pace of technology, but in how dealers themselves embrace it. “The Internet is where our customers are telling us that we have to be participating in, because they find it more convenient to do their shopping.

“As we see the change in our consumers, with more and more of the Gen Y and Gen Z, we’ll see a lot more online sales. They’re more used to seeing things electronically as opposed to sliding a piece of paper towards them.”

With files from Mark Hacking

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