An Odd Car Legacy
Everything in the $1.4 trillion car industry is changing. If you love cars, money, and value creation, you should be very excited. As a die-hard gearhead and investor/entrepreneur that has created hundreds of millions of dollars worth of value, I know I am!
Led by Tesla ($TSLA), the size of the electric car market more than doubled from 2017 to 2018 and has grown in double digits every year since then.
Uber ($UBER) has changed the dynamics of the car economy. By making shared rides affordable, people are thinking differently when it comes to buying a car. Those that can rely on Uber for their daily commute, are opting for buying more purpose-driven cars, creating an extra market opportunity for segments such as off-road and weekend luxury cars.
Many trends are affecting the car business as a whole, but they all lead towards digitization, convenience, connectedness, and having a lot more fun.
The change has started, but despite all the noise the industry is beginning to make, there’s one part of it that investors and founders are not talking about as much as they should, and it’s one of the biggest pains we still experience as a car-consuming society: THE DEALERSHIP MODEL.
Out of our long, deep, and passionate relationship with our cars, buying them is still the most pain-inducing part of the process; and there’s a massive payday for the ones who cure this pain!
Among everything that’s wrong with the existing dealership model, it’s unlikely it’ll ever overcome its sleazy reputation that it earned in the ’70s. Dealerships are inefficient, inconvenient, and powered by legacy technologies and processes that shackle workers’ productivity and are lagging decades behind the standards we’ve come to expect from the companies that hope to earn our business. The only solution is a radical infusion of technology.
The Digital Era of Car Sales
Hat’s off to Carvana ($CVNA) for leading the digitization charge and proving there was a market for online car sales. Carvana went from founding to an IPO at a $2 Billion valuation in 4 years. As of market close on February 5th, 2021 Carvana is worth $49.5 Billion; it’s been 8 years since it was founded.
Global brands like Tesla ($TSLA), Audi, and Toyota ($TM) threw their hats in the ring with their own “buy online” platforms. Other smaller startups in the sector have sprouted offering their takes on convenient car sales. Some more than others, but all of these have received vast criticism for their shortcomings and things they’re not getting right. The most interesting thing, however, is that even with all their shortcomings, they’re all growing in market share.
As of Q3 2020, online car sales represented only ~21% of all car sales. I’ll save you from having to do the math; what this figure means is that there’s still about ONE TRILLION DOLLARS of the legacy market still ripe for the picking.
In spite of the problems with existing platforms, more than 87% of customers stated that they would purchase online again just so that they don’t have to spend the 4.3 hours that an average car purchase takes talking to a salesperson.
84% of customers who bought a car at a dealership between 2017 and 2020 rate their experience as “poor” or “below average”. 97% of car buyers already begin their research online. 76% of them say that they would consider buying their next car online. I don’t need a calculator to figure out that this is a huge market with a customer base that is begging for a more convenient solution.
The New Rules of Engagement
The main point of competition within the existing dealership model is the price. Everybody wants to offer the cheapest price… and in the dealership price wars, it has been the buyers that get caught in the crossfire.
Dishonest advertising, complex pricing schemes, hidden fees, and lots and lots of wasted time waiting for a salesperson to travel back and forth to the sales manager have plagued the process for decades. Customers want transparency and convenience, and, by delivering these features, companies in the car sales business are improving their bottom line.
The industry is beginning to shift its competitive focus away from price and towards convenience. The customers are now starting to ask different questions. “Where can I save the most money?” is turning into “Where can I save the most time?”
The benefits of this shift are resulting in more streamlined processes, more stable and predictable revenue streams, and surges in profitability. Carvana, arguably the leader of online car sales, became profitable in 2020; they generated roughly $18,000 in gross profits per car sold. When compared to the average of ~$8,000 of gross profit per car sold that the most profitable of legacy dealerships can generate, the upside is obvious not just to the consumers, but also for investors and founders.
How this new breed of dealerships acquire customers is also shifting radically. With an ever-growing consciousness and higher standards of service and convenience from consumers, the conversation is evolving into who can offer the most transparency, who has the most integrity, who can answer questions the fastest and most precisely, and who can engage with customers more directly.
The price wars are about to be a thing of the past. The new battleground is in generating traction and snatching venture capital resources. How these new brands go about speaking to their potential customers and how they go about generating revenue from them will determine who is here to stay and who will fizzle into irrelevance.
A New Relationship Dynamic
Our relationships with our cars are some of the most passionate relationships we’ve developed with inanimate objects. The channels through which we develop these relationships are evolving rapidly and I, as an investor, entrepreneur, and car-buyer, couldn’t be more excited to see this new generation of businesses make their bid to earn my attention.
As they bank on the mystical bond between man and machine to capture our imagination, which companies will speak to us more directly? Which ones will most closely embody our passion and awaken our drive?
All of the sales and marketing funnels are evolving daily and the conversion strategies are changing. Adaptability and agility are key, and for an industry as rooted in legacy models and as reluctant to change as the car sales business is, this will be a huge challenge to overcome for aspirants to a respectable market share.
The race is on and the winners will reap their piece of the trillion-dollar pie!
I’m Adrian Rivodeaux and I specialize in building funnels and teams that have generated hundreds of millions of dollars of traction to fuel fundraising efforts. My average client grows from a range of $0-$10k in MRR to $1M+ of ARR in 10 months. For more information, contact me directly at firstname.lastname@example.org or visit me at https://www.linkedin.com/in/adrian-rivodeaux/