Prices in the retail auto market have swung wildly in the past year, creating an atmosphere of mistrust among consumers looking to buy a car, according to analysis in the 2023 Capital One Car Buying Outlook. Dealers, meanwhile, still see the car-buying process as transparent, the report finds.
And while both consumers and dealers are worried about inflation, dealers underestimate the impact that worry may have on car-buying behavior, the report says.
“Consumers are markedly not optimistic,” says Sanjiv Yajnik, president of Capital One’s financial service division, which includes auto lending. “There is a discrepancy between dealers’ and consumers’ feelings.”
One area of divergence is transparency, especially in financing. Car buyers and dealers agree that transparency in the car-buying process equates to price and financing fairness. They also agree that the final sales price and the price of add-ons should be more transparent.
However, only 21% of consumers say car buying is “completely” or “very” transparent, compared to 68% of dealers.
Most car buyers and dealers agree that fluctuating prices have made the car-buying process in the past year much more opaque. But that fluctuation has confused consumers.
Consumers found it “disconcerting how the price of the car was not tethered to anything,” says Yajnik. “It was very hard for them to put their arms around the value of the thing they were buying.
“Quality dealers have always done things above the board,” he adds, “but with car prices fluctuating so much, consumers have become very wary.”
That wariness has made buying a car harder. Some 47% of car buyers say the car-buying experience has gotten more difficult in the past year, up 20 points from Capital One’s March 2022 Car Buying Outlook. Of those who say it has gotten more difficult, 73% cite price increases as the main reason.
In such an environment, dealers underestimate how much importance consumers attach to trust in a dealership, says the report. Trust can trump price for consumers, but most dealers don’t realize that, according to the report.
Some 55% of buyers say they would be willing to pay a little more for a car if it was from a dealership they trusted; only 48% of dealers said they thought car buyers would be willing to do that.
The meaning of trust is evolving, says Tim Mullins, vice president of sales analytics and digital products at Capital One. “Trust used to be more about feelings and appearances,” he says. “(But) consumers are doing a ton of online research and they come into a dealership with heightened expectations.”
That means that “customers can’t be treated like a random person,” says Drew Tutton, owner of Tutton Chrysler Dodge Jeep Ram in Jasper, GA.
When people come into a dealership, they have conducted extensive research, he says, and staff must engage with them in a way that acknowledges that. The relationship can’t be “adversarial,” says Tutton.
Another area where dealers are not aligned with customers is the impact of the economic environment on a car purchase decision, says Yajnik. Buyers and dealers both say inflation is the No.1 influence on car purchases. From a dealer’s perspective, there is huge pent-up demand in the market, he says. A customer, meanwhile, sees layoffs happening and a strong labor market softening along with wage growth and consumer spending. They also see car prices falling.
“From a customer standpoint, the future is unknown,” says Yajnik. Consumers see vehicle prices coming down, he says, and think “why not wait a few months for prices to fall further?”
Digital technology can help with transparency and therefore build trust, the report says. Car buyers do think digital tools make the car-buying process more transparent and 56% agree dealers have the necessary digital tools to enhance the car-buying experience. However, 67% would like dealers to enhance their digital offerings for an easier overall experience, the report says.
Car buyers seem to be doing more in-person shopping than dealers realize. In the report, 46% of shoppers say car buying is done mostly or entirely in-person, compared to only 30% of dealers. However, they do agree that consumers are using an omnichannel online and in-person approach to car buying.
That belies the belief that the car buying process is moving to an entirely on-line experience.
“Customers are telling us clearly that they need to go into a dealership to buy a car,” says Yajnik. “The in-store experience is also very important.”
That doesn’t mitigate the need for a dealership to have a robust digital presence which provides more transparency and therefore builds trust, however.
“This is a huge area of opportunity for dealers,” says Yajnik. “Dealers need to really lean into transparency. Those that do will have an amazing 2023.”