This is the first in a series of articles analyzing the results from this year’s Urban Science/Harris Poll/Dealership Transformation Index™ survey on consumer perceptions about the relevance of the traditional automobile dealership model.
The automotive retail sector has shifted from a seller’s to a buyer’s market seemingly overnight. Although the microchip crisis that hampered new-vehicle production kept most franchise dealers’ lots empty for more than a year and led to steep increases in new- and used-car prices, dealers now find themselves well-stocked with new models, pushing pricing – and profit margins – back down to earth. That shift comes at the same time interest rates are skyrocketing, banks are failing, and political turmoil roils the U.S. economy.
The result: Dealers now must search for innovative ways to attract and keep buyers interested in their products and services. To many, the challenges they face appear daunting.
A 2023 survey conducted by Urban Science and The Harris Poll shows the percentage of dealers who describe their path toward future growth as “harder” swelled from 60% in 2022 to 77% in 2023.
Reasons for the more pessimistic outlook include growing competition from nontraditional car dealers such as CarMax, the industry’s increasing emphasis on battery-electric vehicles and what threatens to be a growing trend toward automakers selling directly to consumers.
These hurdles are apparent in a closer look at Urban Science’s Dealer Transformation Index (DTI), a composite score based on consumer attitudes about automobile dealers reflected in the survey.
Although the overall DTI score (55 out of 100) is unchanged from 2022 to 2023, Dealer Relevance has declined from 63 to 60 among consumers polled. More important, perhaps, is the five-percentage-point drop among millennials (age 27-42), the most significant decline among the four age groups in the survey, including baby boomers (59-77), Gen X (43-58) and Gen Z (11-26).
That makes millennials – the key buyer demographic for dealers now and in years to come – the most likely to look for alternative ways to purchase a new vehicle, threatening future viability for many automobile dealers.
So why have millennials’ attitudes toward dealerships declined?
To begin with, only 37% believe dealers are keeping up with the changing requirements in retailing, a precipitous decline of 13 points from a year ago. That compares to mostly stable scores year-to-year from the three other age groups.
In addition, just 35% of millennials think dealers provide the tools, resources and technology that makes car buying easier, down from 48% just a year ago. And although millennials tend to score dealers higher than other age groups when evaluating the expertise of the dealership sales team in helping them navigate the complex vehicle purchase process, fewer in this key age group is as confident in that dealership expertise as they were a year ago.
Dealers already face stiff competition from disruptors (such as CarMax) selling vehicles entirely online and delivering them right to the customers’ doors in some cases. They also face an indirect challenge from ride-hailing and car-sharing schemes that make personal vehicle ownership appear less relevant to some consumers.
In measuring Trend Resistance, or an age group’s willingness to shun traditional sales methods in favor of these new buying tactics or to use other mobility options beyond personal ownership of a car or truck, the Urban Science/Harris Poll shows 54% of millennials are likely to do so, compared with just 40% of baby boomers and 46% of Gen X. Specifically in the case of purchasing from a CarMax- or Carvana-type retailer, 64% of millennials say they would consider that path, by far the highest percentage among any of the four age groups.
As automakers move to sell battery-electric vehicles and consider more direct sales to consumers of these models via their websites, millennials are the age group most open to buying a new vehicle that way, as well, with 67% saying they would consider that purchase route.
The survey shows millennials among the two groups (along with Gen Z) that believe BEVs will rise to prominence in the market over the next few years, so they will be among the primary customers for dealers as the industry transitions to selling more and more BEVs.
That means that unless addressed, whatever deficiencies dealers now have in selling and servicing BEVs will make it that much harder to draw millennials to their showrooms. Millennials already doubt dealers are keeping up with their understanding of BEVs and other marketplace issues related to owning and operating an electric vehicle, the survey shows. Although more millennials have a favorable view of dealers’ BEV expertise than a year ago, up nine points in the survey, overall, only 40% believe dealers are knowledgeable about electric vehicles, compared with 57% of boomers and 50% of Gen Xers.
Another potential hurdle for some dealerships is millennials’ sensitivity to high-pressure sales tactics. The survey results indicate millennials are far more likely to walk away from a deal if they feel the dealership is too aggressive in the sales process. In the Urban Science/Harris Poll survey, 27% of millennials report they refused to buy from a dealership that contacted them too often during the shopping process. That compares with 20% for Gen Z, 19% for Gen X and just 14% for baby boomers.
In addition, 19% of millennials say the dealer contacted them too often after the sale, a rate that is nearly five times that of baby boomers.
The Dealers’ Perspective
Dealers don’t necessarily disagree with much of the millennials ‘questioning of traditional norms. The Urban Science/Harris survey indicates only 64% of dealers believe they play an essential role in the new-car-buying journey, down markedly from 72% in 2022. And just 63% of retailers are convinced they provide the necessary tools, resources and technology to make buying easier, down 11 points from year-ago.
Dealers see the most significant threats to their operations coming from consumers pursuing purchases through nontraditional buying sources (CarMax), customers buying directly from OEM websites and the industry’s transition to electric vehicles – all things that rate highly with millennials.
As the largest group of buyers and retail influencers, millennials represent a key demographic now and in years to come for new-vehicle dealers. Finding ways to meet their changing needs while continuing to serve more traditional buyer groups will be a massive challenge for retailers.
To broaden their appeal to millennials, dealers must:
- Embrace a hybrid approach to selling that allows shoppers to either begin and finish their purchase journeys online, conduct the entire process in the showroom or do some processes online and some at the dealership. To do that, dealers will need to ensure they have the digital tools and technology millennials find lacking today and be able to help the customer seamlessly continue the buying journey from the internet to the showroom.
- Match disruptors in more consumer-friendly services, such as delivering vehicles to the buyer’s home, negotiating trade-ins online and avoiding high-volume contact.
- Ensure sales staff has extensive product expertise and is trained to take a more consultative approach when selling to millennials.
- Abandon high-pressure tactics and repeated follow-ups to keep millennials returning to the dealership for sales and service.
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