Broken Technology + Broken Processes = Broken Results

The automotive industry has always been an interesting space when it comes to technology. I remember seeing John Holt (Founder of Cobalt Group) speak for the first time in Nashville, TN, at the first-ever automotive Internet conference put on by Jim Muntz and Mike Bowers in 1997. It was called AROW (Automotive Retailing On the Web), and about 100 people attended long before Digital Dealer or any other conference even existed about automotive technology.

This was also the time when AutoNation was all the buzz as they systematically were building the largest automotive group ever using the same business practices Wayne Huizenga had perfected before creating both Waste Management and Blockbuster. Internet technology was coming into the light but was still in its infancy. The average dealership at the time had very little interest in it. Even the progressive dealerships were only dipping a toe in it having a basic website and perhaps purchasing leads from Stoneage, Autobytel, or AutoWeb. It was a much simpler time as this was years before the first Internet bubble, and Google didn’t even exist; it was still the days of AOL, Excite, and Yahoo if you can believe it.

Then as we approached the start of the 2000s, companies like CarOrder, Greenlight, and CarsDirect all burst onto the scene with Silicon Valley money and new ideas, all determined to change the automotive industry entirely and its antiquated processes. Yet they all met Poseidon’s headwinds and the Internet bubble that would quickly drown them within a few short years after spending billions of dollars of investment capital trying to change an industry that has stayed consistent for over 100 years.

I believe many people thought that technology would completely revolutionize the automotive industry’s sales and distribution back then in short order. Still, here we are 20+ years later, and we can’t sell vehicles without a ton of deal friction due to the technological walled gardens and the philosophy that every company can and should build everything within our industry. We are talking about Digital Retailing right now as the next big wave, yet Amazon and others have been doing it for 20+ years.

News Flash

Selling something in a friction-free experience over the Internet isn’t a revolutionary concept. It has been around awhile. Look at RocketLoans, which has been making home purchase friction-free since 2016. I also believe Vroom uses them to power their automotive call center. Again nothing is new here as we continue to try to push into the future of automotive retailing.

I believe we have a profound core difference between how Detroit thinks and Silicon Valley thinks in their tactical business approach. On the one hand, Detroit likes to think vertically oriented and completely secretive, which has flowed pervasively throughout the automotive ecosystem even into the vendors who support the industry. At the same time, Silicon Valley is competitive yet finds ways to collaborate. It is something that needs to change if the current establishment in the automotive industry wants to win. These outside forces continue to put pressure on the automotive retailing channel at the expense of dealership profits.

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We saw this in the late ’90s when the dealerships invited companies like AutoTrader, Cars.com, and others with similar intermediaries business models carte blanche within automotive because dealerships chose to ignore the importance of owning the eyeballs online. The only person I know of who saw it was Larry Cuneo, who in 1998 founded CarSoup to create dealership owned marketplaces. I believe they were in the Minneapolis and St Louis markets to help dealerships control their respective primary market area automotive shopping eyeballs without relying on third-party lead providers.

Unfortunately, dealerships didn’t see the value then and enabled the intermediaries to became incredibly valuable companies at the expense of automotive dealerships value around the nation. Here we are again twenty-five years later, inviting companies like Carvana, Vroom, and Shift into the showroom. These companies are not trying to suck ad revenue out of dealerships this time; they want the entire transactional customer relationship and all the revenue that goes with it.

Dealerships need to find a way to stand together, or they will be picked apart, starting with the dealership’s pre-owned vehicles transactional revenue, one of the few remaining profit centers within the front end of the transaction. Once this ground is lost, backend money will be the next to be exploited and shifted to outside companies.

The automotive industry is at a fulcrum point of change driven by marketplace shifts and consumer demands. The industry’s most significant competitor today isn’t just the dealership down the street. It has evolved into every business a consumer touches and has a better experience within the Internet age.