Younger buyers are helping feed a growing field of app- and web-based services. Last year, millennials topped baby boomers for the first time as new-car buyers.
Contrary to popular belief, millennials don’t hate cars. They hate car dealerships.
But the pandemic has pushed car dealers to step up online sales, eliminating what millennials (and others) dreaded: showroom visits that averaged five hours, haggling, paperwork, and high-pressure pitches for add-on products like wheel and tire insurance.
“I dislike the car dealer rigmarole of ‘Let me go talk to my manager’ and ‘Let’s go over to the finance department,’” said Will Clark, 38, a recent car shopper who lives in a suburb of Portland, Ore. “I don’t get the whole ‘You’ve got to take it for a spin, kick the tires!’ That was a model when cars weren’t the same quality they are today across the board.”
Millennials were presumed to dislike cars because — thanks to alternatives like Uber, Lyft and helicopter parents — they often delayed getting a driver’s license. Financially strained with school loans, difficult job markets (the Great Recession and the just-now-fading pandemic set back careers) and an average new-vehicle cost of $38,000, they delayed car-buying even longer.
But in 2020 millennials bought more new cars than any other age group, accounting for 32 percent of total new-car sales, edging out baby boomers for the first time, according to the market research firm J.D. Power. And those millennials were nearly twice as likely as boomers to shop for and buy a vehicle — new or used — entirely online, according to Cars.com, which outfits dealers with technology for online sales.
Millennial financial clout, disdain for dealerships and the pandemic have converged to shift how cars are sold, which may benefit car buyers and dealerships alike beyond the pandemic.
The transition makes it a hot market for online car-buying services and software platforms, such as Cars.com, which went public in 2017; Shift and Vroom, which both went public in the last year; and Carvana, whose stock has gained more than 200 percent since March 2020. Many more services are emerging, like CoPilot, Gettacar, CarBevy, CarSaver, and Joydrive, some of which are backed by big-name venture capitalists.
Even with the rising number of services, there is vast room for growth, said Toby Russell, a co-chief executive of Shift, which sells used cars.
“The used-car market in the U.S. alone is about $840 billion,” he said, adding that less than 1 percent of those sales go through the three largest, publicly traded online dealers, which has made for a collegial rivalry.
“It’s not Shift, Vroom and Carvana against each other,” he said. “It’s Shift, Vroom and Carvana against the other 99 percent of the market.” The new-car market is estimated at a third of the used market or less.
Used-car apps outnumber new-car services because they face fewer legal restrictions. Those restrictions, from the mid-1950s, protected dealerships, said Daniel A. Crane, a law professor at the University of Michigan. Before the regulations, auto manufacturers could strong-arm mom-and-pop dealerships into taking cars they didn’t want by threatening to open a competing showroom and undercut prices.
The regulation of dealerships has been challenged by Tesla, which Mr. Crane advised informally. Tesla sidestepped the regulation by owning all of its dealerships. That allows it to sell cars directly online and in its stores because there are no mom-and-pops to threaten. In states where it could not sell directly at all, like Michigan, it had customers take delivery in a neighboring state. Tesla did not respond to a request for a comment.
More established manufacturers face thornier barriers to online sales. Dealerships can sell online, but not manufacturers. Individual dealerships often license software platforms on their own, and the resulting websites work and look different from one another, even within the same brand — which may not be good for the brands.
General Motors took steps toward standardizing dealer sites with its “Shop. Click. Drive” program, introduced in 2013. It inspired headlines such as “G.M. ‘Shop-Click-Drive’ can eliminate showroom visits” in USA Today. It did not meet that lofty ambition, but G.M. may be edging closer to what the industry calls an “end to end” transaction.
That is the Holy Grail of online car sales, encompassing shopping, purchasing, offering incentives, handling trade-ins, financing and selling insurance in one transaction entirely online.
“We are very close to doing that,” said Amrit Mehta, who leads G.M.’s global web efforts. G.M. will unveil a new site for its Bolt electric cars, which will be Chevy’s most advanced online sales website, he said. “We find that customers who buy E.V.s are adopting new ways of buying, and that is where we see the greatest opportunity.”
Nissan is refining an online sales system, Nissan@Home, based on a platform licensed from CarSaver, which was developed for Walmart. “It’s clear that the younger generations want to do more online, and Gen Z even more than millennials,” said Dan Mohnke, Nissan’s vice president for e-commerce. “We are using it for a brand differentiator of Nissan.”
But even individual G.M. and Nissan sites may work differently from dealer to dealer because of differing state laws and because their dealers can choose which parts of the online tool kit to use. Some dealers entrenched in hoary sales culture may use websites merely to maneuver buyers into a showroom.
“Some dealers get it; some are maybe still hanging on to the past a little bit more,” Mr. Mohnke said.
It’s an exaggeration to say any current platform is truly end to end. For one thing, many states require a “wet signature” on sales contracts, meaning a physical signature. But different platforms have refined different parts of the sales experience to meet expectations of younger generations.
The test drive — which made dealerships unavoidable — has been replaced with what might be called test ownership: a tryout period with easy returns. Carvana’s return policy appealed to Jessica Minnen, who is 39 and lives in Denver. “You can drive it up to a certain number of miles and still return it if it’s not working for you,” she said.
“I have not had great experiences going into car dealerships as a woman solo. I don’t want to be talked down to,” she added. Carvana allows vehicles to be returned for free within seven days and 400 miles. Similarly, Vroom offers a seven-day or 250-mile tryout.
Carvana delivered Ms. Minnen’s 2012 Subaru Impreza, took away her 2003 Subaru and signed the final paperwork in her driveway. “It felt very clean and safe,” she said.
Online sellers have allayed buyer concerns by including a warranty in a used car’s purchase price. CarSaver includes a lifetime warranty with no deductible on new and used cars. Gettacar, a used-car platform exclusive to the Mid-Atlantic, includes a one-year, 12,000-mile warranty in its price and offers a discounted extended warranty.
Many of the platforms aim to foster dealer loyalty. G.M.’s phone app monitors a car’s health and tells owners when to take it to the shop. “We are looking at this as an ownership experience,” Mr. Mehta said.
CoPilot, a start-up, offers “car-buying tools for people who don’t understand cars,” said its chief executive, Pat Ryan. It will track recalls and remind owners when it’s time to rotate tires or perform routine maintenance, Mr. Ryan said.
Some dealerships pick up and return cars requiring service, which reduces the need for expensive showroom complexes on major thoroughfares. If deals are done largely online, stored cars could share space with shops on cheaper land, offering tremendous savings and potentially boosting dealership profitability — a diminishment of dealerships that benefits even the dealerships.
Millennials may be spurring the trend to online purchases, but the platforms say other generations have quickly jumped on board.
“My 78-year-old mom had no idea she could buy a car without going into a dealership,” said Doug Miller, the chief revenue officer of Cars.com. Her 2020 Moonbeam Beige Lexus RX 350, bought on her son’s platform, of course, was delivered last May.
“She liked buying the car in her driveway,” he said. “I don’t think she would want to go back into the dealership.”
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