LARRY P. VELLEQUETTE

Dealers can’t count on locals for used-car sales anymore

Larry P. Vellequette covers Chrysler Group for Automotive News.Larry P. Vellequette covers Chrysler Group for Automotive News.
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The Internet has done many things for auto dealers and made more than a few changes to the way they do business.

But while new-car pricing and lead-generation sites like TrueCar.com dominate the headlines, the Internet’s bigger threat to dealers’ bottom lines may be on the other side of the lot.

Web-savvy consumers armed with smartphones can, in seconds, check current market prices on trade-ins and used-car values, walking out of dealerships whose price sheet can be beat within a few hours’ drive.

I know this because I watched my 77-year-old father do it last week. On Tuesday, after months of searching, he test drove a 2010 Lincoln MKS sedan from a traditional dealership within 10 miles of his home and from a sales rep he has known for more than a dozen years.

After deciding he liked the car -- but not necessarily the color or the price -- he turned to AutoTrader.com to see what else was out there.

On Thursday, he drove 240 miles round-trip to pick up an identically equipped MKS with similar miles. He made the drive not because the color was more to his liking but because the whole deal saved him more than $7,000 over what the local traditional dealership said was its best offer.

In many ways, auto dealerships have always reminded me of church parishes in the way they have traditionally done business: They count on the local geography to supply enough demand for products to keep them in business.

Margins -- OK, I admit that it’s probably slightly sacrilegious to talk about margins in relationship to religion, but stay with me -- were flexible because of limited competition. And a higher margin could be justified with additional services. Keep the locals happy, and they’ll return for service and to make future purchases, right?

But the Internet is transforming that model into something more regional, or perhaps national: If all dealerships are eager to service any customers, the “parish” experience that kept vehicle purchasing local won’t be able to survive.

Used-vehicle pricing, both in trades and in sales, used to be the most flexible and lucrative part of an auto dealership. That’s not the case anymore, and the quicker those “traditional” dealers come to that realization, the more likely they are to survive.

You can reach Larry P. Vellequette at lvellequette@crain.com.

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