Start Me Up
WHY YOU SHOULD CARE
Because the multibillion-dollar automotive industry is dramatically transforming right under your nose.
By Troy Foster
The author is the chief legal and compliance officer of TrueCar Inc. and was formerly outside corporate counsel to OZY Media Inc.
Cars are over. At least that’s the impression you might get from recent articles in the Washington Post, NPR and even OZY, which described how teenagers are turning up their noses at the prospect of driving. Our research suggests otherwise — that this year, millennials will spend more than $100 billion on new cars, up 34 percent from 2014. Not bad for a generation that’s supposedly too broke, too eco-conscious and too enthralled by Uber to care.
As an executive at TrueCar, I have a dog in this fight — but you probably do, too, given that north of 15 million cars are sold every year. Invoking my inner Taylor Swift, I must admit that the “haters” do have one thing right: Millennials won’t buy cars the way their parents did. Instead, they’re going to do it … with apps. Yes, apps could eliminate much of the hassle and opacity now involved in car buying — and unlock significant value in the process.
How might this work? Imagine your car as a liquid asset (i.e., one you can easily sell) whose value is tracked and monitored day to day, just as you do with your stock portfolio or 401(k). The result would look something like this: While driving your SUV in the winter, you receive a smartphone notification that resale values in the area for your make and model are currently spiking, due to weather. Meanwhile, the convertible you’ve been eyeing happens to be available at a dealership near you at a relatively low price, again based on seasonality. The economics are compelling, so you snap photos of your SUV to create and submit an inspection report, get an instant guaranteed value assessment, and reserve and lock in your pricing on the convertible — all from your smartphone, before you ever set foot in the dealership. In less than an hour, you roll out of the dealership inhaling that intoxicating new-car smell.
You might think the concept would rankle dealers and manufacturers, but we believe the opposite: Transaction volume will increase, benefiting both makers and sellers.
But that kind of transaction couldn’t happen today. One reason is information asymmetries — consumers lack price confidence. Another (related) reason is that car dealers face well‑documented reputational challenges. These factors alone create enough anxiety to keep consumers in their current cars, and there’s also the hassle of managing trade-ins, researching vehicle choices, dealerships and other elements of the transaction. Surveys have pegged the amount of time that consumers spend researching vehicles and negotiating at the dealership at 13.75 and 3.6 hours, respectively.
Consumers want real-time price confidence not just for new cars, but also on the trade-in value.
We call this “friction” — and it affects every stakeholder. Manufacturers and dealers struggle to increase sales, while consumers delay accessing the most current safety and eco-friendly features. And the supply constriction of late-model used vehicles — often a first choice for new buyers and growing young families — artificially inflates prices. A lot is at stake.
Here’s how we see it: A friction-free process begins with price confidence. Today, consumers can access the most comprehensive new-car pricing data from TrueCar, as well as data from companies like Edmunds and KBB, all for free. That trusted information results in price confidence, the feeling that a consumer is getting a fair price on their new car. But millennials want more — they want the entire process streamlined. Consumers want real-time price confidence not just for new cars, but also on the trade-in value. And that updated trade-in value should be determined with reference to the area in which the consumer lives and real-time market conditions. Consumers also need the ability to drop their trade-in at any dealership in their area.
All of this may be hard to envision right now, and with good reason: There are many obstacles on the road to a frictionless car market, including actuarial and technological ones. Also, there remains a stubborn core of old-school opposition within the industry, committed to a more traditional process and a view of the Internet as just another lead source, instead of an opportunity to transform the consumer experience. But the path ahead has a sort of inevitability about it, and we should all be glad. So should our kids.
- Troy Foster, OZY Author Contact Troy Foster