Automotive retailers with brick-and-mortar stores as well as online portals can no longer dismiss digital retailing. Small auto dealers are increasingly having to compete against much larger dealers/groups and innovation can level the playing field. In the past, word-of-mouth and exceptional customer service have helped many small auto dealers as well as large dealers. Today, auto dealers need to showcase their products on multiple mediums to reach customers as opposed to consumers coming directly to the actual dealerships, which was how things used to work.

What is digital retailing?

Digital retailing involves the sale of products or services through the internet. What makes this type of retail important is that it does not rely on a physical location to help create the sale. Instead it relies heavily on digital distribution channels and e-commerce related software to filter the consumer through the buying process. These types of channels include consistent social media, e-newsletters, pay-per-click ads, display ads, etc.

Digital retailing advantages

So, you may be wondering why digital retailing is so important. One of the biggest reasons digital retailing has become so popular is because it allows for easy and clear incentives. Here are some of the more popular types of incentives auto dealers can offer:

Cash Incentives (depending on OEM (Original Equipment Manufacturer) – cash allowance can be used towards a purchase or a lease or both.

• Lease Incentives-
  • Lease Cash – used to reduce the lease payment similar to a down payment
  • Lease Rate (APR or Money Factor) – rate support from the OEM or bank
  • Lease Residual Support – residual is the value of the car at lease end. It is typically a percentage of the MSRP.
• Finance Rate Incentives –
  • Manufacturer or Bank supported APR (0.9% APR for 72 months)
  • Down Payment Assistance – Cash that accompanies the supported APR % (Example; 0.9% APR for 72 months plus $1,500 DPA).
  • Payment deferral or waiver – Offered by the financial institution or OEM.
• Customer Cash Incentives-The different types of customer cash incentives have different compatibility/stackability rules. The cash allowances can be offered on an OEM’s entire model line, a specific Year/Model/Trim/Body Style/Engine/Drive Type/Option Package or even specific paint code.
• Dealer Cash Incentives- This type of cash offer is given to the dealer by the manufacturer to use at their discretion.

Digital Retailing and the Auto Industry

One of the biggest leaders in the digital retail space is the automotive segment. That’s because digital retail provides an easier way for consumers to begin the auto buying process. They won’t encounter a hovering salesperson watching their every move and putting pressure on them to make a decision. Digital retail offers the most effective way to convert people searching your website to bona fide leads and transactions. It’s safe to say that digital retailing for auto sales is exploding.

With these leads come a wealth of information. For the auto sales industry that means gathering information about monthly payments, down payments, trade-in choices, and finance and insurance options. No worry if the consumer backs away from deals. The insight gathered from this data can influence the types of campaigns targeted to those consumers to re-engage them in the buying funnel. The once tried and true “call us” CTA has easily evolved to “buy online.”

Defined and non-defined Models

Until now, the customer moved through a traditionally defined system or model when purchasing a vehicle online. Often, the consumer would start with a third-party auto-buying website such as Autotrader for research on make, models, trims etc. However, the majority of the buying process would be completed with a salesperson during an in-store experience. While this was a type of digital retailing, it didn’t have the success of the current digital retailing model.

In today’s digital world, the consumer takes charge during the non-defined model. They don’t even speak with a salesperson in the early stages of this process. The consumer follows the prompts and is led through a process that offers them ideal pricing down to a VIN with the appropriate rebate or incentive, trade-in options, monthly payment schedules with various down payment scenarios, auto accessory variables and protection programs applying for credit, which ultimately give the consumer the perfect penny payment. This is all accomplished online and without actually speaking to anyone at the dealership.

Innovation in the automotive digital retailing space is at an all time high. Not only are customers able to research car models and options but they are also able to begin, and sometimes complete the buying process online. This innovation is driven in part by newer technology but also by changing consumer behavior. Yet innovation has outpaced adoption. Studies show consumers prefer a digital retailing experience that seamlessly moves them through the buying process especially as it relates to nailing down financing and exact monthly payment. Technology is the ultimate equalizer. OEMs and dealers that can adequately provide a seamless digital retailing experience will be the better for it.

Car payments come in all shapes and sizes from leases to loans to balloons; from new cars to used cars to certified pre-owned; from two years to seven years – and those are the simple things. Calculating a car payment involves more than simple math. The annual average car payment in the United States has increased over the last two years. In 2019, the average U.S. car payment for a new vehicle was $554 and $391 for a used car, while the lease payment average was $457. These amounts are up from 2018. Two years ago, a new car payment averaged $530, while a used car payment averaged $381 and lease payments were also lower at $430.

So, what’s really in a car payment?

Rebates and Incentives

The first option to consider is whether the car manufacturer (OEM) and, in some cases, a third-party bank is offering any rebates, incentives or subvented interest rates. These are often used to entice the buyer into the showroom. It is also important to consider the trade-in as well as the consumer’s credit score. These options will impact the final price of the vehicle.

Lender

Ninety-three percent of all vehicle purchases need financing. The buyer will have to decide how many years they would like to finance/lease the vehicle, typically ranging between two to seven years. Rarely is this an apples-to-apples comparison from one lender to another. In my experience, there can be some ambiguousness at this point in the buyer journey. Additionally, the lender will factor in any subvented rates they have, the buyer’s credit score as well as new or used car interest rates. While new car rates differ by very little, used vehicle rates can vary from 5% to over 10%. The differences in used vehicle rates depend on the year of the vehicle, the consumer’s credit score and mileage of the vehicle. The lower the credit score the higher the interest rate. These reasons alone make estimating a car payment quite challenging.

Dealer

The dealer also has an effect on determining the monthly car payment. A major portion of this interaction is based on the selling price of the vehicle which is negotiable. This can be affected by who is doing the financing and other variables. Dealers like to handle the financing and sometimes this is used to impact the price or other aspects of the loan or payment.

State

Regardless of the finance terms or whether the vehicle is new or used, no transaction is complete without factoring in taxes. Most buyers rely on the local DMV to provide the local, state and county taxes as well as titling and licensing fees. It’s almost always an afterthought factored in once an agreement has been reached on the selling price of the vehicle. In instances like this, the taxes may bump the customer’s monthly payment out of their comfort range.

Consumer

The last factor in pricing is the consumer. The biggest way consumers influence the price of the vehicle, outside of things like a trade-in and balance owed, is by how much cash they put down on the vehicle. Obviously, the more they put down, the smaller the loan or lease amount will be.

Evidently, there is a lot that goes into calculating a monthly car payment. In addition, there is also something to be said about a dealer’s ability to confidently advertise an exact monthly car payment for each vehicle in their inventory. How is this possible? Technology. OEMs and dealers should invest in the use of technology built specifically for payment calculation in the automotive industry. Here are my specific reasons why –

1. To confidently advertise exact and to the penny payments on every vehicle in inventory
2. To efficiently sell more vehicles
3. To consistently offer a seamless customer experience to the buyer

In the most simplest of terms, OEMs and dealers want to sell vehicles and customers want to buy them. The sticking point – the car payment. If you successfully eliminate the sticking point, both the dealer and the customer win.