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Jared Hamilton
From: Jared Hamilton
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Joe Orr

Joe Orr President / CEO

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GM Launches Online Used Car Sales – What’s This REALLY Mean?

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I’ve talked plenty of times about disrupters entering our industry in an attempt to take sales and market share away from dealers. The Carvanas, Beepis and Vrooms dangle carrots of lower prices and better buying experiences and tempt consumers to try a new way of purchasing their next vehicle. Now, it appears, at least one manufacturer has taken notice.

 

A recent article in AutoRemarketing reported that GM is set to launch a used car online buying experience for consumers – tagged the “Factory Pre-Owned Collection.” The manufacturer intends to offer as many as 30,000 vehicles for sale -- all of which will have under 37,000 miles and include extended warranties. Consumers will be able to go to the manufacturer’s website, browse inventory, select a vehicle and have it delivered to the GM dealership of their choice. They are also extending a 3 day/150-mile exchange program for cars purchased through this medium. It’s unclear as of now how the dealerships will be compensated for these sales.

 

It’s obvious that this move is in direct response to consumer demand for an easier car-buying experience. It would seem pretty safe to speculate that manufacturers have been watching the disrupters and have decided to enter the online buying space -- And, perhaps, beat them at their own game. The mere fact that GM has the ability to maintain an inventory of 30,000 vehicles for sale; which it stated are lease, daily rental and company vehicles; begs the question of how their dealerships will replenish used vehicle inventory if GM makes the decision to keep them all.

 

It’s my guess that it’s only a matter of time before other manufacturers enter this space essentially book ending dealerships. On one side you will have the Carvanas in the online space selling direct to consumers. On the other side you’ll have manufacturers doing the same thing. Unless dealerships make the decision to join this movement towards an online buying experience, they may find themselves quickly becoming delivery centers for their manufacturers.

 

I am not blaming the manufacturers. I have seen firsthand that many dealers are not interested in delivering an online buying solution for the customer. They are making profits and simply don’t see the threat….yet. We as dealers simply must understand that things have already changed -- and for the better. This is what I am calling the “Customer Automotive Experience Revolution.” Customers now have the same choices and power in the automotive buying process that they have long had in all their other shopping verticals.

 

The technology is there, ready and waiting for dealers to embrace. There isn’t an entry barrier for dealers into this space – other than their own thought processes. The fact is that they can offer an online car buying experience that consumers demand while still maintaining profits and even increasing back-end profit as well.

 

But think about it for a minute -- When a customer buys a vehicle from a Carvana, or even the manufacturer, who do you think they credit for the great experience? You guessed it. Carvana or the manufacturer. How can dealerships expect to begin a relationship with a customer and nurture them into a loyal service, and perhaps future repeat customer, if the customer’s perception is that the dealership had absolutely nothing to do with the sale? What does this say about the dealership in a time where we as dealers must build trust with our customers and shed that old 1980 car dogma?

 

 

Don’t find yourself stuck between a rock and a hard place -- even if the rock is perhaps just a pebble for the moment. Realize that consumers are demanding an easier car buying transaction and that your dealership has the ability to give them what they want. They certainly have companies willing to give them the experience. And, now at least one manufacturer is willing to as well. If you keep procrastinating, you may find your dealership transformed into a test drive and delivery center.

 

This change is good! Imagine being a customer, if you had all these choices to shop and buy, which would you take? How about your neighbors? If your dealership offered them an escape from the friction of the showroom along with all the advantages that only a dealer can offer, I think I know the answer!

John Wolf
Several additions to your article. As I understand the program at this time, GM will set the retail "suggested" price for the customer and the "buy it now" price for the dealership thus establishing the margin to be purchased through dealership websites not the manufacturer. However, the dealership is responsible for transporting the chosen vehicle to the dealership and all reconditioning costs. A 12/12 or 24/24 warranty is to be included in the purchase price to both the consumer and the dealership. The dealership may establish a mileage range which we will transport a vehicle to our store at no charge to the customer and then a charge that we would collect for transportation of a vehicle beyond that range. No provision was detailed on how that fee would be collected or when.
Joe Orr
John, thank you for taking the time to share the additional information. While I (and I am sure many others) have many questions, the pieces are starting to come together with your help. Anyone viewing this post - any additional information would be appreciated by all. Interesting to say the least. 1 question for dealers and dealership executive management: How do you view this move by GM?
todd caputo
Here are my concerns regarding this "program"that I have expressed to various people in the industry. I have been buying and selling used cars for 25 years along with being a Chevy dealer. 1-In NY and other states we are not allowed to advertise vehicles that we do not own or have title for. How can we have this inventory on our website in NY if we don’t own it or have title? It is a violation of the law in NY to offer a vehicle for sale we do not have title to. 2-There are many issues with title delays from GMF Dealer Source. How can we sell these cars with no title in NY? I have been waiting for titles for weeks and some even over a month that I have bought from GMF Dealer Source. 3-Why are you pricing your cars to the public with a cost plus mentality and limiting the dealer gross profit potential? The gross profit suggested margins in most cases are not even close to where dealers need to be to be profitable after we recondition these cars. My average reconditioning cost on GMF Dealer source cars with under 12000 miles is $500 and I have the repair orders to show this. The cars should be priced based on the days supply of the vehicles in our market and how they are priced in the market. Furthermore the pricing on these cars will have a effect on the pricing of my current inventory and other dealers. 4-Photos on GMF Dealer Source website are not acceptable in most cases to be shown to the public do they want these photos to represent their brands? The photos are from marshaling yards and auctions and are sub par at best. 5-For many dealers the shipping costs are very high and will eat away at whatever gross profit is there or not there already. 6-The pricing on the cars on GMF Dealer Source will not allow dealers in most cases to show customers a reasonable trade allowance when negotiating or dealing with customers with negative equity. 7-Arbitration needs to be discussed in detail by and who will handle the process and how it will work. This needs to be presented to all dealers in detail. They are saying that the auction which I am assuming is Adesa. They are buried with arbitration issues as it is. How will they handle the increased volume?? I have arbitration issues with GMF Dealer Source and they take 2-3 weeks to handle and many of the cars are not taken from my dealership once they are arbitrated for 6-8 weeks after the arbitration date. This will cost GM money, cause working capital constraints for dealers as the car will depreciate as it sits on dealer lots through the arbitration process. 8-If he have problems with Factory Preowned Collection will we contact our District Sales Manager and/or Zone Manager with problems? Are they equipped and trained to handle problems with used cars? Are employees at GM call centers able to handle the increase in volume and questions that will arise? 9- Why was this not BETA TESTED by select dealers in certain markets first rather than rolled out nationally. 10- The condition reports on GMF Dealersource are not nearly as adequate as they need to be and in many cases wrong. They also to not measure and display the depth of the tires on any of the inventory there. What happens if the condition reports don’t match or have undisclosed damage after we get the car and the customer has bought and committed through shop click drive. There are more issues than this but this are the "biggies" in my opinion.
Travis Libby
Todd brings up a lot of good point. My biggest contention includes the vehicle condition. First, additional cost items are listed with the VDP, however there are no associated pictures with those issues, and no idea of a cost to correct them. Second, there is no real commitment from the customer towards the purchase of said vehicle. When the customer says they want the vehicle, when I pay $$$ to go get it, bring it to me, inspect it (FOR FREE), recondition it (they'll give me $200 for a $40,000 vehicle - gee, thanks), and the customer says, "oh, I didn't realize the scratch was THAT big" then I'm stuck with a $40,000 Tahoe that I paid $38,000 for when I could have bought it on SmartAuction for $33,000. Perhaps, if General Motors realized we're trying to maintain our businesses, that we are their representation to our customers, they might consider our input on how to succeed at doing so. Or they can just continue to throw ideas in the air and think they work based on no real statistics to support those conclusions. I'd appreciate a partnership without a constant battle.

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