Are Car Dealers the Next Industry to be Disrupted by D2C?

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It’s no surprise that the pandemic has forced many people to switch to online when purchasing cars. Yesterday we saw that US car sales have even returned to pre-COVID levels among major automakers. I don’t see why online car sales wouldn’t be sustained post-pandemic.

Why shouldn’t getting a car delivered be as easy as your dinner via DoorDash, groceries via Instacart, or a package from Amazon?

Interestingly, this is already happening with a company called Geely in China, a country a few months ahead of the rest of the world in their pandemic recovery. Geely delivers the car directly to the customer’s home, while the keys are delivered soon after by a drone.

Bring on the D2C!

Broader tailwinds support the possibility for D2C cars:

• Consumers are moving out of cities with the “suburban flight” being seen in the US. Remote work (even partially) may entice more to move out of cities permanently and finally make an auto purchase.
• Services like Carvana are simplifying the process of buying used cars (and its stock price has more than 8x’d since March 2020.
• Digital finance startups are making large-scale purchases more accessible. For example, Affirm offers installment loans to enable “buy now, pay later options” for products like nearly $2,000 Pelotons. Roadster is attempting to do something similar with cars.

It should be easier to find the right car online. Select the features you want, choose your payment options, and receive credit approval in minutes (rather than the hours it takes in the typical brick & mortar process).

What makes an industry ripe for D2C disruption?

1. Unneeded complexity: an overly crowded market with too many product choices. In the textbook case of mattresses, Casper simplified the mattress-buying process by reducing the number of options from 388 (in the case of MattressFirm) to 1. Car dealers currently display more metrics than consumers know how to make sense of, or frankly care about. Year, make, model, mpg, engine specs, BHP, etc. Most people just want a functioning vehicle to get them from point A to point B for a reasonable price.
2. Current customer experience is flawed and inefficient. Car sale processes currently can take 3–4 hours or more. Do you know anyone who actually enjoys the process of buying a car?
3. An “unnecessary middleman” that can be bypassed to cut out high prices. This one might as well be straight from the D2C bible. Car salesmen mark cars up on average 5–10%. For a major purchase (often tens of thousands of dollars, this adds up and begs the question: Is there really a need for the traditional car salesmen?

What’s stopping cars from going D2C?

• D2C brands tend to benefit from products that are frequent repeat purchases. Think Chewy with pet food, Harry’s with razors, Glossier with makeup & personal care. Cars are not in this category.
• Consumers may ultimately want someone they can trust with a major purchase decision. In the same way a home has a personal, emotional aspect in the buying decision, cars present a similar behavior for many. However, in the same way real estate is being changed through online marketplaces like Zillow, you don’t “deliver” a house to the consumer. By definition, the house is where the “C” in D2C is already located. Cars, on the other hand, are deliverable.

This makes me think: what about car servicing. A D2C car service — where the repair workers specialized in car service come to you, rather than you waiting several hours in an auto repair wait room for your car to be fixed. Just a thought, but I’m not aware if this already exists.

Regardless, some sort of disruption inevitable reaches all industries, as we’ve seen with many other D2C brands and emerging technologies. The car dealers that adapt will survive and come out stronger; and those who do not will be weeded out. The major players likely have the resources to do so, but small-town mom-and-pop dealers will likely struggle to come up with the capital and digital know-how.

This reality may spark consolidation in dealers as many traditional smaller dealers decide to cash-in while they can, and the larger players attempt to snatch up the smaller ones to expand their geographic reach. It’s interesting what Carvana is currently doing, and they’re probably the closest to building out a D2C car platform, but I would need to do more research on them to know for sure.

Tesla — the new leading standard in the industry, some might say — started D2C. We are obviously headed toward an emissions-free future, and I expect new startup EV players to pursue a similar distribution strategy. Only time will tell.