The stereotype of the crooked car salesperson has stood the test of time, but the way we’re buying our vehicles is changing fast. The global automotive ecommerce market is currently worth around $38.67 billion, and it’s predicted to grow 17.5% per year until 2031.
Even if you can’t imagine trading in the personal touch for convenience, those figures aren’t to be ignored. In this two-part article series, we’ll first dive into the world of car websites and how the industry is developing before looking at the impact of ecommerce on traditional car dealerships and potential problems with this new approach.
A quick history
The dot com boom of the late 90s and early 2000s is one of the most infamous financial events of the last century. With the Internet (and by extension the Web) just emerging, a period of rapid growth and speculation ensued, with many “dot-com” companies going public and raising billions of dollars. However, many of them crashed down shortly after due to a lack of genuine profitability.
There were a few car websites involved in this phenomenon, and one of the major players was Auto-by-Tel (automobiles by telephone). Launched in 1995 by a car dealership owner, the company operated an online marketplace for new and used cars, and it became the first Internet company to advertise during the Super Bowl in 1997. Like many other tech firms during this period, its revenue soared in a short space of time, then declined shortly afterward — but unlike many others, it managed to restructure itself and became a sustainable company.
It changed its name to Autobytel in 2001, then later AutoWeb (after a merger with the firm of the same name), but underwent troubles more recently and was bought by One Planet Group in 2022. However, other companies are doing better.
Autonation and CarMax
The three biggest companies in the U.S. car buying sites space are Carvana, Autonation, and Carmax, according to Ibisworld. Of those three, Carvana and Carmax are both marketplaces that emerged during the dot-com era, proving that the firms have some staying power. Yet they are facing challenges due to inflation and rising interest rates.
Carvana (CVNA) focuses on used cars and is struggling now that many consumers can’t afford the monthly payments for their loans. Its stock has been falling, and it could face liquidity issues in the future due to falling used car prices and difficult macroeconomic conditions. Similarly, CarMax (KMX) is suffering from affordability challenges due to economic conditions and the stock faced its worst day in 22 years in September 2022.
On one hand, it seems like things are all doom and gloom for the car buying market, with rising interest rates and economic fears keeping consumers away. But let’s not lose sight of the bigger picture here — the slowing demand for cars is likely just a temporary fixture due to the inherent need for cars remains. In fact, now could be an excellent time to buy and receive discounts.
According to Ibisworld, the U.S. car market alone has a market size of $45 billion. As well as the dot-coms named above, this includes names like TrueCar (TRUE), CarsDirect, Beepi, Shift, and Vroom. Plus, increasing digital literacy, Internet accessibility, urbanization, and disposable income are all driving demand across the globe, leaving further opportunities for those willing to expand beyond the country’s borders.
As people have moved online to buy more and more things, it only made sense that cars would be next. It’s notoriously difficult to trust car dealers or research a vehicle, and online tools make this easier by offering seamless comparisons, more options, and allowing you to see social proof in the form of reviews.
The most traditional form of car buying websites has been dedicated marketplaces like the ones outlined above. This includes traditional dealerships that have moved online, such as Autonation (AN). However, these are now far from the online options. And although they may not be obvious choices, social media and listings sites are also increasing. Buying cars on sites like Facebook, eBay, and Craigslist directly from buyers is appealing to many consumers as it allows them to avoid the dealer markup.
Another important trend is the integration of financing and insurance options into the car buying experience, instead of consumers having to buy the two products separately. This is appealing for many consumers and gives the potential for more revenues.
Even Amazon is now getting involved. Although you can’t buy cars directly from Amazon, it has Amazon Vehicles for research. The ecommerce giant recently made a deal with the automaker Stellantis, so more developments could be in the pipeline. And as the demand for electric vehicles increases, it’s also possible that new websites will emerge to cater especially for this.
Despite the promise that lies with these websites, however, it’s possible consumers are just using them for research purposes and not to buy because of the risks — that’s something we’ll look at next month. Still, even if the waters might be murky for the world of car buying websites right now, if you’re willing to take a risk and look to the future, it could be a good time to invest.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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