Everyone either has a car buying horror story or knows a dozen people who do. Even people who enjoy haggling don’t typically enjoy the car buying process as a whole. It takes too long, it’s too complicated, and there’s an ever-present fear the salesperson is taking advantage of you, even when they’re not. Hyundai has an idea to tackle all those problems.
Research conducted by Hyundai found 90 percent of car buyers find the process “highly frustrating,” and you can bet at least some of that remaining 10 percent find it at least a little frustrating. We all know why: the dreaded car salesman. Without saying anything else, you’ve already pictured the guy. He’s got a cheap suit (or the store-branded polo shirt), and his charm is clearly an act. He’s trying to push you into a more expensive vehicle than you want , slinging jargon while he low-balls you on your trade-in, tries to sell you rust-proofing, and says your credit score means you don’t qualify for the 1.9 percent APR deal. He’s going to keep you tied-up in the dealer for five hours (average, per studies) with confusing paperwork and multiple trips “upstairs” to come back with another deal to fight over.
This guy is a caricature, a stereotype. He was probably never the majority of car salesmen, and he certainly isn’t today. But the moment a car buyer feels like the salesmen is trying to take advantage of them in any way, that salesman becomes the embodiment of everything terrible they’ve ever heard about car buying. Car dealers have been slow to eliminate predatory sales tactics and the salesmen who practice them, and the reputation has dogged the industry as a result. In Gallup opinion polling, car salesmen rank second-to-last in honesty/ethics, just ahead of Congress, and the responses on car salesmen have been pretty much the same since the poll started in 1977.
Hyundai’s idea strikes at the heart of the old-school salesman by depriving him of opportunities to pressure or confuse the buyer into spending more than they planned. What’s more, it does it in a way that shouldn’t anger dealership owners.
Hyundai’s plan works like this: You go to the dealer’s website, find the car you want, see exactly what the dealer is asking for it, request a test drive wherever you’d like, fill out all the financing paperwork online, and only step foot in the dealership when you’re ready to pick up the keys. It’s essentially a hybrid of current dealership online sales tools and the Tesla model. Plus, if you change your mind, you’ve got three days and 300 miles to return the vehicle for a full refund. Good luck getting that from another brand (for now).
The first step almost completely removes the salesman from the equation, as not only are the MSRP and every possible discount listed right up front, but price negotiation is reduced to email and there’s no opportunity to steer a buyer to a more expensive model. Bringing the test drive to you also keeps you off the lot (limiting your chance for comparison shopping), though you’ll have to talk to the salesman who brings you the car. Filling out the paperwork, applying for financing, and getting a valuation of your trade-in online negates several layers of the process unscrupulous salesmen and finance guys use to prey on unsophisticated car shoppers. Whether or not Hyundai eventually evolves this into a pure “one-price-for-all” scheme (which could fall afoul of the Federal Trade Commission) remains to be seen.
It’s not foolproof, of course. They can still low-ball your trade-in or offer you a finance rate higher than what you might get elsewhere, but it’s all done online, so there’s no hot-box pressure on you. You’re not wondering if it’s worth it to walk out of the showroom and go to another dealership, if it means the hassle of driving half an hour. In Hyundai’s new scenario, you’re lounging in your jammies at your kitchen table. If you don’t like what you’re seeing, bail out and hit up another dealer’s website. You could even be shopping on multiple dealers’ websites at the same time and pick your best offer, all without leaving your house.
Why would independent franchised dealers go along with this, though? Because it doesn’t cut them out of the deal like Tesla does with its factory-owned stores. The dealership is still the middleman and should turn a profit on every sale. At the end of the day, dealer principals (owners) care most about staying in business and making a profit. Keeping salesmen employed isn’t at the top of their agenda. Hyundai isn’t trying to bring anything in-house or close down its dealerships. Dealerships will still warehouse the cars, provide test drives, handle the paperwork, arrange financing, perform service and repairs, and handle the occasional walk-in. For now, used car sales aren’t subject to Shopper Assurance, so that part of the business is unaffected. It’s possible dealers will see a change in the bottom line when their salesmen can’t upsell as many customers, but the dealer will also be paying out fewer commissions on the same number of sales, so it may just come out in the wash. With average profit per new vehicle sale declining, there’s even an incentive for dealers to keep the percentage of profit they’d normally pay in commission. It’s also worth noting that new car sales only account for 28 percent of gross revenue on average in 2016 according to the National Auto Dealers Association (down 1.5 percent from 2015), so they’re not the key profit center for dealers (that would be the service department).
For the old-school salesman, this is quite the assault. Selling cars has traditionally been an art, one predicated on being able to read people, understand their wants and needs, and connect them to the right car (“right” being a matter of opinion). When shoppers are doing their deals online, they don’t need a salesman so much as they need a customer service agent. If you’re a salesman not already in the online sales department or working closely with them, it’s time to learn how to negotiate via email or text, or die trying. Your job now is to process online orders, deliver cars for test drives, and answer questions. Maybe you can talk them into a different car during the test drive, but it won’t be easy.
This brings up another question: How will the salesman get paid? By doing so much less in-person work to actually sell the car, why would the dealer still pay a commission? Indeed, other brands that tried innovative pricing and sales models (Saturn and Scion) didn’t pay commission. A flat salary is probably in your future, which reduces the incentive and kills the hunger to sell many salesmen live for. Better beat feet for the used car sales department before that one switches over, too.
That all assumes this idea catches on. On the one hand, Saturn and Scion aren’t around anymore, but that has more to do with product than selling strategy, the latter of which was consistently popular even when the former wasn’t. Research cited by Hyundai suggests 88 percent of car buyers do most or all of their research online already, and the internet is already the number one source of lead generation. Another study found 75 percent of new car buyers would consider completing some or all of the buying process entirely online, and a Hyundai study found 84 percent would prefer a dealer that offered all four services under Shopper Assurance.
Even if half of those polled don’t follow through, that’s still 42 percent of buyers who’d prefer the new system and 37.5 percent who’d prefer to shop for cars online. With 17 million new cars expected to be sold this year, that’s 6.3 to 7.1 million sales detouring the salesman and going online.
Broken down further, the average salesman sells 132 vehicles per year and 11 per month. His dealership sold 928 cars last year on average, or 77 per month. With roughly 40 percent of those sales going online-only, that’s 31 of 77 new cars sold that month bypassing the salesman. Assuming it affects all the salesmen on the floor equally, they each stand to lose 4 to 5 of their sales each month. That’s a lot of commission out the window.
With the overwhelming majority of car buyers both distrustful of car salesmen and willing to consider buying online, it’s not hard to imagine the industry as a whole moving in this direction. Even if Hyundai mismanages the implementation of this particular program, it isn’t likely to be the last. An automaker has found a way improve customer satisfaction dramatically and the dealers have bought in. The only people who lose are the traditional salesmen, and based on how we feel about them, don’t expect much sympathy.