Why aren’t cars sold over the internet like everything else?

The car researching experience has changed a lot over the years, from marketplaces such as carsales.com.au to professional review sites such as caradvice.com.au. But neither of these services have changed the way consumers transact a new or used car.

The closest contender has been the colossus carsales.com.au, who today dominates the market for used car classifieds where buyers and sellers are efficiently brought together. Being a classic case of a network affect, means that carsales.com.au position is unlikely to change anytime soon. But considering this privileged position and technical knowhow, why hasn’t carsales.com.au become the place that consumers transact online? - rather than just a glorified classifieds site.

When observing the successful companies who have pioneered online sales for their product categories – think Warby Parker (Glasses), casper (beds), Zappos (Shoes), Wayfair (Homewares), Tesla (new cars) and Amazon (everything else). They all have overcome most of the following:

Control & Branding

While Amazon has proven that you can dominate retail transactions by selling other products, many successful e-commerce pioneers have concentrated on the product first and let their customer experience do the promotion of their offering. By giving consumers an exceptional and unique experience, the power of word-of-mouth has propelled these brands to success and by controlling the brand, have given consumers no choice but to transact via their online store.

Therefore, it would be very difficult for carsales.com.au to control the transaction as they would be relying on private sellers, dealers and car brands to relinquish control of their products and customer experience to a third-party.

Thus far, no established car brands have successfully pivoted from a traditional ‘dealer’ model to an online model. However, they do have the advantage of control and branding to make a success of online sales.

Pricing   

For many consumers, the issue holding back any online transaction is ‘am I paying a good price?’. Amazon fixed this issue by obliterating away their competition so a buyer has little doubt on whether they could have got a cheaper price elsewhere. For other brands, controlling the product and retail options available has enabled them to give their customers certainty and transparency on pricing. Tesla solved this issue by selling direct to customers and thereby giving their clients certainty on pricing.

To date, cars are transacted at wildly different values. A used car buyer could search sellers on carsales.com.au to see the listed prices, but the inconsistency of quality and the transaction price is often very different to the advertised price. With new cars, transaction prices can sometimes vary by $1000’s difference to RRP and consumers have no choice but to visit a dealer and find their best price.  

Because of this need to search for their best price, consumers are unlikely to embrace online sales under the traditional dealer model. Recently, Honda and Mercedes have or will soon be operating a ‘Agency model’, where they can fix prices across their networks and it is possible that these brands become pioneers in online car sales. However, they will need to find solutions to the following;

Reviews

While car brands and models are extensively written about and published online, the source of consumer information on cars has not changed much in the past 50 years. Essentially journalists, who have access to a car for a few days typically on a junket in the south of France do some power slides and report back on the ‘lack of power’. But the needs and wants of a motoring journalist are often widely different to the average consumer.

Successful marketplaces have often recognised this and placed importance on capturing real reviews from owners and users of a product who can often report on fundamental features of the products sold on their marketplace. The resource of trusted and relevant reviews are often the catalyst that propels online sales and help a category get online traction.

Car brands will find this difficult, reviews on many controlled sites are often poorly contributed to and are often seen cynically by the consumer. The best review resources must be seen as an impartial forum for consumers.

Currently, there is no trusted and substantial review resource for cars.   

Touch and Feel

Even if a resource is created to host verified reviews of cars by owners, it is a fact of life that everybody is different. With such an important purchase, most buyers want to see how the car accelerates, how comfy are the seats, how direct the steering is, what is the smell? And that is why successful online categories have returns.   

Returns

The last, and perhaps most crucial aspect of an online sale traction is the ability (or option) to return a product if it doesn’t meet expectations. Before returns were the standard, shoes and clothing sales online were a rarity where feel and fit are crucial. With the introduction of returns, customers could feel comfortable that they could return an item just because ‘it didn’t feel right’.

In the used vehicle space, returns are increasingly being used by retailers to promote their online sales and drive the popularity of fixed price used cars. In most states, registration and stamp duty is easily reversed in a reasonably short period of time. However, new vehicles face a significant hurdle by having heavy depreciation in the first months, small margins and the expectation that a new car should have very low kilometres at delivery.

So, why aren’t cars sold on the internet? If we can solve these 5 challenges, there is no reason why a car can’t.