Buying a home is emotional, but not as emotional as buying a car. It seems like it should be the reverse. In this short column, we will explore why this is the case.
Studies show again and again that the car buying experience takes about four hours. Buying a car is the only purchase where two different consumers coming into the same dealership and buying the identical car will pay two different prices.
Psychologist Paul Ekman has written that humans experience six emotions as they go through life, listed in no particular order:
The first thing of note is that there are four negative emotions and only two positive ones, which is a little depressing, but let’s not worry about this too much right now.
As a car collector, I generally experience a state of elation, joy, delight, glee and euphoria when I buy a car. But I recognize that this is not the case for most people. In fact, many people approach the whole buying experience with dread and uncertainty, and surveys routinely show that people would rather get a root canal than buy a new car.
The Showroom Gauntlet
When people innocently enter the new car emporium, they meet a variety of individuals whose primary goal is to get customers to take test drives. They know that shoppers taking test drives are generally hooked on buying.
One of the reasons for this mysterious process has to do with our sense of smell. This is what has helped us evolve as humans, enabling us to smell danger, find food and survive. When smells enter the brain, they are routed through the cranial nerve and the olfactory bulb which is part of the limbic system, the emotional center of the brain processing both emotion and memory.
A few decades ago, the mysterious and compelling “new car smell” was widely discussed, although today it has been muted somewhat by environmental and health concerns (it turns out that a lot of that was coming from volatile organic compounds evaporating, which is not something you want to breathe for any extended period of time).
There’s no doubt that the new car smell triggers the happiness emotion, and this is what dealerships want to happen while people are buying a car. A car dealer wants happy buyers, particularly in this age of viral marketing and social media.
As for the surprise component, I guess the biggest surprise would come from a short, non-confrontational, no-hype-no-pressure buying experience, combined with finding a car that buyers really like at a price they think is a good bargain. Why is it so difficult for this to happen?
Today’s Buying Experience
Well, let’s take a look at a somewhat typical sales experience today. A buyer senses that his/her current car is starting to feel its age. The seat material has cracked. The headliner is sagging. There is some paint fading and or heavy scratches on the doors. Maybe they don’t like the color anymore. But then some more serious things start to happen — the vehicle needs a new radiator, a transmission rebuild, and a full set of tires. These repairs cost more than a few thousand dollars.
The prospective buyer does some online research to learn more about the cars they like, and to find a dealership nearby who has one in inventory. They contact the dealer to confirm that the car in still stock. When they get there, however, it turns out that that particular car was just sold, or transferred to another dealer, or was in the body shop, is the wrong color, or had a bunch of expensive options that the buyer doesn’t want or need.
So they go to another dealer and look at the cars on the lot. They find one they like, meet with the salesperson and come to an agreement. But then (clue sinister, menacing music), they are taken to another office to meet The Closer.
This is where buyers learn about all the fabulous options that are available for their new car – things like gap insurance, paint protection, VIN etching, extended warranty, mag wheels, high-performance tires, upgraded stereo system, etc. By this point, surprise and happiness have been replaced by guess what? — anger, fear, disgust and sadness. This leads to PNCASS (post new car acquisition stress syndrome). After four hours of meetings at the dealership, most people don’t want to set foot in another dealership for a very long time.
The Dealership Perspective
I think consumers would be surprised to learn how little that dealers really make when they sell a car. First of all, the gross margin and net margin for a new car dealer has shrunk dramatically. People think dealers make thousands of dollars on the sale of a new car, but the fact is that they make between $1000 and $1500 on the sale, not thousands of dollars. Dealers make most of their profit on fixed ops (i.e. parts and service) rather than new car sales. Furthermore, dealers make a higher margin selling used cars because the initial cost of the vehicles is so much less.
It costs a lot of money to run a dealership. The average active dealer has invested an average of over $12 million in their business. Since the dealer is independent of the manufacturer, the owner is usually self-financing. The dealer has to buy or lease the land, often a lot of land, build or remodel the buildings, fill the lot with inventory, and have working capital to pay the bills, which typically equals at least two months of inventory. Operating expenses include salaries and benefits for the employees, sales-related expenses (commissions), parts and more. This is typically about $5 million per dealership.
Consequently, dealers want to break even on new car sales, make money on used car sales, and have parts and service as the main profit center. It is a tricky business to master. While some dealer stores promote a “no pressure, no hype, hassle-free” buying experience, the typical buying experience for the consumer hasn’t changed much in the last 50 years.
Buying a Car Versus buying a Home
Now let’s contrast this experience with buying a house. When people buy a house, they have, hopefully, a trusted and experienced real estate professional advising them, as does the seller. The average house price in the country is about $250k, and with a 6% commission, that means the agents (and their office) will get a total of $15,000 in commissions, a lot more than anyone at an automotive retail store is getting, even if they sell a new Rolls Royce.
Realtors are held to a strict standard for disclosure and can be sued for non-compliance. Buyers will typically hire one or more inspectors to verify the soundness of the property, and of course the bank lender will hire an appraiser to verify that the price conforms to market standards. Here both parties need to come to an agreement as to what is fair for each side, although this can of course be influenced by a buyer’s market or a seller’s market, which skews the odds of bargaining. But we seldom hear anyone complaining about the process of buying a home.
Sweetening the Car Buying Experience
If you are a dealer, you naturally want consumers to have a good experience at your store. We know that most of the stress comes from the financing aspect of the sale: how much can the buyer afford, what is the monthly payment, and how are they going to handle the down payment?Enter CrossCheck’s Multiple Check service.
When consumers need to come up with funds right away — such as a down payment or an expensive repair — CrossCheck stands in at point of purchase to make a sale happen for the dealer and the consumer. Unlike the prevalent debt traps that trick consumers into applying for “free, interest-free credit,” CrossCheck does not run a credit check on consumers buying a car or have them pay interest for what we do. In fact, we are invisible to the consumer.
The dealer explains what the bank needs for a down payment and then asks, “ If we gave you an extra 30 days to come up with the money for the down payment, would that work for you?” Of course, the answer is “Yes!” Now the dealer can finalize the sale and get the taillights over the curb. Result: happy consumer, better buying experience, and one less car in inventory on the lot.
CrossCheck’s Multiple Check service is a win-win for both parties because it reduces risk and helps increase sales for dealerships, simplifies transactions and provides extra time for consumers to complete expensive purchases. And I think that pushes the happiness button!
Download our free guide to learn how Multiple Check can benefit your dealership.
Tags: Auto Dealers