Trading in a vehicle is a whole different ball game in today's world. The surge in digital acceptance (payments, etc.) on consumer durable transactions is approaching a state of incomprehensibility. COVID-19 forced the world to transact on the internet, not only for sustenance, but also for employment, entertainment, and even the purchase and sale of automobiles. As unnatural as that seems, people are buying and selling vehicles online, sight unseen, demanding a touch-free process, and this has become the norm for more than a year. Who would have thought that a used vehicle could be sold or purchased digitally?

For example, the traditional approach to purchasing a vehicle has always included a mandatory test-drive. For the savvy shopper, a trip to a trusted mechanic who could scrutinize the vehicle on a lift and provide lots of fodder for discounting the price was inevitable. Today, there are digital images, virtual inspections, Engine Brain (ECM) scans and High Quality audio/video clips that provide crystal clear engine recordings that reveal any irregularities, affording potential buyers the chance to mitigate and reduce price accordingly. The traditional tactics are no longer necessary.

Who is leading the change?

Interestingly, 65% of all the people we transact with at CarBuyerUSA.com are female and 72% are reaching us via mobile devices. Factoring in the general aversion that people have toward car dealerships, they seek to escape non-essential human contact wherever possible. The pandemic has helped create a new segment for companies that can accommodate people wanting to sell a vehicle quickly and efficiently. While Car Buyer USA’s process is 100% digital and virtually touch free, there are a dozen or so other companies with similar offerings. Additionally, and as a matter of necessity, most franchised and some independent car dealerships have developed their own in-house car-buying operations to accommodate consumers who don’t want personal contact and also as a method of sourcing used vehicle inventory. As much as we would all like to see the end of COVID-19 and social distancing, we are convinced that a new paradigm exists. We expect trading in a car will become a catchphrase and thing of the past.

What’s driving the change?

The world has been begging for a better way to buy a car, including saving time. It pains me to say this but people dislike car dealerships and the hours spent perusing, waiting, test driving, and negotiating the deal. People love the concept and the experience of owning a new car but they dislike the new/used car-buying process. In all fairness to car dealers, consumers make that experience a lot more difficult and probably create half the strife. People abhor car dealerships because of all the friction and posturing involved. Three out of four customers are very tense and suspicious, diving headfirst into the transaction loaded for bear. These consumers are prepared for battle and walk into the dealership with a “slay or be slayed” attitude.

I can’t think of a more adversarial purchase scenario that exists today than buying a new car. If the consumer would only relax and just understand that a dealer is entitled to make about 5% on the vehicle, they would have much better transparency and a much higher rate of satisfaction. Some consumers don’t want the dealer to make any profit. In some cases, they want them to take a loss, which is completely unrealistic. This friction is what creates the dissatisfaction consumers seek to avoid. Interestingly, most dealers would happily take a deal with a 3% gross if they had that particular vehicle in quantity. If it's rare or in high demand, all bets are off. Unfortunately for the world right now, everything is in high demand due to COVID it seems. But let’s get back to the topic of friction because I think what happened in the digital realm will become the leading edge to a waterfall of change in the automobile retail arena.

An example of financial friction:

When you look at the structure of a car deal, it’s usually pretty simplistic. Most of the components are static: price of the car, interest rate, down payment, taxes, licensing fees, etc. The variable in the deal is financing. If the consumer only has $5,000 to put down on a $50,000 vehicle, the payment and the deal will be impacted. If the credit score of the buyer is very high, the bank probably won’t care if they only put 10% down. If the credit score is marginal, the bank will want significantly more down and will charge a much higher interest rate. This decision does not belong to the dealer. The dealer is the messenger and subject to the bank's policies and procedures. Huge interest rate gains/markups are passé. Today there is very little interest rate mark-up going on and the banks have all but eliminated it in favor of flat fees and bonuses for loan penetration.

Supply and Demand

COVID crippled the automobile industry globally. An automobile contains tens of thousands of parts and several miles of wire. Factor in sophisticated digital componentry and the parts to make your Ohio-made vehicle are coming from all over the world. The plants that make semiconductors (the chips) cost billions of dollars to build and research and testing for new products can take up to a year. Shuttering plants for COVID, trade restrictions, or even a fire in the case of Renesas–a Japanese chip maker–devastated automotive supply chains. The reality is sobering. Making a new plant—years to build. Adding a semiconductor line to an existing plant—billions of dollars cost and significant time to complete. The result is a chip shortage that may last well into 2022.

What does this all mean? New car supply is down, and prices are up. Special lease rates are gone, huge factory incentives and dealer discounts are also gone. Your used vehicle may be worth top dollar but there is nothing to trade it in on right now. So what are your options? Keep it another year until things open up or sell it now and bank the cash. There are plenty of buyers for your used car or truck and if you look down the street at your local auto row. Every single one of those dealers will make an offer on your vehicle. They can’t afford not to buy it as used vehicles are all that is left for them to sell right now. Plus, there are car buying entities like CarBuyerUSA.com that offer a digital experience and come to your home or place of business. No matter who you choose, getting an instant cash offer is a couple of clicks away.

What about selling my car to a private buyer?

Finding a private buyer for your vehicle will be “easier” in times where demand greatly exceeds supply, but remember…desire does not equal ability. Just because somebody “wants” to buy your vehicle doesn’t mean they are in position to transact in a seamless fashion. Let’s start with you having a car to sell. Does your vehicle have a lien that needs to be paid off? Does your vehicle need repairs? Does the vehicle have an accident history? Is the vehicle’s check engine light on? Will it pass an emissions test? Most of these issues are deal killers for prospective buyers. You could sell a problematic vehicle as-is, but how many private buyers would pay thousands of dollars for a vehicle that requires mechanical repairs just to get it on the road?

What about the buyer? Do they have the cash? Are they pre-approved for a loan? Will the bank finance your vehicle at your asking price or is that too high? Will the bank finance a car with an accident, high mileage, or a quality issue on the Carfax? As you can see there are many potential pitfalls and these are questions rarely asked by either party until they are encountered. We could write a book on what could go wrong with a private sale transaction. There are scams, robberies, fraud, and worse. In today’s automobile market, even the savvy seller is naïve because you can’t control the uncontrollable. Not to mention that it’s a lot of work to sell a car.

What’s the answer?

It depends how much time you are willing to invest chasing the extra $1,500 - $2,000 you might make on a private sale. That’s about all you will get over and above what half a dozen online car buying agencies will pay you for the privilege of buying your vehicle. Some are better and faster than others but most are concierge grade and will come to you. Selling your car online is faster, safer, and much easier than trading it in or finding a private buyer.