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Online Car Buying: Risks, Impacts, and Prospects To Watch

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The Roaring Twenties allowed an average American to spend on items such as cars, films, and televisions. Today, owning a car is a mere necessity for most. Since the pandemic, car buying has drastically changed for the American consumer, with much of it moving online. The first part of this two-part series on car buying websites looked at some of the history and concerns of both investors and car buyers. This part looks at possible economic concerns in more detail and some potential roadblocks for the industry.

The fear of a looming recession during the pandemic and rising vehicle costs propelled people to turn to cheaper new and used cars. Online dealers such as Autonation (AN), CarMax (KMX), and Carvana (CVNA) expanded their efforts in selling used cars to consumers. When other industries hit a rock bottom, the stock prices of car companies rebounded. In March 2020, Carvana stock reached $200 from a low point of $30.

While the pandemic-induced price hike is over, most online car companies are sustaining their businesses well. In fact, Vanguard group recently increased its position in CarMax. The company’s one-year price forecast also looks positive with an expected high of $85.05 and a low of $26.26.

Wall Street is expecting a year-over-year increase in Autonation's earnings as the company prepares to disclose its quarter-end report on February 17, 2023. New tech-driven startups are also emerging in the space. Carro — Asia Pacific’s fastest growing startup is on its way to a public listing. The company is simplifying car transactions and deals using artificial intelligence.

The comforts of buying online

Buying cars at a dealership can be an anxiety-inducing ordeal for most Americans. Buying online can alleviate some of that pressure and stress. According to a Progressive study conducted in January 2022, 78% of Americans who bought a car online considered it a highly satisfying experience. 

Keeping a consumer-centered approach in their business models can help online car companies drive sales and improve consumer satisfaction. For example, Shift Technologies, Inc. (SFT) uses machine learning to track past prices so customers know they are getting a fair price — whether they are selling or buying. The company offers both in-person and online selling options.

The flip side of the coin

While online car companies make it easy for consumers to buy cars, they also allow consumers to sell their used cars on these platforms. This allows for a C2C model where car-buying companies act as intermediaries between two consumers. Apart from those mentioned above, other companies that offer both buying and selling options are Vroom (VRM), Cars.com (CARS), and CarGurus (CARG). 

Despite the convenience, buying a car online can leave a potential buyer skeptical. Lack of satisfaction is another aspect of it. Test driving a car compared to browsing a few pictures online are two very different scenarios. Lack of sufficient information provided online can leave buyers less likely to purchase. When dealing with online sales, offering quality customer service and keeping customers happy can also be a challenging feat.

Consumers haven’t fully embraced the idea of shopping for their cars online, and they aren’t wrong. Like any other retail-centered transaction, online car buying is also susceptible to scamming. A car with a significant amount of damage can be title-washed to get rid of its history. Scammers may request payment through gift cards with no intention of selling the car itself.

Fake ads can be a tricky business where scammers sell cars that don’t exist. The ads appear legitimate and dupe buyers into paying for something they would never own.

However, despite these risks, there is no denying that buying a car online comes with a convenience tag and the process is far easier compared to shopping at a physical dealership, especially when the car can be delivered right to the consumer’s doorstep.

Impact on the traditional dealerships

As the pandemic forced nonessential businesses to shut down, traditional car dealerships were faced with no choice but to adapt to digital means of selling cars. Today, the traditional dealership market is more willing to sell online compared to only a few years ago. With the tight competition between car dealership companies and the shift to virtual models, traditional dealerships' survival lies in adapting to the changing times.

Statistics are also bending in favor of online retailers. Analysts predict that the global online car buying market is expected to grow by $214.41 million during 2022-2026. Most dealerships aren’t quite ready to shut down physical showrooms and shift to an online-only model, but adopting the right mix of both physical and digital is a healthy balance that could increase investment potential in the years ahead.

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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David Cotriss

David Cotriss is an award-winning writer of over 500 news and feature articles on business and technology. His LinkedIn profile can be found at https://www.linkedin.com/in/davidcotriss.

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