You almost can buy a new car online — through a dealer

Gabrielle Coppola
Bloomberg News

The auto dealer — around for more than a century and viewed almost as negatively as members of Congress — looked like a ripe target for disruption when retailing moved online. Now that startups have tried and failed to beat the car salesman, many are taking a different route: catering to them.

After watching predecessors like TrueCar Inc. and Ford Motor Co. stumble in their attempts to bring more Amazon-like e-commerce to car shopping, a new wave of auto finance upstarts has emerged. Rather than fight a dispersed and politically connected dealer industry, they’re bringing the country’s 17,000 new-car dealers into the digital age, meaning consumers aren’t going to be bypassing the dealership to buy new rides anytime soon.

“The market is so big that there’s nothing preventing someone from creating a new dealership model, but I want to go after the biggest part of the pie, which is how consumers buy cars today,” said Kevin Singerman, founder of AutoFi, a two-year-old San Francisco-based startup that began piloting its mobile financing app with Ford dealerships this winter. “That’s a much more attractive opportunity.”

Almost 20 years after the internet brought price transparency to the United States’ almost $1 trillion-a-year new car sales market, several steps of the shopping process have migrated online. But as buyers turn to Kelley Blue Book and for price comparisons, they remain unable to finish the car-buying process without a visit to the dealer. The average consumer visited about 2.8 dealerships before buying a car in 2016, compared to 3.5 in 2012, according to JD Power & Associates.

The portion of the buying process that’s yet to be cracked — solidifying financing and insurance — remains a profit center for dealers and has become a target for startups, though most are now taking aim with dealers’ blessings. The new apps replace tedious paperwork with a few taps and swipes on a smartphone, but the underlying economics are little changed.

In most of these digital-age car-financing apps, the same banks quote the same rates they would in a dealership, and the so-called “dealer reserve” — the fee the dealer gets for being an intermediary between lender and borrower — remains baked into the monthly car payment. That’s the case for Irvine, California-based mobile financing app AutoGravity, said chief marketing officer Serge Vartanov.

AutoGravity makes a “white label” version of its app that dealers can roll out with their own branding. It allows shoppers to pick a car, find a dealer and apply for credit approval all from their couch. AutoFi has a similar model, letting shoppers apply for financing from their phone — before going into a dealership to sign the paperwork. Both make money by charging dealers and lenders a fee once a sale goes through on the app.

“It feels nice being able to go through the loan process without having to dress up and go down to either a bank or heaven forbid the dealership,” one AutoGravity user, Justin Turpin, wrote in a review on the Google Play app store. “Of course once you do get the loan you have to put your pants on to get the car.”

Even the most futuristic of technologies are carving out a role for dealers. BMW AG and Fiat Chrysler Automobiles NV are rolling out augmented reality features for smartphones and several automakers are developing virtual reality goggles that let consumers inspect cars remotely but ultimately still steer them to a dealership, according to Accenture Plc.

“Car dealers will continue to play a vital role as the point of sale and delivery,” said Georg Bauer, a former BMW and Tesla executive who founded a mobile car-buying startup called Fair with TrueCar’s Painter. “They need to embrace and adopt new technologies and alternative ownership models to stay in the game.”