Big Data and the Auto Industry Part III: Buying and Selling Cars with Big Data
By Lloyd Marino
For most Americans buying a new car is the second most expensive purchase they make. In 2015, Americans paid an average of $33,560 for a new car. Buyers naturally want all the data they can find before making such an expensive purchase.
At the same time, there are nearly 18,000 automobile dealerships competing for their business. A typical dealership sells an average of only 80 or so cars a month so every sale matters. Big data can help salespeople sell more vehicles, at a greater profit.
Buying a Car with Big Data
Do you dread going to your local car dealership and being overwhelmed by a fast-talking car salesman? Thanks to big data, those days are over. Today’s car buyers can grab data from Edmunds.com and Consumers’ Reports that help them negotiate on more even terms. Data empowers buyers not only on the suggested retail price of the car, but also on the dealer’s cost and incentives. This informs the buyer on how low the dealer can drop the price while still making a profit.
Big data also lets consumers find a dealer that has their desired model in stock. Some services even link buyers to several dealers with that car, launching a bidding war. Reliability reports from thousands of users help buyers select a model that will spend less time in the shop. By researching the Vehicle Identification Number used car buyers can find the car’s whole history to avoid lemons.
Selling a Car with Big Data: Manufacturers’ Sales
In my last blog, I wrote about how manufacturers use analytics to build better cars. But big data also helps sell them. For instance, data on local demographics, past sales, and competitors’ locations show manufacturers where to place new dealers. This data also helps them project expected sales and reward dealers who beat these expectations. They also can tweak advertising and promotions if cars do not move as projected.
For instance, Ford’s Smart Inventory Management System predicts consumer demand for specific models in specific areas, reducing the number of days cars are parked, unsold, at dealer’s lots. It bases predictions not only on a dealership’s past performance but the sales record of other dealers in the area. Dealers then adapt these recommendations to their own customers’ needs. According to Automobile News, dealers follow 98% of the system’s recommendation and the more rapid turnover can save up to three figures per car.
Big data also helps with advertising. Of course, manufacturers have long known to advertise sports cars and trucks during baseball and football games. Now, with big data they can analyze prospective customer types and determine the best way to reach them. They can pinpoint their customers more exactly and reach specific types of customers—sex, age, children, income—with specific models. This allows them to target customers who buy new cars most often and those who buy luxury models and higher trim levels.
Selling a Car with Big Data: Dealership Sales
Big data can make automobile dealerships more profitable. Dealers who analyze the data from their own operations can find new opportunities and customers. They can track the locations where their customers live, discover who purchase each model and options, and customize communications to service requirements and how often customers replace their cars. They also can measure the success of their salespeople.
Big data analytics can tell dealers which features are most desired by specific types of customers. Salespeople armed with this data are better equipped to guide customers to the best fit. It can help dealers customize the most attractive package – trade in, financing, options, service contracts, warranties, etc.
Big data shows what lead sources (such as cars.com) resulted in cars bought and how much dealer interaction was necessary for the purchase. For instance, Autobytel CEO Jeff Coats at the 2015 National Automobile Dealers Association convention said Autobytel has data showing that its leads resulted in sales 16 to 25 percent of the time.
Big Data Helps Both Sides
As with any tool, the effectiveness of Big Data depends on how it is used. But once one group begins to analyze data, competitors must also or lose out. As long as car buyers bring information power to their automobile purchasing and manufacturers build elaborate data centers, dealers too must glean as much information from their data as possible or risk losing business to those who do better.
Image By: Hans M