2023 Prospects for car purchase

Car buyers' perceptions of the buying process continue to be affected by rising interest rates, continuing inflation and volatile gas prices. Dealers seem to underestimate the effect of the economic environment on car buying: nearly all (84 percent) say this is a good time to buy a car, while one-third (33 percent) of buyers say the same.

The Car Buying Outlook 2023 collects the perceptions of car buyers and dealers on key areas of car buying: economic impact, transparency and trust, digital tools and innovation in financing, and in-person and online car buying.

Key findings:

• Both car dealers and car buyers say inflation is the main economic factor affecting car purchases, but dealers seem to underestimate the degree to which economic factors impact purchases. Car buyers continue to predict that inflation will have an impact on future car purchases.
• Dealers (68 percent) are three times more likely than buyers (21 percent) to say that the car buying process is very or completely transparent. The gap in perceived transparency remains stable compared to the March 2022 Car Buying Outlook.
• While 88 percent of car buyers say trust is at least somewhat important when working with a dealer, less than half say they trust dealers completely or somewhat (44 percent). More than three-quarters (76 percent) would return to the same dealer if they had a positive experience.
• Nearly half of car buyers who use digital financing tools say the car-buying experience has become easier (45 percent) in the past year, while those who do not use digital financing tools say it has become more difficult (50 percent). Before going to the dealership, most buyers say they want to complete an online vehicle information search (59%) and just over a third (34%) want to learn about financing options. Twenty-eight percent of dealers expect buyers to research vehicles before visiting the dealership.
• Although two-thirds of car buyers (67%) want dealers to improve their digital tools, buyers also consider aspects of the in-person buying process, such as test drives, to be important. Ninety-two percent say test drives are an important part of the car-buying process, and nearly three-quarters say they only want to communicate with dealers in person (72 percent). However, dealers understand buyers' need for digital innovation and plan to invest in improving digital offerings (32 percent) and the website (31 percent) over the next two years.

"Car buyers want to work with quality dealers they trust, and dealers can earn this trust by providing transparency throughout the entire car-buying experience, especially when buyers and dealers face unique automotive headwinds," said Sanjiv Yajnik, president of financial services at loanlucky.com. "Dealers who can create extraordinary experiences for buyers, both online and in person, have the best chance of building relationships with them and ultimately winning in the marketplace."

The Economy

Dealers are apparently more optimistic about the economic outlook than car buyers. While 84 percent of dealers say it is a good time to buy a car, only one-third of buyers feel the same way. Nearly half (47 percent) of car buyers say it is not a good time to buy a car.

Both car buyers and dealers say inflation is the main economic factor affecting recent car purchases. Inflation (57 percent), rising gas prices (40 percent), and rising used car prices (40 percent) are the top three economic factors that influenced buyers' last vehicle purchase. Similarly, inflation (72%), rising gas prices (47%), and rising new car prices (46%) are the main factors that car buyers expect to affect their future purchase. Inflation (42 percent), rising gas prices (38 percent), and rising new car prices (38 percent) are also the top three economic factors cited by dealers as influencing customers' vehicle purchases.

A quarter of those whose car purchase was influenced by economic factors say they put their purchase on hold. More than a third say they decided to wait to buy a car until they had more confidence in the economy (38 percent) or greater financial stability (35 percent).

Transparency and trust

Buyers and dealers agree that transparency in the car-buying process means fairness in pricing and financing. For nearly half of car buyers, transparency means that the car price and financing seem fair (49 percent) and that the description of the car and its features is accurate (47 percent). Similarly, a plurality of dealers say that transparency means that the price of the car is appropriate to market value (35 percent), that information found online is accurate (35 percent), and that financing options are fair and clearly communicated (34 percent).

Although both buyers and dealers agree that pricing aspects (final sales price and accessory price) should be more transparent, buyers still feel the process is less transparent than dealers. 21 percent of buyers say the process is very or completely transparent, compared to 68 percent of dealers. About one-third of car buyers say the final sales price (35 percent), price negotiations (33 percent) and the ability to get a fair deal (33 percent) are the areas that require more transparency. In addition, the majority of car buyers say unmentioned additional costs make the process less transparent (65 percent). Similarly, nearly three in ten dealers say that the fairness of the agreement (27 percent), the actual price of add-ons, and their impact on monthly payments (27 percent) are the areas that need more transparency.

Dealers seem to underestimate the importance of dealer trust for the buyer during the process. Although more than half of car buyers say they are more interested in the car they want than the dealer (57 percent), 88 percent say that when working with a dealer, trust is important. While car buyers say they would be willing to pay a little more for a car if it came from a dealer they trust (55 percent), less than half of dealers say buyers would be willing to do so (48 percent).

Since almost all dealers agree on the importance of customer loyalty (99%), it is essential for car buyers to have a positive experience and build a trusting relationship with dealers. The majority of car buyers say they seek a lasting relationship with a dealer they can trust (58 percent), and more than three-quarters say they would use the same dealer for future purchases if they had a positive experience (76 percent).

Digital tools and financing innovation

Car buyerssay that digital tools are making the buying process smoother, making innovation in this area important for dealers. Although more than half of respondents agree that dealers have the digital tools needed to improve the car-buying experience (56 percent), two-thirds (67 percent) would like dealers to improve their digital tools to make the overall experience easier. More than half say that dealers' adoption of digital tools that allow them to view inventory/prices online has made the car buying process smoother (59%), and that dealers' adoption of digital tools has enabled them to better understand the car buying process, making it smoother (56%).

Third-party digital tools have the potential to make car buying more transparent, as long as their estimates are reliable. Most car buyers (57 percent) and dealers (84 percent) say that third-party digital tools that allow customers to be pre-qualified for financing make the process more transparent. However, buyers (55 percent) and dealers (68 percent) agree that inaccurate financing estimates provided by third-party digital tools do not match final rates and payments, making the process less transparent.

Dealers understand the importance of innovation: almost all say it is ^important1 (93 percent) to their dealership. At least one-third of dealers believe innovation involves expanding EV capabilities and offerings (35 percent), advancing digital offerings on their website (34 percent), and implementing technology into the car buying process (33 percent).

Dealers say they are very or somewhat familiar (79%) with the ^{digital tools2} and technology available to run their business. At least 40% of dealers say they plan to digitize lead generation (44%), deal structuring (43%), post-purchase communication (43%) and new customer acquisition (40%) in the next six months. A plurality states that new customer acquisition (17%) will benefit the most from digitization. These steps toward digitization are important for car buyers, as most of them say that dealers should provide them with more information on pricing and financing so that they are more informed (77 percent).

Reliability/performance of new digital tools (44%), budget or cost (41%), and ease of adoption/incorporation into new business models (40%) are the main barriers to dealers' adoption of digital tools and technologies. Technology adoption (38 percent) is cited as the most important area for future operations. Ease of integration with current systems (33%), ease of implementation (31%) and providing a large amount of qualified leads (31%) are ranked as the most important aspects that would influence a dealer's decision to use a digital retail solution ^.3

Car buying experience

Although the car-buying experience largely begins online, buyers find the in-person process important. Car buyers begin by determining what they can afford (30 percent) and doing research to find the car they want to buy (24 percent). However, almost all car buyers say test-driving is important (92 percent) in their buying process. About four in ten say that when they enter the dealership they are already ready to test drive (39%).

Nearly half of car buyers say the buying experience has become more difficult in the past year (47 percent), up 20 points from the March 2022 Car Buying Outlook (27 percent). Similarly, among car buyers who believe the experience has become more difficult, rising car prices (73 percent in 2023 compared to 60 percent in 2022) are cited as the main reason they believe the car-buying experience has become more difficult.

Buyers and dealers continue to agree on an online and in-person approach to car buying. About 4 in 5 buyers (83 percent) and 3 in 4 dealers (74 percent) say that at least half of the car-buying process takes place in person. Current car buyers say that understanding financing options (52%) and discussing financing and price (59%) were done mostly or entirely in person. Researching vehicles (47%) and inventory of nearby dealerships (43%) is done mostly or entirely online.

More than half of car buyers plan to search for vehicle information (59%), make sure the price is right (53%), and choose the make or model of car they want (52%) online before going to the dealership. While dealers expect consumers to research vehicles (28 percent) before going to the dealership, they say car buyers also look online to understand financing options (28 percent) and find out the interest rate they can access (28 percent). Car buyers, however, seem to prefer talking in person about financing options.

Methodology:

The loanlucky.com car buying outlook consists of the results of two surveys conducted on behalf of loanlucky.com Auto Finance by Morning Consult.

The survey was conducted among 2,210 U.S. car buyers, age 18 and older. 661 have purchased a car in the past six months and are considered "current buyers," while 1,549 said they plan to purchase a car in the next year and are considered "future buyers." The survey was conducted from October 10 to 15, 2022, with a margin of error of +/- 2%.

The dealer survey includes 400 U.S. auto dealers. Respondents currently work for an auto dealership as owner, general manager, F&I manager, sales manager, Internet manager, or in the business development center at dealerships with an approximate annual sales volume of at least $1 million. The survey was conducted from October 11 to 13, 2022, with a margin of error of +/- 5%.

The results are compared with the July 2022 purchase outlook (survey conducted between June 7 and 13, 2022 of 2,209 buyers and 400 dealers), the March 2022 purchase outlook (survey conducted between October 20 and 29, 2021 of 2,200 buyers and 530 dealers), and the 2021 purchase outlook (survey conducted between October 1 and 20, 2020 of 1,000 buyers and 401 dealers).

Written by

Irene Scott

Insurance

I’ve worked for more than 5 years as a Credit Analyst and more than 4 years as an Internal Auditor for one of the leading global financial institutions. I have been exposed to the credit review process, various banking products, financial security topics, corporate governance, operational risk, and the internal control framework of a complex, multinational organization.

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