2023 Prospects for car purchase

Buyers' perceptions of the buying process continue to be influenced by rising interest rates, continuing inflation, and volatile gasoline prices. Dealers seem to underestimate the effect of the economic environment on car buying: almost all (84 percent) say now is a good time to buy a car, while a third (33 percent) of buyers feel the same way.

The Car Buying Outlook 2023 study collects buyers' and dealers' perceptions on key aspects of car buying: economic impact, transparency and trust, digital tools and financial innovation, and in-person or online car buying.

Key findings:

• Dealers and car buyers say that inflation is the main economic factor influencing a car purchase, but dealers seem to underestimate the extent to which economic factors affect 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 transparency perception 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 dealership if their experience was positive.
• Nearly half of car buyers who use digital financial tools say buying a car has become easier (45%) in the past year, while those who do not use digital financial tools say it has become more difficult (50%). Before going to the dealership, most buyers say they want to research vehicle information online (59%) and just over a third (34%) want to inquire about financial options. Twenty-eight percent of dealers expect buyers to research vehicles before going to the dealership.
• While two-thirds of car buyers (67 percent) 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 offering transparency throughout the 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 than car buyers when it comes to the economic outlook. While 84 percent of dealers believe it is a good time to buy a car, only one-third of buyers think so. Nearly half (47 percent) of buyers believe it is not a good time to buy a car.

Both buyers and dealers say inflation is the main economic factor influencing recent car purchases. Inflation (57 percent), rising gasoline prices (40 percent), and rising used car prices (40 percent) are the top three economic factors that influenced the most recent car purchase. Similarly, inflation (72 percent), rising gasoline prices (47 percent), and rising new car prices (46 percent) are the top factors that car buyers believe will influence their future purchases. Inflation (42 percent), rising gasoline 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.

One-quarter of those whose car purchase was influenced by economic factors said they put their purchase on hold. More than a third said they decided to wait for greater confidence in the economy (38 percent) or greater financial stability (35 percent) before buying a car.

Transparency and trust

Buyers and dealers agree that transparency in the car-buying process means fairness when it comes to pricing and financing. For nearly half of 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 transparency means that the price of the car reflects 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 price of accessories) should be more transparent, buyers feel the process is less transparent than dealers. Twenty-one percent of buyers say the process is very or totally transparent, compared to 68 percent of dealers. About one-third of buyers say the final sales price (35 percent), price negotiations (33 percent) and getting a fair deal (33 percent) are the areas that need more transparency. In addition, the majority of buyers say unmentioned additional costs make the process less transparent (65 percent). Similarly, nearly three in ten dealers say that the fairness of the offer (27 percent), the actual price of extras and their impact on monthly payments (27 percent) are areas that need more transparency.

Dealers seem to underestimate the importance of trusting the buyer during the process. Although more than half of buyers say they are more interested in the car they want than the dealer (57 percent), 88 percent say trust is important when working with a dealer. While buyers say they are willing to pay a little more for a car if it comes 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 critical that buyers have a positive experience and build a trusting relationship with dealers. Most buyers say they would like to establish a long-term relationship with a dealer they can trust (58 percent), and more than three-quarters say they would go to the same dealer for future purchases if they had a positive experience (76 percent).

Digital tools and innovation in financing

Car buyers say thatdigital toolsfacilitate the buying process, which is why innovation in this area is so important for dealers. Although more than half of respondents agree that dealers have digital tools 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 and prices online has made the car buying process easier (59 percent), and that dealers' adoption of digital tools has enabled them to better understand the car buying process, making it simpler (56 percent).

Third-party digital tools can make the car-buying process more transparent, provided their estimates are reliable. Most buyers (57 percent) and dealers (84 percent) say that third-party digital tools that allow customers to pre-qualify 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 is about 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. The majority say 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%).

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 percent), ease of implementation (31 percent) and offering a large number of qualified leads (31 percent) are ranked as the most important aspects that would influence a dealer's decision to use a digital retail solution.

Car buying experience

Although the car buying experience largely begins online, buyers consider the face-to-face process important. Car buyers begin by determining what they can afford (30 percent) and researching the car they want to buy (24 percent). However, almost all car buyers say a test drive is important (92 percent) in their buying process. About four in ten say that by the time they enter the dealership they are ready for a 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 feel 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 feel the buying experience has become more difficult.

Buyers and dealers continue to agree on an online and face-to-face 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%) occurred largely or entirely in person. Vehicle research (47%) and inventory of nearby dealers (43%) are 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 consult the Internet to understand financing options (28 percent) and find out the interest rate they can access (28 percent). Car buyers, however, seem to prefer to discuss finance options in person.

Methodology:

The loanlucky.com Car Buying Outlook is composed of the results of two surveys conducted by Morning Consult on behalf of loanlucky.com Auto Finance.

The survey was conducted among 2,210 U.S. car buyers over the age of 18. 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 between October 10 and 15, 2022, with a margin of error of +/- 2%.

The survey covers 400 U.S. car dealers. Respondents currently work in a dealership as an owner, general manager, F&I manager, sales manager, Internet manager, or in the business development center of dealerships with an approximate annual sales volume of at least $1 million. The survey was conducted between October 11 and 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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