Dealerships are now actively seeking auto tech solutions to help them improve the customer experience and re-invigorate high-margin operational areas.

Like many business verticals, the automotive retail industry saw massive change in 2020. The traditional business model was torpedoed as dealerships closed their doors in March and April of 2020 and watched new car sales drop by 15%.

While many dealerships are now operating at pre-pandemic levels, they’ve discovered that changes in consumer purchasing habits have accelerated dramatically. It has served the industry a much-needed wake-up call that technology is integral to survival beyond the pandemic and to continued improvement of the bottom line.

LLR is excited to see the industry now actively seeking solutions to help them improve the customer experience and re-invigorate high-margin operational areas. As we continue to track the sector, here are a few areas of opportunity that stand out to us.

Three growth opportunities for auto tech vendors in 2021

Wholesale process

Consumer demand for used cars skyrocketed in 2020, driven by a fear of public transportation and the need for affordable transport. However, the shutdown of traditional, in-person vehicle wholesale auctions broke the supply chain. It created an urgent need for auto tech platforms capable of streamlining the wholesale process and getting used cars to dealership lots. This is generating opportunities for online auction technologies, car reconditioning software and platforms that support dealership-to-dealership sales of used cars. We believe that these opportunities are here to stay in a market that is 4x the size of the new car market.

Fixed operations

The drop in new car sales has motivated dealerships to maximize earnings from their most reliable profit centers, such as fixed operations. We see a number of opportunities for auto tech software to help dealerships better manage their service center—including scheduling, improving the accuracy of repair estimates, and increasing transparency and customer engagement across the board.

Few dealerships have responded to these consumer trends by aligning their online and offline resources and processes to support a digital, self-directed buying journey.

Retail experience

Dealerships have recognized that consumers are spending an average of 14 hours conducting online research before setting foot in a dealership. When they do arrive, they are armed with a wealth of information and a clear idea of the make, model, features and fair price points they are looking for. Yet, few dealerships have responded to these consumer trends by aligning their online and offline resources and processes to support a digital, self-directed buying journey. The experience of buying a car once a price has been negotiated still takes an astounding 4-5 hours at the dealership.

The pandemic has certainly woken up dealerships to the reality that a 100% online car-buying experience is a reality, further demonstrated by the success and adoption of companies such as Carvana, Vroom and Tesla. Of the 60 million cars sold every year, only 1% have been sold online. When comparing the ecommerce footprint for the automotive industry to any other big retail category—home furniture or home electronics, for example—you start to get a sense of the incredible growth opportunity in front of auto tech companies that enable dealerships to play a more proactive role in the online retail experience.

Here’s the bottom line.

There is no question that the dealership model will undergo a period of change, adoption and experimentation before discovering the best way to use technology.  While there will be multiple winners, not all technologies will be long-lasting, especially given the pace of adoption in 2020.

As LLR looks at the auto tech market, we see valuable opportunities in used cars, fixed operations and the retail experience, but the long-term winners in this market will need to focus not only on innovation but on developing smart strategies, dealer retention, and enhancing the consumer experience.

What do you think? Where do you see the growth opportunities for auto tech and what will determine the winners of the long term? Email me: cli@llrpartners.com. 

Learn more about LLR’s focus on the automotive technology market, our team and relevant investments.