Aharon Horwitz, CEO and Co-Founder of AutoLeadStar, spoke with SMBCEO about the ways in which car dealerships are transforming digitally and adapting to newer commerce trends.

How are owners of local car dealerships different from owners of other independent businesses? What are the distinct challenges of digital transformation that these local car dealerships face differently from other sectors?

Great question. It always amazes me to think that car dealerships emerged as the successor to the prior modes of transportation: horses and carriage dealers and bicycle shops.

You’ve got this incredibly long tradition and history underpinning the ecosystem and it creates dynamics in the relationship between the original equipment manufacturer (OEM) brands and the local dealers that are really unique. For example, OEMs have programs that certify and provide subsidies for using certain software vendors over others. Sometimes this works well, other times it can block innovation. Car dealers live in a balance of collaboration and contest with their OEM brands. Beyond franchised dealers there is a large sector of dealers that sell used cars only, and they have no such restrictions.

In terms of challenges, there are several: Car dealers are selling very expensive products. Despite growing consumer comfort with digitalization, buying a car online seems to be a different calculus than a pair of shoes. Moreover, car dealers have lived in a software ecosystem that is very much detached from mainstream martech and commerce enablement (I’ve yet to meet a dealer that uses Salesforce!) Car dealers are now undergoing a massive overhaul in order to bring the most modern technology to their business.

All of this creates a lot of opportunity for technology-driven innovation when it comes to marketing and commerce technology.

With the acceleration of shopping’s migration to digital channels, especially in the context of social distancing restrictions of the past year, we’re starting to see hybrid variants to ecommerce getting big nowadays. The most popular for local businesses is probably “buy online, pickup in store” (BOPIS). How are you seeing these models translate to the automotive industry?

The past year was a massive wake-up call for dealers, and led to an industry-wide catch-up on digital commerce and more broadly connected digital marketing funnels. Exactly as you said, dealers are going from the mindset of brick and mortar with a website, to clicks and bricks in every way. Many dealers are doing a large part of the purchase experience online today, and then doing store finalization and pickup, and even home delivery.

Full digitization of the discovery and purchase process is going to lag behind for different types of reasons. For example, many states in the US still have “wet ink” requirements for car purchases. Also, and most importantly, car buyers continue to want to test drive a vehicle before purchase, and have confidence that they’re buying from a reputable source.

What aspects of the contemporary car buyer’s experience are the hardest for local dealers to deliver? Where do you see them lagging most in terms of meeting customer expectations, and how can they catch up?

We think that there is a massive gap in data connectivity and process alignment that allows a customer to feel personalization in their experience. Car marketing should feel more like Shopify and less like billboards on the internet. Moreover, the experience of engaging with the store should be a seamless extension of the digital. This isn’t always happening because data is really siloed right now. Of course, many dealers have built out incredible store experiences – this compensates for a lot of the challenges.

As a model for sales channels, why has the local auto dealership lasted as long as it has? Why haven’t tech entrepreneurs and multinational corporations managed to disrupt it? How long do you think the industry will continue to operate like this?

As I said, buying a car is much different than buying a pair of shoes or even a kitchen table. People want to test the cars and know that there is a responsible party behind the scenes, standing behind their promise of quality. This has given dealers sticking power in the buying process, as it’s quite complex. I think savvy dealers are starting to think of their customers more as members, and building a customer experience and set of benefits that lead a consumer to want to buy from their outlet.

Because the automotive industry is so specialized and complex, it’s difficult for big platforms to simply jump in and disrupt the existing processes. There is a lot of innovation happening but many of us are locked in working with dealers to transform them into a powerful digital engine, rather than eliminate them. This is actually a good thing, I believe: car dealers and related businesses employ millions with decent pay and a largely meritocratic approach to HR. The ‘ roughly 17,000 franchised dealers in the US alone spend nearly 70 billion on payroll per year. This is just the tip of the iceberg of the benefits these local businesses provide to their communities.

I imagine that, if a major corporation had disrupted and eliminated car dealers by now, the price savings for consumers would pale in the face of the social impact we’d see on families and communities all over the country. It may feel like a relic from a different era of business, but I think that relic has a lot to teach us about the value of work and a respectable living, whether or not you have an engineering degree from Stanford. That’s why I’m rooting for dealers to make the transition into our new digital reality.