Should Dealerships Sell Parts Online?

Dealerships consistently achieve their highest profit margins in parts and service, with parts delivering four times the net profit and service three times the net profit compared to vehicle sales.

Yet, despite this immense potential, fewer than 3% of dealerships currently sell parts online. This hesitation comes against the backdrop of a booming global auto parts market, valued at $680 billion in 2022 and projected to soar to $1,185.95 billion by 2030.

Let’s explore the untapped opportunities of online auto parts sales and uncover strategies to maximize revenue through a digital transformation.

The automotive industry is undergoing a profound transformation. Technological advancements, environmental concerns, and shifting consumer priorities are converging to create both unprecedented challenges and exciting opportunities for dealerships.

Economic Turbulence
The broader economy is facing immense pressure from multiple fronts:

• A 5x increase in sovereign defaults globally.
• An 86% drop in millionaire migration to the U.S.
• Central banks are buying gold, signaling concerns over financial stability.
• Looming trillion-dollar crises in auto loans, student loans, and credit card debt, any of which could destabilize the economy.
• A retirement and healthcare crisis adding to the strain.

Additionally, inflation continues to outpace wages, leading to higher costs of living. Mass layoffs are becoming commonplace, and many states, particularly blue states, are struggling with bankruptcy.

Impact on Automotive Consumers
In this economic climate, car ownership has become a growing challenge:

• Car repossessions have reached record highs.
• Lenders are imposing higher interest rates and adopting stricter payment policies.
• Monthly car payments have skyrocketed due to inflation and rising car prices.

The average car on the road today is 14 years old, as fewer people are buying new cars. Instead, many are opting to keep older vehicles or buying out leases to avoid the high cost of new purchases.

Why Aren’t Consumers Buying New Cars?
Several economic factors are at play:

• Inflation and stagnant wages have eroded the purchasing power of the average American family.
• Rising housing costs and the soaring prices of new cars have made car ownership less accessible.

The Hidden Costs of Modern Cars
In addition to affordability challenges, modern cars have evolved from transportation tools into data collection machines. Manufacturers are now leveraging car technologies to:

• Spy on drivers, collecting data about your location, behavior, and conversations.
• Sell this data to the highest bidder, raising concerns about privacy and ethical practices.

A Sustainable Alternative
From an environmental perspective, upgrading an old car is often far more sustainable than building a new one. Retrofitting existing vehicles can extend their life, reduce waste, and minimize the carbon footprint associated with manufacturing new cars. 

1. Evolving Consumer Behaviors

Today's car buyers are more informed and digitally savvy than ever before. With online platforms offering price comparisons, vehicle history reports, and peer reviews, customers often arrive at dealerships armed with research. This trend reduces the traditional role of dealerships as primary sources of information and emphasizes the need for enhanced customer experiences and transparent pricing.

Key Insights:

• A significant portion of car buyers begins their journey online, with studies suggesting over 80% of consumers research vehicles on digital platforms before visiting a dealershiprship preferences, such as the rise of subscription-based models and ride-sharing services, challenge traditional sales-focused dealership models.

2. The Role of Technology in the Modern Car

Vehicles have evolved beyond transportation tools into complex digital ecosystems. Features like advanced driver-assistance systems (ADAS), connected infotainment, and over-the-air updates are becoming standard.

Implications for Dealerships:

• Service departments must keep pace with the training and tools necessary to maintain and repair these technologies.
• Dealerships have an opportunity to educate customers on the benefits of connected features, building trust and fostering loyalty.

3. Economic Realities and Market Challenges

Global economic uncertainties, supply chain disruptions, and semiconductor shortages have reshaped the automotive landscape. These challenges have led to reduced new vehicle inventories and increased demand for used vehicles.

Impact:

• Dealerships are pivoting to meet the demand for certified pre-owned vehicles and exploring new revenue streams, such as selling parts online and offering enhanced service packages.
• Maintaining a balance between profitability and affordability is crucial in an era of rising vehicle costs.

4. Environmental Considerations and the Push for Sustainability

As environmental awareness grows, consumers and regulators are prioritizing sustainability. This shift includes a push for electric vehicles (EVs), stricter emissions standards, and longer vehicle lifespans.

Opportunities for Dealerships:

• Expanding offerings to include EVs and hybrid vehicles.
• Highlighting environmental benefits in marketing, such as reduced carbon footprints through vehicle repairs and part replacements rather than new purchases.

5. The "Right to Repair" Movement

Consumers are increasingly demanding the ability to repair their own vehicles or use independent repair shops. This movement, coupled with legislation in some regions, pressures dealerships to compete with third-party service providers.

Strategies for Dealerships:

• Focus on transparency and customer education regarding the advantages of using dealership services.
• Offer competitive pricing and unique value propositions, such as specialized training and authentic OEM parts.

Conclusion: Adapting for the Future

The rapidly changing automotive landscape requires dealerships to evolve beyond traditional models. By embracing digital transformation, prioritizing customer education, and diversifying revenue streams, dealerships can remain resilient and relevant.

This chapter sets the stage for understanding the broader industry dynamics and how they tie into the central theme of selling parts online, as explored in subsequent chapters.

The Evolution of Vehicle Ownership

The traditional notion of owning a car as a long-term investment has undergone a fundamental transformation. Factors like changing consumer priorities, technological advancements, and the rise of alternative ownership models are reshaping the automotive industry. For dealerships, this shift represents both a challenge and an opportunity to evolve alongside consumer behavior.

A Shift from Ownership to Access

Ownership is no longer the ultimate goal for many consumers, especially younger generations. Instead, they are embracing flexible alternatives that prioritize access and convenience:

• Leases and Subscriptions: Leasing has grown in popularity due to its lower upfront costs and the ability to upgrade vehicles more frequently. Subscription services, like Care by Volvo and Toyota Kinto, go a step further by bundling maintenance, insurance, and roadside assistance into a single monthly fee.
• Shared Mobility Services: Platforms like Turo, Zipcar, and ride-sharing giants like Uber and Lyft provide access to vehicles without the need for ownership. This trend is particularly pronounced in urban areas, where parking and maintenance costs can outweigh the benefits of owning a car.

Changing Consumer Preferences

Younger generations, including Millennials and Gen Z, are redefining what mobility means:

• Convenience Over Ownership: Many consumers value the ability to use different vehicles for different purposes—a compact car for city commutes or an SUV for weekend getaways—without the long-term commitment of ownership.
• Sustainability Concerns: Environmental consciousness is driving interest in shared mobility and electric vehicles (EVs), both of which align with broader goals to reduce carbon footprints.
• Cost Efficiency: With the rising costs of vehicle ownership (insurance, maintenance, depreciation), consumers are increasingly opting for more affordable alternatives.

The Rise of Used Vehicles

As traditional ownership declines, the role of used vehicles in the market has grown significantly:

• Meeting Demand for Affordability: Used cars are an attractive option for budget-conscious buyers who still need a reliable vehicle but prefer to avoid the high cost of a new car.
• Lease Returns Fueling Inventory: The popularity of leasing has also increased the supply of high-quality, relatively new used cars, which dealerships can market to a wide audience.
• Certified Pre-Owned Programs: These programs offer warranties and inspections, making used vehicles more appealing by addressing concerns about reliability.

Impact of Car-Sharing Services

Car-sharing platforms are changing the dynamics of first-time car buying:

• Fewer First-Time Buyers: Many younger consumers, especially in metropolitan areas, are delaying or bypassing car ownership entirely, relying on car-sharing or ride-hailing instead.
• Shift in Dealer Focus: To remain relevant, dealerships must find ways to cater to these consumers by offering flexible options, like short-term leases or partnerships with shared mobility providers.

Opportunities for Dealerships

The changing landscape of vehicle ownership is not just a challenge but an invitation for dealerships to innovate and adapt:

• Promote Flexibility: Offer tailored leasing and subscription packages that align with consumer demand for convenience.
• Leverage Used Car Sales: Invest in expanding used car inventory and emphasize certified pre-owned programs to attract budget-conscious buyers.
• Adopt Green Practices: Incorporate EVs and hybrids into inventory and explore partnerships with sustainability-focused services to align with consumer values.
• Create Strategic Partnerships: Collaborate with car-sharing platforms or subscription services to tap into new revenue streams.

Looking Ahead

The evolution of vehicle ownership reflects a broader societal shift toward flexibility, sustainability, and technology-driven convenience. Dealerships that embrace these changes by rethinking their strategies, diversifying their offerings, and responding to consumer preferences will not only remain relevant but thrive in this new era of mobility.

Economic Realities Shaping Consumer Choices

The global economic landscape has undergone significant shifts in recent years, creating new challenges for consumers and, by extension, for dealerships. As inflationary pressures, rising interest rates, and the escalating cost of new vehicles continue to affect purchasing decisions, many buyers are adjusting their expectations and behaviors. This economic environment has forced consumers to rethink how and where they spend their money, with an increasing number opting for more affordable solutions.

Rising Interest Rates and Inflation

One of the most pressing concerns for consumers today is the increase in interest rates, which affects the affordability of financing. As borrowing costs rise, the monthly payments for car loans and leases become more burdensome, leading many potential buyers to delay or scale down their purchases.

• Higher Financing Costs: As central banks raise interest rates to combat inflation, consumers face steeper loan rates. This impacts both new and used car purchases, as buyers struggle with the higher cost of credit.
• Inflation's Effect on Vehicle Prices: The cost of manufacturing and shipping vehicles has surged, driving up prices for both new and used cars. In turn, consumers are increasingly seeking ways to mitigate these higher costs.

Demand for Affordable Alternatives

In response to these economic pressures, there has been a noticeable shift toward more affordable vehicle options, particularly in the used car market:

• Certified Pre-Owned Vehicles (CPO): As new vehicle prices climb, CPO cars, which offer the benefits of a new car at a lower price, have gained popularity. These vehicles are typically well-maintained, come with warranties, and provide peace of mind for budget-conscious buyers.
• Used Cars as a Cost-Effective Solution: Many consumers are opting for used cars as a way to get more value for their money. While used vehicles typically have a shorter lifespan, they come with lower upfront costs and more manageable financing terms, which appeals to budget-conscious buyers.
• Aftermarket Parts and Services: With the rising cost of new cars, consumers are also increasingly turning to affordable repairs and maintenance options. Aftermarket parts, which are typically less expensive than original equipment manufacturer (OEM) parts, provide a budget-friendly alternative for car owners.

Surge in Demand for Parts and Service

The economic downturn and rising vehicle costs have created a surge in demand for parts and service, particularly for older vehicles:

• Longer Vehicle Lifespans: With the cost of new vehicles soaring, consumers are holding on to their current cars for longer. As a result, the demand for maintenance, repair services, and replacement parts has increased.
• Aftermarket vs. OEM Parts: Dealerships have an opportunity to capitalize on this trend by offering competitive pricing on aftermarket parts, which can help reduce the cost of repairs while maintaining vehicle performance and reliability.
• Increased Service Revenue: Dealerships that focus on maintaining and repairing vehicles in addition to selling them are better positioned to generate ongoing revenue streams. Providing high-quality service and offering parts that improve vehicle longevity can attract loyal customers who rely on the dealership for their vehicle's upkeep.

The Importance of Diversifying Revenue Streams

For dealerships, the economic pressures on consumers signal the need to diversify their revenue streams beyond just vehicle sales. By focusing on areas like parts, service, and maintenance, dealerships can ensure financial stability, even in uncertain times:

• Parts and Service as a Safety Net: When vehicle sales slow down, parts and service sales can help fill the gap, creating a buffer against market fluctuations. Dealers that have established strong parts and service departments can rely on these areas to drive revenue during challenging times.
• Subscription and Maintenance Packages: Many dealerships are exploring subscription-based models for service and maintenance, providing consumers with an all-inclusive monthly fee for vehicle upkeep. This predictable income stream helps dealerships stabilize their finances and offer added value to consumers.
• Retail and E-commerce Expansion: By expanding into online parts and accessories sales, dealerships can tap into a wider market, reaching customers who may not be able to visit in person but are still looking for parts and service solutions.

Adapting to Economic Realities

As economic conditions continue to evolve, dealerships that recognize and adapt to these changes will be better positioned for long-term success. Some strategies for doing so include:

• Emphasize Affordability: Offer financing options, competitive pricing on used cars, and cost-effective service packages to make vehicles and maintenance more accessible to a broader range of customers.
• Diversify Offerings: Expand beyond vehicle sales to include more parts, service, and aftermarket options to generate continuous revenue, even when the market for new cars contracts.
• Embrace Technology: Implementing digital platforms for online parts sales, service scheduling, and customer communication can streamline processes and enhance the customer experience, particularly as consumers continue to embrace the convenience of online shopping.

Conclusion

In an era marked by economic uncertainty, rising interest rates, and inflation, consumers are increasingly seeking affordable, flexible solutions. Dealerships that understand these shifts in consumer behavior and adapt accordingly can not only survive but thrive. By focusing on diversifying revenue streams—particularly through parts and service sales—dealerships can remain profitable and competitive, even in the face of rising costs and economic pressures.