We had our very first VC pitch in 2015. I shared our vision of how we were going to work with dealers to transform the new car market with uQuote. The VC's response:
"Dealers? Why don't you cut them out? Have you heard of Tesla?"
Let me look them up.
Half of our investment suitors at the time pushed back on our idea, recycling the broad, sweeping changes looming over the auto industry:
According to your typical Menlo Park investor, the auto industry was being flipped on its head and the change was already here.
We took the punches in stride, regrouped, and spent the next year talking to dealers and car buyers across the country.
Here's what we learned:
Silicon Valley Auto Industry ≠ American Auto Industry
For your average SF-dweller, the hype around Uber and Tesla is distorting the reality--what it's like to buy and drive cars in the rest of the United States.
While the effects of elecric vehicles, ride-sharing, and self-driving cars will be massive, the forces are nascent and the repercussions uncertain.
In the meantime, buying a new car still sucks. And over here at uQuote, we are trying to make that experience better.
So I wanted to share with you everything we've learned about what's going on in the auto industry that's motivating us to work so hard.
(1) Dealers Aren't Going Anywhere
Dealers are an American institution. And dealers want to keep it that way. Even Elon Musk, the most prolific entrepreneur of the current era, is struggling to fight them with Tesla's 'Direct-to-Consumer' model.
Of the 22 states where Tesla has showrooms:
And despite the media attention, these 'Direct-to-Consumer' sales account for <1% of total new car sales.
Takeaway: The dealer lobby is strong and widespread.
(2) New Car Sales as Strong as Ever
While 2016 new car sales are projected to be a little worse than 2015, the industry is still on track for one of the best years in U.S. history (17.3M).
And not to mention, trucks are still America's vehicle. The Ford F-150 is still the reigning best-seller in the United States--with Chevy Silverado as a close second.
Ford F-150: #1 selling vehicle in the U.S.
Takeaway: Most people don't take a self-driving Prius Uber to work.
(3) Technology is Lacking for New Car Purchases
Fortunately for used car buyers, there has been some innovation in the purchasing process in the used car market in the past few years.
There are four private companies trying to disrupt the market with at least $50M in funding:
Unfortunately for NEW car buyers--and there are a lot of them (~17.3M this year)--the only technological developments have been concierge services for premium buyers and websites with a modern UI.
Why? Because new cars have to be sold through dealers. And if dealers feel threatened by your idea, you don't stand a chance.
Takeaway: Disrupting the new car market? Keep dealers happy.
(4) For Buying Cars: Bots >> Apps >> Websites
Apps win out easily over phones given the shift to mobile computing. But why bots? Because people buy cars at most every three years. And it doesn't make sense to have an app permanently on your phone that you won't get value out of every day.
And bots are getting better by the minute.
Takeaway: Expensive, infrequent purchases will move to chat.
(5) Direct Offers = Better Prices
Fun fact about automotive advertising:
If more than one person can see the price of an advertised vehicle, that price becomes the maximum price a dealer can sell that car to anyone.
It doesn't matter if you didn't see the advertisement. If the dealer sells the car to you for a higher price, they are breaking the law.
This means that none of the prices you see on a newspaper, TV, TrueCar, AutoTrader, etc. will ever be competitive.
The only way a dealer can offer an aggressive price to an interested buyer without shooting themselves in the foot, is if they send it directly to...
...and the buyer requests a price. We've built 2 and 3: