Consumers are flocking to the Internet to gather information before shopping for new vehicles. They’re comparing specifications, checking product descriptions and running down the details of road tests. More than ever, shoppers are well-informed–and largely because of the Internet.
Quite a few of the Internet-connected shoppers also are taking advantage of the Web-based buying services, which can ease at least part of the buying process. Even if a visit to the dealership remains inevitable to take a test-drive and negotiate the sale, some of the decision-making can be done at home.
And a small number of consumers are settling on a price over the Internet. Only a handful of sales are truly completed over the Internet, with the vehicle delivered to the person. But even in those cases, a dealer usually is involved with the details thanks to state laws. According to Joel Manby of Greenlight.com, at least three states have laws that prohibit direct sales, with Texas’ the most stringent.
According to another source, buying services are “not allowed to post actual price quotes” to people in Texas, and a dealer must be involved. Manby says a “dealer usually has to source the car from the [manufacturer] and usually delivery has to take place at the store.”
Trying to pin down numbers of people who are making full use of the Internet as they car-shop isn’t so easy. When a buying service sends a customer’s request to a dealership as a sales “lead,” it’s difficult to determine how many result in a car or truck being driven off the dealer’s lot.
Sixty percent of consumers are using the Internet while shopping for a new vehicle, up 14 percentage points from 1999, according to the latest survey by the Polk organization, which compiles automotive registration data. Polk’s estimate is even higher than the figure from a survey by J.D. Power and Associates a few months earlier, which found that 54 percent of car shoppers were using the Web, up from 40 percent in 1999.
Considerably fewer take the next step, seeking a price quote from one of the buying services. Those services work in two basically different ways:
– Referral services accept purchase requests from consumers and supply leads to local dealers. Autobytel.com, InvoiceDealers.com and Autoweb.com are among the foremost referral sites.
– Direct-selling sites quote a price over the Internet, which the shopper can accept or reject. If accepted, delivery of the vehicle takes place at the participating dealership. Greenlight.com and CarsDirect.com are direct-selling services.
Referral options
Success of a referral site stems from the number of customer requests it receives versus closing ratio, the number of vehicles sold as a result of leads generated. A J.D. Power survey found that 4.7 percent of all retail vehicle sales took place through a Web-based buying service in 2000, up from 2.7 percent in 1999. Chris Denove, a partner at J.D. Power, says that could reach 6 percent in 2001.
Autobytel.com gets 230,000 “requesting customers” per month, said Mark Lorimer, president and chief executive. “Conservatively, we close around 20 percent.”
He estimates that “30 percent to 60 percent of all car purchases are Internet-related” and that the Web accounts for 4 or 5 percent of sales. Working with more than 5,100 auto dealerships, Autobytel says it generates 40,000 to 50,000 sales per month, which is “more than twice as many as our nearest competitor.”
A 2000 survey by J.D. Power showed that Autobytel.com accounts for more than 1 percent of all new vehicles sold in the U.S. Next in line are Microsoft’s CarPoint.com and CarsDirect.com. Exact figures are unavailable, because J.D. Power limits their availability to companies that purchase the survey results for $25,000.
InvoiceDealers.com says it has the highest closing ratio among the referral sites, according to CEO/co-founder Jon Christensen. His service draws some 300,000 “unique visitors” per month and works with just under 1,000 franchised dealers.
In some cases, Christensen estimated, one out of four requests might result in a sale. But he considers the industry average to be 1 in 10 or 12.
“Dealers tend to be the `show me the money’ sort of guys,” Christensen said. So, if they are not turning enough leads into real sales, they’ll drop out of the referral service.
Though Internet referrals drive sales, “the Internet is not massively changing the way cars are sold. It’s just a new channel,” said Christensen.
`Another layer of cost’
Many dealers use referral services as a source of prospects, not unlike the way they use newspaper and TV advertising.
Each marketing method adds “another layer of cost” to vehicle price, said Bud Lacombe, chief operating officer of Stoneage.com. But in the end, Lacombe believes dealers are paying about the same for participating in a buying service as they would for newspaper or TV ads.
Though some dealers convert 3 percent of their raw leads into sales and some have closing ratios in the teens, Lacombe estimates that the industry average is around 8 percent. “About 60 percent of our consumers take delivery of a vehicle,” Lacombe said. But many are obtaining quotes from several sources before making a decision. Stoneage.com says it draws 1 million people a month to its site.
“All three distribution channels [manufacturers, dealers and `independent, multi-brand solutions’] are going to exist,” said Joel Manby, CEO of Greenlight.com. Previously the head of Saab cars in America, Manby moved to Greenlight.com last year. Now an affiliate of Amazon.com, Greenlight.com completes sales on the Internet. Prices are stated and agreed upon without a dealership. The dealer delivers the vehicle and handles trade-ins and purchasing paperwork.
“Our close rate is 35 percent,” Manby said, “which is average in the car business.” Manby speculates that the direct-model Web sites, primarily Greenlight.com and CarsDirect.com, sell close to 4,000 vehicles per month.
Overall, he believes that only half of a percent of vehicle sales are handled on the Internet, though that figure might rise to 1 percent before long. “We’ve never assumed it’s going to be any more than 10 percent of the business,” Manby said. “So we’re actually right on track.”
Dealers who work with referral services have to pay for each lead, whether it results in a sale or not. Manby points out that in the direct-sale model, the dealer pays a higher fee but only when a sale takes place. “It really just replaces their marketing cost.”
Focusing the Web
GM’s BuyPower and other manufacturer Web sites exist primarily to draw prospective customers to a brand and to a dealership for that brand. Toyota, however, is launching a more buyer-targeted site this year. BuyaToyota.com will have a narrow focus customized by region, said Keith Sinclair, Toyota’s national manager for B-to-C (business-to-consumer) commerce. The new site will be in six major markets by the end of February, rolling out nationally soon afterward.
“There is no transaction element online,” Sinclair said. Negotiations will still be part of the buying experience at the Toyota dealership. Toyota emphasizes the local/regional aspects with a focus on what is available in a given area. At a January panel discussion of the future of the franchised new-vehicle dealership at the Automotive News World Congress in Detroit, J.D. Power’s Denove said: “The referral model and the broker model” are dead. “They’re not going to make it.”
Denove sees the surviving sites operating solely as a matchmaker, bringing the customer and dealer together. He says buying services that attempt to operate more deeply in the transaction will fail.
Because so many consumers want to avoid negotiations at the dealership, however, they will continue to seek alternatives to obtain a transaction price. Plenty of people request quotes on new vehicles from one or more buying services and simply take the lowest figure to a dealership to see whether the salesman can beat it.
As Greenlight.com’s Manby said: “You can always go and find a better deal somewhere.
