Web weary - The Business - Brief Article

Automotive Industries, June, 2002 by Maryann Keller

Three years ago pundits claimed that the Internet would transform auto retailing. Dealers would be marginalized as car buyers searched the net for their dream cars, submitted a request for a price and arranged the transaction from the comfort of home. Dealers attended seminars on how to survive in this new world and added staff to service the web savvy shopper. Websites were upgraded. Salespeople were given pagers so that they could respond instantly to an incoming e-mail and dealers signed up with third party sites that promised to funnel customers to them.

Despite the effort, not much has changed in the way people buy cars. The Internet has made people smarter about what they buy and what a fair price is, but the vast majority still purchase their cars face-to-face in a dealership. The Internet, it seems, hasn't had a significant impact on transaction prices or dealer margins, though the Internet shopper probably knows the fair market price and is unlikely to pay a premium.

Internet visitors flood manufacturers' websites, as well as those devoted to used car pricing, car reviews and general car information. Virtually every site and portal gives them the opportunity to fill out a request form for a price quote. Later these leads are sold to dealers who have purchased territories for their brands, sometimes with little screening for duplicates, pranksters or simply people curious about a car but having no intention to buy.

As a result, dealers are being flooded with requests to submit price quotes that vastly exceed the number of potential car buyers. Dealers, who once enthusiastically devoted resources to the Internet shopper have been frustrated by low conversion ratios on Internet leads since the typical Internet car shopper might submit six or more requests, and, of course, they will buy only one car. While some dealers have had success with the Internet, few of them have measured the cost of their operation in relation to the number of sales generated among customers outside of their normal trading area. What dealers have learned is that Internet shoppers get price quotes from more than one dealer and often go to the local store where they prefer to buy.

Dealers generally report that shoppers who contact them directly by e-mail as opposed to through a third party have the highest closing ratio. That customer has identified himself as being ready to buy and is doing what most people do when buying a car, arranging the purchase through the local dealer who will later provide service on that vehicle.

This year about 16.5 million passenger vehicles will be sold of which more than 3 million will be sold with some type of pre-arranged pricing. These units include rental cars, corporate, government and commercial fleet vehicles and vehicles sold under one of the many "friends and family" programs sponsored by automakers that fix prices at a percent of invoice. That leaves between 13.0 and 13.5 million units that will be sold by dealers through the normal shopping, negotiating and delivery process. While the number seems large, it is only 35,000 to 37,000 vehicles a day and spread over 22,000 franchise dealers in the country that amounts to about 1.6 cars a day per dealer. By Internet standards, auto sales are very small in contrast to the number of people researching cars.

Unfortunately, the Internet doesn't change the total number of cars purchased, it hasn't had any impact on market share shifts among brands, nor, at the local level, among dealers. But because Internet initiatives represent new expenses, dealers will be pressed to justify the expenses they are incurring. As Internet hype recedes car dealers are going to have to find ways of maximizing the efficiency of the leads they respond to and offset their investment in Internet related activities with cuts elsewhere.

MARYANN KELLER is a veteran auto industry analyst and author of the books "Rude Awakening The Rise, Fall And Struggle To Recover At General Motors" and "Collision: GM, Toyota and Volkswagen And The Race To Own The 21st Century."