Trends in Web Retailing...

[sallen1]

Have you noticed the new trend in web-based auto retailing? From companies like 'carsdirect.com' and 'priceline.com' I have proposals for our dealership to be 'exclusive' and the only cost to us is when a car is sold, usually about $250 (plus some sort of annual 'subscription fee...). This is different then the lead generators in two ways: 1) the close ratio has to be 100% or you don't pay, 2) this is more of a 'broker' arrangement vs. advertising. While the broker laws vary from state to state (California requires a 'broker licence' thru the DMV) what gets me is the change in strategy.

I'm still getting my info together but what I remember is that the lead generators provided prospects for about $10 each. The companies also contend a close ratio 'better than your floor traffic' which should be about 25%. You'd expect, then that any sale associated with the lead generator would cost about $40 ($10 divide by 25%) but the new programs are about $250! Why the difference? I can only think of one reason: The lead generator system must have a true close ratio around 4% ($10 divide by $250) or that the $250 per car sold is way too high. Wow, that means 96 out of every 100 prospects does not buy from you.

Am I off base with this assesment?

What are your experiences with 3rd party referrals??

Comments please!

Scott

[B Zimmer]

Lead generators are in the business to do the same thing we are...make money. You've figured a break even proposition at a 4% closing ratio. I don't know about anyone else, but I wouldn't want to run any kind of business without a profit. If their contention that their closing ratio is 25% then to generate 10 leads costs them $100. When 2.5 of them buy at $250 dollars each that totals $625 paid to them. Their profit is $525 divided by 10 or $52.50 per lead. Is that a fair profit to them? Who knows? It really boils down to what it's worth to the dealerships to get these leads. What is it worth to a smaller dealership that doesn't want to invest $'s in man power and time to generate the leads from their own Internet marketing. It may not be cost effective for them, however, a larger dealership that has the resources and personnel to market aggressively from it's own site may not feel the leads from generators are any more plentiful or profitable. Dealerships concerned with "owning" their clients probably wouldn't consider the $250 wisely spent with a referral service.

[mdubis]

There are many business models out there for dealers to "buy-in" to. The Cars Direct and Drive-Off models will "assure" you of a sale but take most of, or all of your backend profit and restrict your sale price of the car. You'll pick up a few extra customers, but they will truly never be your customers.

Drive-Off was clever in setting up their "partnership" with the Internet Auto Dealers Marketing Association. This is a for profit company owned by Navidec (the parent of Drive-Off) and makes the dealers feel as if they are part of an organization that has their best interest at heart. Then to make it look official they bring in Rod Couts from the National Vehicle Leasing Association. (Boy, these guys are good). Dealers are not dumb, they will eventually see this arrangement for what it really is, just another way to take money from the
dealers pocket. While their mission statement says "its dealer members will be given a competitive, national presence on the Internet. Through advanced technology and broad market reach, IADMA's primary objective is to reclaim, for its dealers, valuable Internet customers lost to non-dealer organizations." No where does it say you'll only make a small profit on the front and backend. "Competitive national presence"? Their site says the dealers' name will not appear anywhere on the site and the consumer won't even know the dealer until the final end of the process. That means no branding or exposure for the dealer. They also have an exclusive arrangement with Westar and First Union for financing. This is the company that got out of indirect lending through dealerships. Now dealers are back doing business, only they make no back-end profit this time.

The pay for leads model may not be the most efficient today, but it usually does not restrict the dealer profits or backend, and sites will usually credit you for any bogus leads.

If dealers chose not to "play" the game with Drive-Off and Cars Direct, these business' would fade quickly from the landscape.

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E.M. Dubis

[This message has been edited by mdubis (edited 09-28-99).]

[This message has been edited by mdubis (edited 09-28-99).]

[sallen1]

I don't know if any of you saw this, but last week the Orange County (Santa Ana) Register newspaper ran an article on 'carsdirect.com' (reported by Chris Knapp) and told of one customer's experience in getting a new, Pontiac Montana. The van was delivered to the customer's home without the 'hassle' of going to the dealership. The dealer that sold the vehicle to carsdirect.com was not all that far away, but the consumer felt that there was a benefit to eliminating the dealership 'purchase' experience. This sounds more like a broker relationship than anything else. Have we not had brokers in this business? How have they affected things?

Observation: The van was delivered with a couple of problems and the customer was told by the carsdirect.com sales rep. to visit a local dealer to get the problem fixed. Would the problem been found during the delivery process at the dealership? Probably, but now the customer has to 'hassle' with going to a dealer to get repairs that should have been caught at the time of sale.

Secondly, there was a reference to the fact that carsdirect.com honored their quoted price which was about $1100 less that what carsdirect.com could buy the car for from the participating dealer. The carsdirect.com people say that this is their 'investment' in the process. How much 'investment' will they make? Who knows, but at $1100 a whack, they'll be out of business soon.

Lessons learned: The 'direct' method of selling vehicles is no different that the 'broker' method that's been around for many years. If the 'broker' method has not replaced the franchised dealer, why would the computer method?

scott

[ekirks]

First of all I know that Carsdirect does not charge dealers to be affiliate members. They are dependent on the dealers they use to provide them with vehicles at a price that is profitable for both parties. The dealers that work with them would have to be interested in volume more than profit on each unit. How can dealers not grasp the concept that customers are going to try everything in their power to control a situation which is traditionally viewed by the consumer as a stressful, unpleasant experience? Companies like Carsdirect and Priceline give the customer control of the negotiating process. Have you noticed the kind of press Carsdirect has generated from all kinds of magazines, newspapers, surveys, etc? I have heard of them writing subsidy checks to dealers because they are selling the car for cheaper than they are buying it for. But with the kind of buzz they are stirring in the consumer world, the interest is there. That tells me the investors are there, too. An online service such as this cannot be looked at as a traditional broker. Look at Amazon.com. They take a loss on every book they sale but the value of the company has risen since their conception. My associates that have dealt with these services have good thing to say about them because they are helping them move cars. If you are not the one working with them, your competitor will be.

[mdubis]

ekirks has some good points. If a dealer is only focused on volume, and does not place a high priority on service, developing and leveraging strengths in his/her own marketplace then CarsDirect might be just for them.
While there are lots of niches in the marketplace, I feel dealers are best served by putting their primary marketing focus and alliance efforts on areas that produce long term brand building results that offer opportunities to build customer relationships. CarsDirect does not do that. To say that CarsDirect will be successful because they have lots of investors or are getting lots of publicity is like saying "the Titanic is unsinkable." Neither statement holds water.
CarsDirect is a broker, whether you call them a marketplace, a facilitator, a conduit for consumers. Regardless of the technology they use or the press they bring to bear, they are still a broker. I'm not saying broker is a bad word, but lets call'em like we see'em.

[mbowers]

A comment and a thought re: CarsDirect

1. Right now the CarsDirect model is good for customers and good for dealers. I've heard that CarsDirect has to subsidize about 2/3 of their transactions. That can't be a business model for the long term. Sooner or later, they have to make some money. Whose pocket will the profit come from?

2. I agree that CarsDirect is essentially a broker. Some factories disallow brokered sales when calculating incentives. Has anyone been charged back for sales through CarsDirect?

[Wolf]

I've actually looked into the direct businesses and have a different take than Mr. Dubis. CarsDirect is way off base. They are selling at a loss using national average prices and ultimately screw up the service relationship between us and the customer. On the other hand, the DriveOff model appears to have a solid foundation. I've looked into the "IADMA" and it has members so far in 32 states and offers what appears to be a decent (AND CHEAP) opportunity to generate incremental sales revenue. From what I understand, it's truly owned by the member dealers and dealers occupy a controlling board interest. I've heard of Rod Couts and other than his reputation in leasing don't know anything else. I guess the bottom line on that service is they send you closed deals and leave the customer with you for additional revenues on service. The Internet is a crowded place and looks like most service will be trying the direct route. I'd much rather be aligned with one that is controlled by dealers than one controlled by Michael Dell, who has a track record for eliminating essential members of the supply chain.

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Bill Campbell

[hplytas]

I am having the hardest time with this myself. I have just taken over as Internet Manager and I find myself boggled by what I need them to pay to get us on these services, such as "carpoint." Especially for a smaller "home town" style dealership. Fortunatly I have had the help and advice from the largest Nissan Dealership, to whom I own a great thanks too. But they are in the bussiness to make money too (I just wish it wasn't to make sooo much money!)

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