The e-retailer reports a $126 million net loss, stemming from a $640 million year-over-year increase in spending in the quarter on technology and content ...
88% of new car shoppers use the web to gather information before heading into the dealership for a test drive—but most auto dealers are still in the Stone Age when it comes to marketing to them.
If Herb Chambers has learned one valuable lesson about using the Internet as a tool to boost sales and capture market share, it’s this: Act first and let the competition follow.
Today, Chambers credits an aggressive Internet strategy with helping his 27 automobile dealerships sell 6,000 new and used vehicles annually for about 20% of total sales. In the fiercely competitive car business, that volume means Chambers is using the web to take sales away from other dealers and sell vehicles in a way his competition can’t.
Chambers, the largest automotive retailer in New England, is ranked consistently as one of the nation’s top 10 Internet sales leaders by research firm Ward’s Automotive. Visitors to his web sites can use interactive tools to build their dream cars, see if vehicles are in stock or click on banners listing Internet-only deals.
Chambers is no stranger to the Internet. He built his first e-commerce site almost eight years ago and today considers the web his hottest sales channel. “If I didn’t start selling on the web first, I knew someone else would,” Chambers says. “In the car business, you can’t be afraid to act first, and I did.”
But in a retailing channel where most new and used car dealers are only now beginning to figure out how to successfully sell online, Chambers’ web success is the exception to the rule. Most chain retailers, national catalogers and Internet merchants have long made electronic commerce and online merchandising key components of their sales and marketing strategies.
Automotive retailers have yet to adopt the web with much gusto-although their customers have. A study of 3,000 consumers by J.D. Power and Associates reports that 88% of new car shoppers use the web to gather information before heading into the dealership. A typical car buyer visits at least seven automotive sites before selecting a dealer and starts the information-gathering process two months before making a final purchase, according to J.D. Power. Clearly the Internet is changing how customers compare and purchase cars.
Car buyers also are demanding more online purchasing options and research tools from dealers. A new study from Friedman-Swift Associates, a Cincinnati automotive industry research firm, says the features buyers want most include Internet discounts; interactive price quotes and inventory searches; independent reviews; and applications that let them build and customize their dream car.
With some notable exceptions, however, most of the nation’s nearly 22,000 new car dealers prefer selling cars the old-fashioned way-in the showroom with general managers and sales representatives controlling the flow of information. “As a category, car dealers are the caboose on the Internet train,” says Mark Bunger, senior automotive analyst with Forrester Research Inc. “Their e-commerce strategies and web sites trail other online segments by a wide margin.”
Fear and misunderstanding
Despite the fact that business-to-consumer e-commerce is clearly established and that online retail sales will reach almost $61 billion this year, many dealers aren’t aggressively selling online because they don’t understand, and they even mistrust, the Internet. “When the Internet boom hit, there was fear that dealers would be out of business at the touch of a button by manufacturers and third-party sites,” says Bill Keith, vice president and general manager of Freehold Ford, Freehold, N.J., and chairman of FordDirect, a joint venture dealer/manufacturer web portal. “The thinking has changed, but many dealers still run their showrooms and sales channels in very traditional ways.”
In a different era, bigger inventory, larger sales staff and more aggressive TV advertising may have been enough for a dealer to outperform the competition. But lured into the showroom with 0% financing and other incentives, buyers are on track to purchase 16.5 million new cars and trucks this year-the fifth consecutive year that new car sales have exceeded 16 million. Experts predict the market is reaching saturation and dealers face stiff competition from one another for new customers.
“All dealers know how to sell using the same conventional tactics,” says Belis Aksoy, automotive analyst with Jupiter Research. “What’s really going to make a competitive difference is which ones are going to take the time and trouble to understand the Internet as a new sales channel and which aren’t.”
Today almost every new and used car dealer has a basic web site or at least lists contact information in dealer locator databases maintained by AutoTrader, AutoNation, Vehix.com and other third-party automotive research portals. “Third-party gateways and advertising portals give local or regional dealerships a national sales channel,” says AutoTrader.com CEO Chip Perry. “Buyers are willing to travel farther to make a purchase if they know there is a dealer with a vehicle on the lot at the price they want.”
Shoppers like national third-party sites because they narrow down the selection process. But having a national online advertising link is also helping more dealers close sales. South Pointe Chevrolet Hummer in Tulsa, Okla., for instance, has advertised on AutoTrader for just over a year and credits the additional exposure with helping the dealership generate and close deals with buyers in neighboring states such as Texas and from as far away as Alaska.
Each month South Pointe receives between 500 and 600 leads from its AutoTrader link and uses the collected information, along with follow-up calls and show room visits, to sell about 30 mostly used vehicles per month.
“Having an affordable national Internet advertising program is getting us customers from geographical areas we couldn’t have reached before,” says Bruce Jones, South Pointe’s Internet sales manager. “Many national shoppers, especially for used cars, already know exactly what they want.”
Finding the money
Dealers who want to use the Internet to sell more cars must commit time and money to building Internet sites with the features and functions customers expect. But most don’t have nearly the budget it takes to build such sites; the average dealer spends $20,000 annually on information technology, including web applications, according to Jupiter.