September 27, 2007, 12:00 AM

Auto dealers learn to drive the web—or else

With profit margins tighter than ever, car dealers take to the Internet for profitable sales. And drivers are following them there.

Two years ago, when his boss told Florida car salesman Wade Wahy that he wanted him to take over the Internet sales beat, Wahy balked. The web had barely made a dent at the time in his dealership’s car sales, so the potential to grow with the move was questionable. “I was unsure about where this was going,” Wahy recalls. “I had been used to chasing after customers out in the sun and the heat, so the ability to sit in air-conditioning was the only thing that attracted me to the web sales job.”

But Wahy took the job and made the most of it, he says. Having had prior web experience in the collections industry, where he learned the value of the Internet in connecting with a targeted market, Wahy and his dealership, Melbourne-based Coastal Hyundai, increased the amount of time and resources invested in the web as a means to find, connect with and sell to customers. “In the past, the web was just an afterthought,” he says. “But I made it my full-time job.” Along the way, he has used a mix of online marketing strategies, interactive web site features and old-fashioned personal service to build a new customer base.

More leads, more sales

Now Wahy is no longer unsure about the Internet. Like other dealerships, Coastal Hyundai is finding the web a primary tool for getting customers into the showroom. A March 2007 survey by Opinion Research Corp. found that 53% of car buyers use the Internet-including search engines and comparison shopping, dealership and car manufacturers’ web sites as their primary source of information in the final days before purchasing a vehicle. A study by JupiterResearch shows a higher figure, noting that 64% of car buyers researched their vehicle choices online before making a purchase last year, up from 57% in 2005.

As car dealers take advantage of that traffic with online marketing and shopper-friendly, feature-rich web sites, they’ve been able to get more customer leads and close more sales, according a study this year by the National Automobile Dealers Association.

“We get 50% or more of our buyers through the web,” says Derek Bogdan, Internet sales manager at Evanston Subaru in the Chicago suburb of Evanston, Ill., noting that shoppers find his dealer’s web site through a range of marketing efforts including search engine marketing and listings on third-party sites like Cars.com.

“The Internet is definitely taking the lead in bringing customers into the dealership,” adds Wahy.

To be sure, the web isn’t a cure-all for tough times in the car market, where rising real estate costs and stiff competition in a product-saturated market are squeezing profit margins like never before, experts say. The U.S. industry’s average net revenue earned on a new vehicle sale has become so tight that many dealers lose money on new-car sales, says Paul Taylor, chief economist for the National Automobile Dealers Association.

Growing sales, not margins

Belis Aksoy, an analyst who follows the online car market for JupiterResearch, says that while the web is developing new effective means of finding and engaging car shoppers, it hasn’t helped profit margins for either new-car sales or overall dealer operations. “The Internet isn’t as helpful at increasing margins as it is at increasing sales,” she says. “The Internet still requires a lot of effort from dealers. They need a dedicated web sales management team and a lot technology to deal with the Internet to enable them to manage customer leads.”

The tight margins on new-car sales, she and Taylor say, are forcing dealers to improve their ability to offer exactly what buyers are looking for, and to build profits in other areas, namely in the more profitable areas of used cars, parts and service. The web is opening up new ways to serve customers as well as increase cost-efficiencies in these areas, they add.

Over the past several years, for instance, car dealers have increased the number of online-generated service customers, Taylor says, noting that dealers garnered an average of 14.7 new service customers through their web sites last year, about double from the prior year. “That’s important because that’s where there’s still good revenue growth for dealers,” he says.

First, of course, it takes finding shoppers and building relationships, a set of tasks that has long been a tricky one for car dealers.

Better prospects

Dealers like Coastal Hyundai and Evanston Subaru say that web shoppers are often their best customers. Unlike pre-web days, when car sellers blanketed consumers with print and broadcast ads that required shoppers to come to a dealership to learn details about any car, today’s shoppers can check car details on the web and then confirm car features, availability and pricing in web-initiated live chat, e-mail or phone calls. As a result, they’re more likely to buy a car if they decide to take the next step and come to the showroom, dealers say.

At Coastal Hyundai, web shoppers who request information online convert to buyers at a 22% rate, compared to 12-15% for shoppers who initially walk into a showroom, says Wahy, who sells cars while also managing the dealership’s web strategy. Evanston Subaru and other dealers say they experience similar online and offline conversion rates.

Dealerships have also increased online sales of parts and accessories to drivers for their own installation, Wahy says.

The trend toward heavy online research by shoppers, however, also presents a challenge for auto dealers, who at times get customers who present figures on wholesale prices found on the web and demand a narrow mark-up for the lowest retail price, Wahy says. “That can be a bit of nuisance for me, but we just have to tell people where we’re at with pricing and try to negotiate the best deal,” he says.

Consumers, meanwhile, have more options than ever before in finding cars online. About 95% of dealers have web sites, according to the auto dealers association, and there are more than 20 third-party car-selling e-marketplaces ranging from big names like eBay.com, Overstock.com and AutoTrader.com to less well known sites like CarSoup.com, GreatCarz.com and GlobalAutoSports.com.

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