Driving car sales into the 21st century

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.

Acting first

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.

Their enterprise software or dealer management systems—by such companies as ADP Dealer Services, Reynolds and Reynolds, EDS Automotive Retail Group and Universal Computer Systems—handle core IT functions such as accounting, purchasing, inventory management, sales and service.

Some higher-end software includes web-enabled customer relationship management and business intelligence modules or makes them available as an upgrade. ADP Dealer Services, for example, sells DealerSuite, a software suite that uses a browser and portal applications to web-enable a dealership’s fixed operations and business office. The suite includes sales management, finance and insurance management, and infrastructure applications.

And in September, Reynolds and Reynolds rolled out the Reynolds Generation Series Suite, a Windows-based system that includes web-enabled CRM tools such as a lead management tracking system and real-time access to customer demographics, vehicle service histories and accounting data.

However, Friedman-Swift points out that many dealers operate older information management systems and aren’t updating their web sites with newer personalization applications. The result is a web shopping experience that isn’t meeting buyer expectations.

Each year, in conjunction with the National Automobile Dealers Association, Friedman-Swift interviews up to 1,000 Internet buyers, asking them to rate their online shopping experience and rank how helpful they found dealer web sites in pricing vehicles and checking inventory. Based on what they’ve experienced at retail sites and exhibiting the phenomenon of expectations outstripping reality, Internet car shoppers want a lot. They want sophisticated dealer web sites that allow them to calculate monthly payments, apply for credit, search through available inventory by make, model or option package and find the most competitive price.

Missing the basics

But the Friedman-Swift study found that only 23% of car buyers in the study rated their experience as very satisfied. Overall, about a third of those surveyed ranked the dealer web sites average or below average on such basics as speed at which pages opened, organization of information and ease of navigation.

Any below-average rating means dealers need to upgrade their web site or risk losing business to dealers who have, says Judy George, chief operating officer and lead researcher for Friedman-Swift. “Buyers know that if one dealership site doesn’t have the data they want, they are only a click away from another who does,” George says.

Like many dealerships, the Bob Baker Auto Group in San Diego used to get by with relatively simple web sites that advertised each dealer’s address, phone number and hours.

But now that the Internet is generating 375 leads per month, and helping Baker sell more than 1,000 new and used vehicles each year, the dealer is rolling out a new web strategy with a heavy emphasis on personalization.

Today, customers can visit nine newly redesigned web sites and access a variety of customized features, including new and used vehicle locators. Through the web sites, they also can schedule an appointment with an Internet sales representative or search an interactive version of the Kelley Blue Book to find trade-in values and compare their trade-in price to those of similar cars with the same age and mileage.

Also in the works are new applications that will let Bob Baker customers schedule service appointments, apply for credit, shop for parts and accessories, and book a rental car when their vehicle is in the service department. “We already know that 70% of prospective buyers coming to our site are looking for detailed information such as calculating a trade-in value,” says Michael Baker, Bob Baker’s vice president of operations. “If they are coming here, we want them staying here by customizing each and every visit.”

Personalization pays off

Personalizing the online shopping experience is paying off for Baker. The company says the value of new and used vehicles purchased as a direct result of Internet leads is just under $20 million a year. These sales place Baker in the top 50 Internet dealers as ranked by Ward’s.

But while Baker may be doing all the right things to build a successful web selling strategy, other dealers aren’t following suit. To be effective Internet merchants—and offer inventory, pricing and customer service that outperforms the competition—dealers need to understand first how the web is changing the car-buying process.

With the information playing field now leveled between buyers and dealers, it’s easier than ever for shoppers to solicit multiple prices and pick the dealer nearest them with the best available inventory at the lowest price. Dealers also need to realize that they must be extremely fast in responding to customer inquiries.

Dismal response

Even compared to other Internet retail segments, where up to 25% of e-mail queries go unacknowledged and unanswered, dealers’ response to e-mail queries is dismal. They reply to less than 50% of all incoming correspondence, according to some mystery shopper tests, and when they do answer, they can take up to a week to provide an online car shopper with information.

A recent study of 100 car dealers and their e-mail response rates by EDS and researchers eMarketer Inc. found that only 22% of dealers answer e-mail within 60 minutes, while another 18% take as long as 24 hours. That’s down from 28% within 60 minutes and 25% within 24 hours in 2001.

“It is not surprising that response times to online customer inquiries have been worsening,” says Noah Elkin, senior analyst with eMarketer who analyzed the EDS results in another recently published Internet report. “Many dealers are still ambivalent about the quantity and quality of leads they receive over the Internet.”

This despite the fact that dealers are receiving substantial e-mail traffic that can generate serious leads. For instance, United Auto Group, one of only two automotive chain retailers listed on the New York Stock Exchange, notes that e-mail generates up to 1,000 serious leads per month at many of its 200 stores in the United States and overseas. “Upper-range foreign car buyers are big Internet users and like to make very specific e-mail inquiries,” says Joe Czarnecki, United’s e-business manager.

And Hendrick Automotive, a Charlotte, N.C., dealer group with 70 retail locations in several Southern and Mid-Atlantic states, says that its nine Honda web sites handle 70,000 unique visitors per month who generate 930 serious e-mail leads and 195 sales. United and Hendrick are adamant about responding to e-mail in a timely manner. In fact, both companies have a standing policy that all e-mail requests must be answered in less than eight hours and, in many cases, within 90 minutes.

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An effective e-mail response program is only one part of what some dealers are doing to leverage their Internet sales strategy. Equally important is hiring and training the right staff.

New training

But selling online means dealers must train their managers and staff in new and different tactics. Internet reps must be adept at working with web-based lead generation and CRM applications. They must be skilled in analyzing and responding to a wide variety of Internet leads and in answering pointed questions raised by well-informed Internet shoppers. They also must learn how to turn electronic leads into bricks-and-mortar visits that result in final sales.

Earnhardt’s Auto Centers in Phoenix, for instance, puts all Internet sales staffers through a weeklong training session before assigning them to a web sales manager and putting them to work in the e-commerce unit. Internet sales staffers are trained on the dealer’s web lead generation system, instructed on how to effectively answer multiple requests for information and coached on proper phone etiquette.

Once a month, each of Earnhardt’s three full-time Internet sales managers meets with senior management to review training and refine procedures. For example, a recent training session helped the Internet sales staff refine their telemarketing skills. Once the sales representatives were back on the floor, all of their outgoing Internet sales calls were recorded and then played back, providing each rep with feedback on individual efforts and steps they could take to improve their performance and sales closing ratio.

Earnhardt’s credits a dedicated web sales staff and specialized training with helping the dealer close more than 7,000 web sales per year, or about 25% of total volume. “Internet sales staffers must know how to stay ahead of the customer, and ours do,” says Joe Martin, Earnhardt’s group e-commerce manager. “We take the time to get to know who the Internet customers are and to train our staff to meet their expectations.”

Taking the guesswork out

Because many Internet buyers have done extensive research on their choice of a vehicle and, in many cases, the price and monthly note they can afford, Martin says most web sales begin as higher-quality leads. The e-commerce staff handles most Internet leads after several phone and e-mail conversations with the customer, but regular showroom sales reps are also used to buyers coming in with pages printed off the Internet. They are trained to help buyers find the vehicle they’re looking for or turn the customer over to an e-commerce specialist if they need more assistance. “The Internet takes the guesswork out of sales,” he says. “Informed web buyers just want to come in and make the buying process as straightforward as possible.”

Attention to web detail and an aggressive Internet strategy are helping some dealers outsell the competition. The Herb Chambers Cos., for instance, recently purchased an underperforming Ford dealership in suburban Boston and believes its aggressive Internet program can help the store increase sales by as much as 50%.

But unlike other Internet retail channels where the transaction is exclusively electronic from start to finish, selling cars will always involve a human element. That’s why Chambers considers the Internet to be a part of his overall sales program and not a separate channel. “The sale starts on the Internet and ends in the customer driving the vehicle off the lot,” he says. “Dealers like ours who think of the web as blending well with their other sales channels are going to be the ones selling the most cars.”

GM powers up a redesigned web site

General Motors Corp., the first Big Three U.S. automotive manufacturer to launch a dealer-oriented web selling strategy back in 1997, is enhancing BuyPower, a vehicle research and dealer location site, and launching an interactive advertising campaign to make consumers aware of the redesign.

Unveiled in August, the revamped site has simplified navigation and allows shoppers to customize the features and options they want in a new vehicle. They also can search for a used car or view online inventory at specific dealerships by ZIP code.

“Our research told us that dealers want more sales leads from the Internet, and consumers want to eliminate information overload when they shop online,” says Leo Drew, general director of strategy, integration and operations for GM Customer Networks.

BuyPower averages more than 1.5 million visits and more than 3.5 million dealer inventory searches per month. That traffic generates more than 1 million annual Internet sales leads for dealers and helped GM sell more than 200,000 vehicles in 2002.

The online advertising campaign, dubbed “Prepared,” is running on several major automotive web sites. Banner ads show how BuyPower helps consumers become better prepared to shop for and purchase a vehicle.

A corresponding sweepstakes ran in September on NetZero.com’s consumer automotive portal. Shoppers could enter to win a new GM car or truck.

Dealers say they are pleased with GM’s changes to the web site and new interactive retailing strategy. “There are 25 GM dealers in my metropolitan area. If BuyPower helps direct leads my way, I consider that to be a great marketing advantage,” says Bill Krouse, vice president and general manager of Polar Chevrolet in White Bear Lake, Minn.

A co-operative Ford/dealer web strategy

Many dealers describe their interaction with automotive manufacturers as a love-hate relationship, but Ford Motor Co. is giving dealers a reason to love the home office: a national web site that delivers serious sales leads.

Almost three years ago, Ford took its dealer relations council’s advice and formed a joint venture, FordDirect, to showcase new make and model information and generate Internet leads for local dealers. The company has a separate administrative and marketing staff, and uses Ford’s advanced customer relationship management technology to send detailed Internet sales leads and vehicle purchase summaries to FordDirect dealers.

Both dealers and Ford consider the joint venture a success. Each month, more than 3.5 million unique visitors log on to FordDirect.com to research inventory or prices and find a dealer near them with the vehicle in stock. That traffic is helping Ford and a network of 3,500 FordDirect dealers sell more than 160,000 new cars each year.

“We are capturing the Internet channel with the help of the dealer,” says Steve St. Andre, president and chief operating officer of FordDirect. “It’s a sales win for both sides.”

In the volatile automotive business, dealers often are at odds with manufacturers on business issues such as the controversy over manufacturers selling cars directly through factory stores or Internet sites.

But because dealers own 80% of FordDirect and exercise considerable clout in managing the company, Ford dealers say their joint venture is proof that retailers and manufacturers can work together.

“This is the first automotive dealer/manufacturer joint venture, and it’s in everyone’s best interest to make it work,” says Bill Keith, vice president and general manager of Freehold Ford, Freehold, N.J., and FordDirect chairman. “The Internet holds great promise to market and sell cars, and FordDirect intends to build on that promise.”

Chrysler takes the portal route

DaimlerChrysler Corp. may be the smallest of the Big Three automotive manufacturers, but that isn’t stopping the company from launching big Internet sales lead generation plans for its Chrysler Group dealers.

Beginning this fall, about 4,300 Chrysler, Jeep and Dodge dealers will be able to utilize DealerCONNECT, a company web portal, to access all localized Internet leads from a single online source. Most U.S. dealers are already connected to the portal, while dealers in Canada and Mexico are to be added by December.

Like other big automotive manufacturers, DaimlerChrysler operates multiple web sites and external links to third-party research sites such as Edmunds.com and Yahoo’s vehicle research portal. Previously, dealers had to download the leads from separate sources.

Now all leads will be sorted, packaged and delivered to individual dealers through DealerCONNECT. That includes all e-mail and phone inquiries coming into DaimlerChrysler from toll-free numbers listed on its corporate web site and others.

The dealers receive more than 2.1 million Internet leads each year from DaimlerChrysler, so having the leads customized and easily accessible through a company intranet will help dealers initiate and close more web sales.

Dealers also can use other applications on DealerCONNECT to download marketing, advertising and promotional materials and to create custom e-mail campaigns.

“E-business solutions at the Chrysler Group are designed to enhance the shopping and vehicle ownership process between our dealers and customers,” says Christine MacKenzie, vice president of dealer operations for the Chrysler Group. “DealerCONNECT improves the speed and effectiveness of factory-to-dealer communications.”