Auto dealers learn to drive the web—or else

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.

Indeed, competition within the online car industry itself is providing sellers with more options on how to reach and engage consumers. In the past couple of years, as dealers have migrated toward more sophisticated web strategies with their own sites offering more interactive, shopper-friendly features, they’ve put the pressure on the third-party e-marketplaces to step up their game, Taylor says.

Coastal Hyundai, for instance, has implemented several upgrades to its CoastalHyundai.com, which is hosted by Dealer.com but managed by Coastal Hyundai. Instead of paying the typical $20-$25 to e-marketplaces for customer leads including name and e-mail or phone numbers, Wahy now pays about $6 a lead by managing its own search marketing campaigns through Dealer.com’s Dominator search marketing service, which uploads car inventory data to search engine indexes and automates keyword bidding. The service also optimizes CoastalHyundai.com for natural search rankings by managing content and page tags for pick up by search engine crawlers.

Coastal Hyundai uses Dealer.com’s Sales360 web site management system to automatically generate pop-up coupons valued at up to $250 toward a car purchase for site visitors who enter an e-mail address or phone number. While that tool has proven effective in garnering new contact information, Wahy builds on the strategy by working with his local advertising agency to e-mail additional coupons good for gasoline purchases for shoppers who close on a deal.

The Florida dealer also runs videos of its own TV commercials on its web site, providing consistency in cross-channel marketing and bringing broadcast pitches to shoppers who prefer the web over TV, Wahy says. He’s also considering adding vehicle-comparison tools, available from providers such as Kelley Blue Book Co. Inc. and Advanta-Star, he adds.

The inventory benefit

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Getting and serving new customers for motor vehicles isn’t the only job served by the web, says Taylor. By analyzing what shoppers are viewing online, through their own web site analytics programs and data reports from third-party e-marketplaces, for instance, dealers pinched by limited car-storage space are better able to plan inventory stocks that suit consumer interests, he adds.

Evanston Subaru, which also uses technology from Dealer.com, offers an online feature that lets shoppers enter their desired monthly payment and down payment to find a list of vehicles, complete with full details, that meet those cost figures. Such features cut to what consumers want from dealers, who need to provide specifics on pricing and vehicle features in order to lure shoppers into showrooms, Aksoy says. “When we asked consumers what kind of online information will get them to contact a dealer, they say it’s a competitive price,” she says. “The best dealers are responding online with exact pricing and exact specifications.”

That kind of dealer initiative, meanwhile, has sparked upgrades by third-party e-marketplaces. “AutoTrader, DealerTrack and other marketplaces are moving aggressively to provide a higher level of service to car dealers,” Taylor says.

Overstock.com Inc., since launching its Overstock Cars section late last year, has developed a “Dutch auction” selling tool that lets car dealers automatically drop car prices daily—a feature designed to help dealers sell inventory within a manufacturer’s grace period, typically about 60 days, before they have to pay wholesale invoices, says Overstock chairman and CEO Patrick Byrne.

Overstock charges dealers a monthly subscription fee ranging from $650 for up to 60 cars listed to $1,600 for 61 or more, on a 12-month contract.

Consumer’s advantage

In July, AutoTrader launched a software suite to manage vehicle inventory and customer data, including product images, merchandising displays and customer prospect lists. The suite includes a dashboard for viewing overall data and performance metrics, such as inventory levels of hot-selling vehicles and clickstream data showing most-searched-for products. In addition, AutoTrader recently entered an exclusive deal with Microsoft Corp.’s MSN Autos site to provide its 3 million-plus vehicle listings for the site’s internal search engine.

But if the Internet gives more power to dealers to interact with consumers, it also empowers consumers to sell their own vehicles directly to other consumers. AutoTrader last month upgraded its car-selling features designed for individual sellers—which can cut into the profitable used-car market coveted by new-car dealers.

Rival Autobytel Inc. recently launched a “click-to-phone” feature powered by eStara Inc., which lets shoppers enter phone numbers in an online information-request form to receive a callback from a car dealer. The feature is designed to help dealers immediately contact a prospect and has increased by about half the number of qualified leads received by dealers after online shoppers fill out online forms, Autobytel says.

Other major providers of web site infrastructure and services to auto dealers, whether they’re looking to upgrade their own sites or sell through e-marketplaces, include Automatic Data Processing Inc., The Reynolds and Reynolds Co. and The Cobalt Group. Still other online car-selling providers for dealers include Auto Jini, HomeNet Inc., WorldNow.com and Rocket City Automotive Group Inc. Rocket City, which provides web tools for car sellers on eBay.com, recently signed a deal with Dealer Fusion to sell the latter’s CompleteAuto Listing Software for feeding product inventory to eBay.

Suiting customers

Giving customers what they want in both products and service, of course, still takes precedence regardless of a car seller’s technology strategy, experts say. “If your service department isn’t making customers happy, it doesn’t matter how well your web site and information systems function,” Taylor says.

For all the new web technology and strategies at Coastal Hyundai, it’s only as good as the personal service it supports, Wahy says. “The web brings the customer to me faster,” he says. “But if I don’t follow up quickly with individual contact, then everything else I did was wasted.”

paul@verticalwebmedia.com

eBay Motors still shifting to higher gear

After launching in early 2000, it took four years for eBay Motors to sell its millionth vehicle. The second million came two years later, in August 2006. Ranked second in unique visitor traffic to e-commerce sites, following eBay.com, according to a February 2007 report by Hitwise, eBay Motors gets more than 12 million unique visitors monthly. “We sell a car on eBay every 52 seconds,” says Rob Chesney, vice president of eBay Motors.

Chesney attributes part of the ongoing surge in buying activity on eBay Motors to the general rise in online shopping and the increased confidence consumers have in engaging in high-value transactions on the web.

But he also attributes it to the company’s efforts to make buyers and sellers feel as comfortable online as they would at home or in a neighborhood dealer’s showroom. “The nature of the whole business is to get consumers feeling comfortable with the purchase process,” Chesney says.

For the 68% of eBay Motors transactions done across state lines, for instance, eBay offers a package of shipping programs. It also provides financing options and access to third-party certified inspectors who can confirm a vehicle’s condition. And all vehicle transactions on eBay that meet certain eligibility terms are covered by a protection plan up to $20,000 of the purchase price.

“We put more control in the hands of the buyer,” Chesney says. Part of that strategy, he adds, is to provide sellers with unlimited space for providing information on themselves as well as their vehicles, and making it possible for buyers and sellers to communicate on eBay Motors through the eBay message system.

To better serve local markets, eBay Motors earlier his year launched a service that lets car dealers list an unlimited number of vehicles at a flat monthly rate of $1,000, plus $50 when a seller and buyer agree on a transaction. About 15,000 dealers sell through eBay Motors.

Although eBay has discussed promoting new-car sales, for now at least it will stick with the higher-margin used car sales, Chesney says.