E-commerce grew 20% for Costco in fiscal 2015—20 times faster than store sales.
The web takes the hassle out of buying a car—for the dealer and the consumer. “Internet sales are easier for us because the negotiations are straightforward,” says one dealer.
Six years ago when eBay Motors built an online auction where consumers could research, select and bid on pre-owned vehicles using just their personal computer and the Internet, eBay wasn’t simply kicking the tires on a new automotive retailing concept. Through a new automotive subsidiary, eBay had set out to prove that cars, trucks and sport utility vehicles could be sold entirely over the web.
Today, eBay Motors is driving rings around other automotive sites. With more than 10 million monthly visitors and annual vehicle, accessories and parts sales reaching $10 billion, eBay Motors is the most frequently visited automotive site on the web-a destination so popular with used car buyers that a sport utility vehicle is sold every eight minutes and a Corvette every hour.
EBay believed early on that car buyers want more from their web shopping experience than thumbnail images of available inventory and minimal vehicle descriptions displayed on a static dealer web site. In response, eBay gives customers the ability to locate a vehicle, check out its features and availability, and then bid and buy the vehicle completely online.
“We’re living proof that car buyers will use the Internet to purchase the vehicle they want and use e-commerce to pay for it and get it delivered,” says SimonRothman, global vice president of eBay Motors. Adds Rob Chesney, director of autos for eBay Inc.: “More cars are sold on our auction site before 9 a.m. each day than at an average dealership in a year.”
Catering to the web buyer
Since 1998, eBay Motors has sold more than 1 million used cars, trucks and SUVs on the Internet, and arranged loans and down payments on many of them through its online finance center, which eBay launched in May 2003. “We are working with our site users to help them take more control of the transaction,” Rothman says.
Now, looking to emulate eBay’s success-and to sell cars in a way that their competitors haven’t caught onto yet-a small but growing number of dealers are developing their own e-commerce and online payment strategies. “There are shoppers who want an Internet-only way to buy a car, and some dealers are trying to recognize and cater to that buyer,” says Julie Ask, senior automotive analyst with Jupiter Research Inc. “Internet-only shoppers tend to be very motivated buyers. They like the fact that they can use the web for what they perceive as a more hassle-free shopping experience.”
Today, only about 1.5% of all new vehicle sales begin _and end entirely online, says J.D. Power and Associates, an automotive marketing and consumer research firm. Jupiter Research puts the proportion at 1.1%. Either way, it’s small. But by offering customers a complete e-commerce program, which includes paying for or financing the vehicle online and then using options such as e-mail and electronic forms to arrange for delivery or pick-up, more dealers are seeing a market in pursuing web-only buyers.
Part of the value in going after those buyers is the lower cost of acquiring them. A dealer spends about $500 on print or TV and radio advertising to generate one showroom purchase and can take weeks to close the sale, according to Jupiter. In comparison, Internet sales average $20 to $40 per lead and can close in as little as two or three business days. “If the dealer has a complete e-commerce and finance or payment system in place, Internet sales can be generated and closed very cleanly,” Ask says.
The faster closing time and lower cost of Internet deals are a competitive advantage in many metropolitan markets where each dealer sells virtually the same new vehicle inventory at similar prices and with thin margins on the price of a new car, observers say. But because the market is so new, dealers sometimes have a hard time identifying would-be Internet buyers. “The big challenge for dealers is finding out who the Internet shoppers are and motivating them to buy,” Ask says.
Once buyers learn about the online process, they are willing to use it for at least part of the purchase of a car. While the actual buying of cars online is still small, Jupiter Research estimates that 22% of all new-car sales will be generated in one way or another by Internet activity this year and that will reach 39% in 2008.
One way to find Internet-only buyers is by offering customers different ways to negotiate online for the price they’re willing to pay, including designing an auction strictly for new car sales. Five years ago, Earnhardt Auto Centers, a large multi-brand automotive group in Gilbert, Ariz., built an e-commerce platform that allowed shoppers to build an interactive version of the car they were shopping for and to post a secure electronic down payment using a major credit card.
But to motivate more Internet buyers, especially repeat and brand-loyal customers, Earnhardt expanded its online buying program with options and marketing efforts that cater to Internet-only shoppers. To differentiate from other Phoenix-area car dealers, Earnhardt’s updated e-commerce program includes a web site where car buyers can search for available make, model and vehicle options; check a vehicle’s availability; or custom-build their own dream car.
They can also use a new interactive auction to submit a bid on a particular car, SUV or pickup truck and then apply for financing over the Internet. To begin the process, Internet buyers select a car, use a pricing database to compare the manufacturer’s suggested retail price against Earnhardt’s advertised Internet price, and then submit a bid. If the new vehicle bid is acceptable to both the customer and Earnhardt’s Internet sales department, the next step is qualifying the buyer through the dealer’s online finance center and filling out a series of electronic credit qualification forms. Once the buyer is pre-qualified, and the transaction is processed by the dealer and the bank, credit union or finance company, the next step is arranging for pickup or delivery, where the customer signs the final paperwork and accepts the keys.