Automotive News - February 4, 2008 - (Page 48) 48 • FEBRUARY 4, 2008 The online dealer INSIGHT Web widens market, but can shave margins Online price data make shoppers more savvy Leslie J. Allen lallen@crain.com Clicks and bricks In 2006, Internet users reported using these resources to research their most recent or planned vehicle purchase or lease. In-person dealership visits: 53% Third-party Web sites: 52% Automaker Web sites: 49% Local dealership Web sites: 40% Source: JupiterResearch hen it’s time to make the sale, the Internet can be both a boon and an obstacle to auto dealers. The Net gives dealers access to a broad range of customers without the limits of geography. But it also gives consumers pricing information that previously was denied them. That means less wiggle room for dealers in deciding how much they can charge for cars and trucks. Some dealers say the information revolution is hurting their ability to make a profit. A diligent Web surfer not only can learn what a dealer paid for a vehicle but also can glean information about dealer cash, holdbacks and rebates. Philip Reed, senior consumer advice editor of the automotive Web site edmunds.com, predicts that because of the Internet, “the days of the car salesman are numbered.” “The effect of the Internet has been to take away a lot of the profit from the front end of the deal,” Reed told Automotive News. “Almost everything can be done now without the salesman. The salesman has become more of an order taker and the person who delivers the car once the deal is made.” Joseph Sage, a Nissan and Infiniti dealer in suburban Los Angeles, says the dealer invoice price largely has replaced the sticker price, or MSRP, as the starting point for negotiations. “The Internet has repriced our product,” Sage says. “MSRP has no credibility anymore. MSRP is irrelevant.” W bad deal can be as much as $4,000, he says. “All of the related items that go into a car purchase, even financing, those costs are all lower” online, Reed says. But he concedes that some pricing data on the Internet are inaccurate. Poorly informed consumers “could really get ripped off,” Reed warns. Dealer Sage complains that sites such as edmunds.com “take dealer profit out of the picture” and actually restrict consumer choice. “When consumers come in, the only information they possess is dealer invoice or a recommendation from the third-party lead provider of what they should pay,” Sage says. “That’s usually some number barely above dealer invoice. “It’s going to slow the industry down. It will take volume out of the equation for dealers and manufacturers and force the dealers to reduce expenses. The only way to do that is to reduce inventory.” Period of adjustment Dealers may be wary of the changes the Internet has brought to auto retailing, but they’re adapting to the new marketplace. A key offering on edmunds.com is True Market Value, a calculation of what buyers in a local market pay for new vehicles, excluding rebates and fees. Reed says some dealers encourage customers to consult the Edmunds site, to show that the prices they are offering are in line with what consumers are paying. For the tech-savvy customers of Toyota of Sunnyvale in the heart of northern California’s Silicon Valley, the Internet is routinely the preferred way to do business. Dealer Adam Simms has 20 salespeople on his showroom floor and 17 in his Internet department upstairs. Online buyers tend to configure vehicles with more options, he says. “The consumers in Silicon Valley are giving other dealers an early look at how people are going to want to buy cars in the future,” Simms says. “Our margins in our online business are as high as, if not higher, than our walk-in-thedoor traffic. That’s primarily because they’re buying cars that are more complex. “We’re going to price our cars very close to what we think they are going to transact for,” Simms says. Otherwise, buyers “are just going to take you off the shopping list.” Bare bones Alan Helfman, general manager of River Oaks Chrysler-Jeep in Houston, has been in the car business for four decades, most of that time in retail. He says that in recent years, he has seen an explosion in shoppers doing their homework on the Internet. It’s a mixed blessing, Helfman says. “Can you go into a restaurant and say, ‘Well, you paid this much, so I’ll give you that for it’? ” Helfman says. “When (consumers) can shop 50 dealers, some dealers will lose money to sell the car. “It makes it harder from the proprietor’s standpoint because there’s nothing left on the bone. All the skin’s off.” Three-fourths of online vehicle shoppers researched prices on the Internet in 2006, up from less than three-fifths in 2004, according to the market analysis firm JupiterResearch LLC. Figures for 2007 are not available. In 2006, JupiterResearch says, visits by vehicle shoppers to third-party Web sites such as edmunds.com rose 10 percentage points compared with 2005, while in-person visits to dealerships fell 3 percentage points. The information revolution may be bad for dealers, but it’s good for customers, says Reed of edmunds.com. Consumers can use sites such as his to “get a true picture of the excitement a car is generating in the marketplace and make a much more informed decision.” Reed says Internet research steers customers to dealerships “where they won’t be trying to sell you running boards.” The difference between a good deal based on Internet data and a ROSEMARIE LION Dealer Adam Simms: Online shoppers tend to buy more options, and that helps the bottom line. buyers, he says, but mostly by e-mail. “It’s in no way a traditional encounter — they start high, you start low, and you dicker back and forth,” Reed says. “Dealers are hitting you with pretty much their lowest price right away. If their price is not attractive, you’re not going to deal with them.” But dealer Helfman says car buyers and sellers always will want to bargain, online or in person. “The perception is, that’s the business,” he says. “You don’t want to get had. There’s always going to be some kind of haggling, whether it’s over an accessory or an interest rate.” The Internet also has reduced the need for shoppers to come to the showroom for product brochures, Reed notes. Such visits traditionally have enabled salespeople to entice customers into test drives and even impulse purchases. Now, Reed says: “All the brochure-type information is available online. It’s much more difficult for the car dealer to have that one-on-one, face-to-face interaction with the consumer.” Customers still want to see and drive a vehicle before they buy it, Reed says, “but at a later date when they know more about all the cars that are out there.” Even in a wired age, though, Toyota dealer Simms rejects Reed’s eulogy for showroom salespeople. “Their role is changing.” Simms says. “They have to be very knowledgeable about the product. They have to be very proactive in exchanging information with the customer and getting the consumer to come in and do business.” But Simms adds: “By no means are they going away.” c Room to bargain Does such transparency of pricing data prevent dealers from negotiating over price, as some complain? Reed says the Internet has not eliminated negotiation but has changed it. Bargaining still occurs between dealers and online LOOKING FOR A CURE FOR… ers eal ! I Improving customer retention? I Lowering used car reconditioning costs? RN T TU HE PAG d car new r g fo dru er ond ew Th I Increasing your sales per repair order? E http://edmunds.com http://edmunds.com http://edmunds.com http://edmunds.com http://edmunds.com
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