Automotive Digital Marketing

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Online transaction applications, self serve consumer desking tools, direct lender sourced credit applications and payment calculators, transparent product and price disclosures, linked information resources like Kelley Blue Book, market wide inventories posted online, limited personal communications replaced by video conference conversion tools that provide little time or need to develop relationships before, during and after the sale - and the list goes on.

All of these Internet based applications exist today with more robust versions already in beta versions and ongoing A-B tests with major dealer groups and OEM's. The human element is an assumed requirement in selling a vehicle based on consumer acceptance of the Internet as it was - and maybe as it is - but what about how it will be in the eyes of the next generation that is being weaned online with the expanded bandwidth that is allowing more functional applications!

OEM's have already tried to eliminate the dealer franchise system but they have been hampered by legislation and the retail auto industry lobbyists. Free standing service centers are already being sanctioned by Ford, Toyota and other OEM's playing in the background behind pilot programs. Parts on demand and "just in time" assembly lines tied to computerized dealer orders for new vehicles with more limited numbers of variations offered in vehicle configurations. Centralized inventory pools designed to limit floor plan costs for dealers who can't afford the carrying costs. Again, these situations all exist and are signs that they are being considered by OEM's vs. the status quo.

How long will it be before the efficiencies of the Internet and the reduced margins brought about by a weakened american economy will force a dynamic change in the role of the brick and mortar dealership vs. the virtual one?

That is the question - what is your answer/opinion?

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I agree, based on TODAY's Internet and consumer experience. The question is regarding TOMORROW'S generation of Internet based consumers with 3D video online and a Guaranteed refund if not satisfied since the savings in marketing, storage, sales commissions and distribution will provide profit margins high enough to eat a few vehicles with less than 500 miles.
Again, based on OUR generation's limited confidence and experience in the Internet and OUR love affair with our vehicles I AGREE TODAY! The problem is that TOMORROW there could easily be an EXPERIENCE CENTER in every town owned by the OEM for in depth test drives with the dealer's reduced to service centers. Oh yeah, by the way - that already is the system in many European contries
I have to agree with Matt on this one, I think TODAY or TOMORROW customers are still going to want to drive the vehicle before finishing paperwork and most of the time they will usually consider a couple of different vehicles before making their final decision.

A good example is your Accord or Camry buyer, in my experience if they are looking at one they are more than likely looking at the other. When I was selling Honda's a few years back there was a noticable difference in the way the cars drove and handled, the Accord had a firmer seats, tighter handling, and more road noise versus the plusher seats, softer ride, and lower road noise of the Camry. It was not a question of quality with these cars it was a matter of the personal preference of the individual buying the car.

I also think if you take the salesman out of the equation you will see a sharp drop in vehicle sales, in your experience Phillip, how many times have you heard a customer come out of F&I saying "I just came in to look today, I had no intentions of buying a vehicle"? This is especially true if you converted an Accord buyer to a Buick Lucerne. As much as they don't want to admit it, most customers like to be sold and made to feel good about their purchase.

Tomorrows sale model will be a Hybrid of the future you are talking about and what is currently happening today. Don't get me wrong, you will definitely have a group of people that will complete 99% of their transaction online, but I don't think that number will ever exceed 8% to 10% and that will be mostly new car buyers. Now I know there are some used dealers out their that complete a majority of their transactions online and ship the car without a test drive, but these guys are usually dealing with exotics, not the 2001 Ford Taurus(Malibu, Stratus, or whatever you high volume program type car is) that most of us have on our lots.

Another thing to consider is how often does a customer drive out in the exact vehicle they came in to look at, how many of these customers find something else that they ended up purchasing and had never considered or even looked at before entering the dealership? For the reasons listed above I think you will always have salesman involved in a vehicle purchase online or off, no matter how streamlined the experience becomes.

As for the European model, I haven't seen us adopt the no firearms policy of England yet, so not everything they do adapts readily to the American society.
Good answer and a well thought out reply! From your mouth to the OEM's ears -I HOPE!

Of course money talks and a flexible convertible contract that starts as a weekly rental that matures into a purchase might fill in the holes. My purpose in starting this forum was to point out that the Internet has only begun to change the way that consumers have changed their reliance on brick and mortar dealerships and salespeople for the information they need to make a decision. I need feedback from other industry professionals about where future investments should be focused for those of us who are planning to remain "car guys/gals."

Frankly, I am responsible to advise clients who are considering five million PLUS investments in a new facility and wether or not the same investment in a well engineered application in a developing technology may have a better ROI and a longer shef life.

Thanks for your considered opinion. I assure you that I heard you - one car guy to another - and it will factor into my direction!
I could definitely see your idea of a centralized invetory in the future if the OEM's adopt Honda's model for building cars. You would have your three or four trim levels that only come one way and stock one car in every available color, so you had a couple in each trim level and model that covered full color spectrum. Then the OEM's could then build ditribution centers based on zone, state, or whatever that serviced the dealers.

This wouldn't really be any different than doing a dealer trade in our current model, except for the fact you could close the deal and do paperwork instantly because all you would have to do as a dealer is click a buy button in the locater and the car would be yours. Think about it, how many times have we as dealers had to wait to get an answer on a dealer trade, been told the vehicle is ours only to have someone change their mind the next day, or never get a call back, not to mention being held up for a prime piece of merchandise for an entry level car.

I think this model would have huge benefits to the a franchised dealer, the most obvious would the savings on flooring costs and the amount of land needed to run a dealership. The other advantage is the OEM's would held accountable for what they build, just because you have the capacity to build something doesn't mean you should, how many times have they stuck dealers with crap just to clear the factory yards.

One of the problems I see with this theory would be getting the OEM's behind it, they would be held accountable for everything they built and would have to have a plan to move the leftover inventory on their shelves at the end of the model year. The other problem they would have is the balance of power would shift from them to the dealer, they wouldn't be able to stick the dealer with their mistakes giving the dealer complete control over their inventory.

In a perfect world this would be an ideal system, but since most of the OEM's are far from perfect it will probably never happen.
Excellent point, but never say never! The domestics are already reducing options and/or converting them into logical packages to eliminate wasted parts and production delays. As for taking the floor plan costs away from the dealers - sure, they would increase their costs in that area but the ability to expedite production by prioritizing sold orders communicated online and other efficiencies in marketing and distribution costs would more than compensate.

I like the way that you extended the forum into other areas than those basic ones that I started it with. It covers my true question/concern which is to determine why,how and if the business model that we see today will exist tomorrow to better guide investor clients. THANKS FOR THE INPUT!
The biggest problem for brick and mortar dealerships is going to continue to be the cost of maintaining a facility and huge inventory of overpriced cars that the OEM's keep cutting dealership margins on so no-one can profit. All of the Internet applications are great, but in the long run, there will be a need for someone to objectively work with a customer to bring the transaction to a conclusion.

Kelly Blue Book often doesn't adequately protray the market ( and honestly, a trade-in to it's current owner is like a homely daughter to her father. She always looks better to him than to anyone else)

You will still have a need for someone to structure a buyable deal, especially with the changes in the finance market.

Also, no matter how many photo's, video's, etc., You cannot feel how comfortable or not the seating is. You cannot see how the blind spots affect your ability to drive it.

I personally think that the Virtual Dealership will expand, and the bricks and mortar will recede, but it won't totally go away. That is, as long as there are a variety of vehicles to choose from. If we end up with only a couple manufacturers, it won't really matter, will it?
I agree Tom.

The "downsizing" solution is the more likely scenario in my lifetime. I am counseling my dealer/clients to reduce the footprint of new facility acquisitions and/or to build vertically to keep their future real estate options open for the then "highest and best use" of the land.

Facilty upgrades dictated by the OEM's have hurt a lot of dealers and fortunately some OEM's have toned it down a bit. As a result, my focus has been on building "virtual showrooms!"
Phillip -

Good question.

The negative effect on B&M will be more profound for those dealerships not taking proactive steps to embrace the changes we discuss in forums like these; its the dealerships not participating and not pushing the technology envelope to expand their online presence, reducing traditional advertising expenses and improve their margins. And in my opinion - changing the way they do business with the different levels of consumer behavior in this segment.

As for buying cars online site-unseen - its already happening. AutoNation has been testing their order a vehicle program for a while now and their reach is wider than you may think.

We bought a vehicle from a customer who purchased from AutoNation. He bought it online & had it delivered to his door...he wasn't happy with the vehicle and traded it in...with under 250 miles clocked.

Buying new cars online will be the next big movement; used will surely follow as technology improvements make the transfer of key information easier than ever.

Who are these people? It may not be the 20-somethings online now - rather, those users who aren't even in junior high'll happen.
Thanks for the update. It is nice to see that a plan is coming together! Today - not just tomorrow!
Now call me crazy Phillip, but doesn't the fact that this vehicle purchase was a complete failure show why it is so important for a comsumer to come in and drive a vehicle before stepping up to make a purchase? All I can say is this guy is lucky he didn't by a full size SUV or Pickup that is taking a $8,000 to $10,000 hit as soon as you take delivery. I may be wrong here Eric, but my educated guess is you didn't pay this customer the same price he just purchased the Civic for, and if you did, I have a couple of vehicles I want to run by you:)

Let's take a look at the SUV scenario, a customer goes online and decides he needs to get a new Yukon XL Denali. This guy thinks he is making the deal of the century, the one he has picked out has a MSRP of $58,000, but with the employee pricing he thinks he is stealing it at $48,000. Now he completes the purchase online and has it delivered to his house without sitting in it or driving it. After a couple of days of driving his new purchase he realizes the Yukon XL doesn't park near as easily as the Impala he just replaced and the 12 MPG he has been getting driving around town has him a little concerned. This customer approaches Eric(or any other wholesaler) about purchasing his Denali, Eric pulls up an auction report and sees the last 2008 Denali XL brought about $37,000 with a couple of thousand miles on it. Now here's where it gets interesting, not only did this customer finance the vehicle, but he rolled over about $3,000 negative equity from his trade.

Now here's a guy that's $14,000 in the hole on a vehicle he doesn't like and it all could have been avoided with a test drive, not to mention it is the last time he will buy a vehicle that way. If we look back at the history of the automotive internet model, all dealerships were going to go out of business within a few years with customers making all their purchases online and bypassing the dealer, and that was 10 years ago.

I agree with Eric that it is not just 20 somethings that use the internet, I just sold a customer in his 70's a vehicle that contacted me through the internet, but the vehicle he purchased was not the one he contacted me on, it was different vehicle that he had not considered before coming into the dealership. This is why I don't think the current model will never go away, it my get more streamlined, but you are always going to need a saleperson to make the appointment and sell the customer after you get them in the door. Anybody selling can tell you Taurus' and Impala's usually don't sell themselves, customers need to be shown the value of buying one of these vehicles and that just doesn't come across as well in a listing.
Hey Jon,

As always I agree with most of your comments, but I respectfully refer you to the HUNDREDS of real world customers that came back the next day to excercise their misguided right to return the vehicle within 72 hours of delivery. Of course, they drove the car, smiled in the F&I office and waved as they drove away but the buyers remorse - often fueled by their neighbor or competing dealer giving them bad advice - still forced a request to return or trade-back the vehicle.

Human nature survives in the virtual world. Once we develop a confidence level similar to that earned in the real world through transparent online processes I anticipate an ever increasing percentage of online purchases with liberal short term rental agreements converted to contracts to purchase or lease.


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