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Is the Internet An Enemy To Car Dealerships?

A 2014 study by Autotrader showed that consumers are visiting fewer dealers in their car shopping than ever before. This is certainly a by-product of the availability of information. No longer do consumers have to visit multiple dealerships to find the right vehicle. They simply sit in front of their computers and browse a dealer’s inventory on their website or, more commonly, a car buying portal site. In fact, the same Autotrader study showed that 79 percent of consumers are using the Internet in their car-buying process.

 

When the consumer has completed their research, decided upon a vehicle and visited a dealership to view and/or test drive it, many don’t actually end up buying the vehicle they came in to look at. They end up finding something more suitable to their lifestyle, or one that is a better fit for their budget.

 

They arrive at the dealership, armed with all their Internet research -- ready to do battle should they experience anything less than a frictionless experience. However, many find themselves in a situation whereby they are perhaps not quite as ready for battle. Perhaps they now feel they will be at a disadvantage at the negotiating table.

 

So what does THIS consumer do now?

 

They whip out the one thing most consumers never leave home without -- their smartphone, right in the dealership’s showroom, and start shopping the competition.

A 2014 survey by J.D. Power and Associates revealed that 34 percent of new-car buyers who research online use a smartphone or tablet while shopping at a dealership, up from 29 percent in 2013. Vehicle pricing is the most frequently accessed content while at a dealership (61 percent), followed by model information (42 percent), searching inventory (40 percent) and special offers/incentives (36 percent).

 

If consumers are so armed to the teeth with information, why do 61 percent access information on vehicle pricing while at a dealership? Most likely because they changed their minds while viewing the vehicle and landed on a car other than the one they came to look at. This use of smartphones by dealership customers to research the inventory of other competing dealerships may well lead to an increase in dealership visits.

 

You can’t buy a car from the Internet – not yet, at least – so it might be wise to consider that the buyer that walks through their door with the MOST information is the one that you should ensure gets the BEST customer experience. As they, according to the J.D. Power study, are the ones likely to visit more dealers.

 

When consumers are shopping for a vehicle, they may think they know what car they want to buy. However, studies show that they can easily change their minds while at your dealership. And, if they are shopping your competitor’s inventory right from your lot, they may also change their minds about if they want to buy a car from YOU.  Give your customers a good reason to buy from you versus any competition, and perhaps you’ll find less resistance, happier customers and more sales.

 

In the end, the Internet is not a dealership’s enemy.  

It provides us all with much needed information and services that can be much harder to find elsewhere. Consumers will use it whether you want them to or not. Embrace technology and find a way to use it to your advantage. If you still don’t agree, just remember the old saying:

                            "Keep your friends close and your enemies closer."

Views: 622

Tags: buying, cars, compare, competition, consumers, dealership, mobile, prices, shopping, showrooming

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Comment by David Metter on June 15, 2015 at 10:59am

Brian, no reason for the posts other than I like to write.  Over the past few years, I have been very focused on building my business, which took me away from writing and speaking.  Now that I have a good foundation and a great team in place, it allows me to do what I like to do.  But thanks for noticing :)

As a "lifer" in the car business, with 7 years on a sales floor, I don't want to be misunderstood that I want to get rid of salespeople.  What I was trying to accomplish was to open the reader's eyes to the fact that online consumers are

1.  important

2.  will come into a dealership and buy a car at a high rate of close

3.  will leave if they are not happy with the process

4.  will go to another dealership and buy a car

Comment by Brian Bennington on June 14, 2015 at 4:46pm

Humm, David.  After reflecting on this post all week, I've decided to try and answer your $64,000 "Is the Internet an Enemy to (although I think it reads better with 'of') Car Dealerships" question.  Let's see.... If it's a yes, does that make sense?  Not really, as it's only media, and it would be as foolish as asking the same question about the newspaper or television.  How 'bout "No."  Common sense says that's the only correct answer, as the only businesses who wouldn't like it are those who don't understand it.  You know.  Like the only people who wouldn't like the newspaper are those who can't read.  Nor would TV be appreciated if everyone was blind.

After due consideration, I think you could have asked a "less vague" more provocative question.  You could have asked "Is the Internet the enemy of car dealerships' profit"?  Or, is the Internet the enemy of car dealerships' vehicle presentations, or car sales reps just in general?  As I mentioned in my previous comments, having read your ADM bio and company website, to me this post may be "tuned" more to generating an opportunity to "barter your wares."  Which, by the way, is fine with me.

But, there is one thing I'm totally ignorant of, and you're just the guy to give me the answer. Noticing you've blogged again this week and I haven't noticed you blogging recently, is the reason for twice-in-a-week posts because you're kicking up some business?  Please tell me (us) about it.  (Of note, Mr. Ruggles' comments about getting rid of sales people could be somewhat accurate, but only for those reps who don't understand sales, and their leaving might be good for all concerned.  However, the pros I mentioned in my previous comments, will prevail and will always be worth more than they cost.) 

Comment by David Ruggles on June 12, 2015 at 2:15am

It all depends on what one defines as a completely online purchase.  "Evaluating a trade in and actually appraising it are two different things.  No one buys pre-owned vehicles based merely on representation without an "out" if the vehicle doesn't stand up to actual in person appraisal.  HOw would one deliver a vehicle remotely?  Certainly, much of the conversation can take place over the Internet.  But why would we even want to do that?  There are many things we could do.  We could "sell"cars with kiosks, robots, and test tracks.  We could even deliver a price via a blind dog with a note in his mouth.  We don't need to be doing things so we can say we did them.  We need to be following processes that sell cars and make money.  Since we are already selling cars for "break even," shouldn't we be focused on improving that situation instead of focusing on stuff that yields not appreciable reward other than bragging rights? 

Now if someone wants to come out and say our objective is to rid ourselves of sales people so we can save that expense, now would be a good time to bring that up.


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Comment by Steve Tamulewicz on June 8, 2015 at 8:57am

Nice catch phrase on the title of the article. I live and breath in a world that is ever changing and this is one of those situations. When you role with the punches that this technology brings you are left with a course of action that can be planned for. When the type of customer mentioned above walks on your lot loaded for bear, you should have a game plan in place to work with this personality type. They should be a decisive buyer and a serious buyer, so now approach them with the appropriate sales technique and close the deal. If they are not closed on the spot, then re-targeted marketing through email, social media marketing and phone can still make it happen before they sign somewhere else. 

Comment by David Metter on June 8, 2015 at 6:01am

Well, I guess I stirred the pot a bit. Mission accomplished :)

I appreciate the rebuttal from Ralph and Tom about total transactions online but I liken it to a baseball pitcher hitting a grand slam; it just doesn't happen that often, if at all. That's why pitchers hit in the 9 hole in the National League and sit on the bench for a designated hitter in the American League. No one really wants to see it. That's the same for online sales. The high majority of buyers still want to have the emotional attachment to the car buying experience.

Based on Brian's comments and stats from Maritz, I also believe that you can circumvent the online buying process with a diligent follow up program for existing customers as well as referrals. For those who know me well, I was a "CRM Guy" well before I was an "Internet Guy".

Comment by Brian Bennington on June 7, 2015 at 4:58am

As I'm sure you were aware when you wrote it, your post's title is a hellavu hook for ADM.  But, having been "reeled in" before, I first went to your bio to get a bead on your motives. (It was so intimidatingly fabulous, it made me quickly reassess my life as a "worthless study in futility–again," and urged me to locate the nearest chapter of your fan club so I could immediately join!) I then went on to your HookLogic website which made understanding your post and position much easier.

Regarding your content, I'd think most here would agree with you as your points are well established and your presentation is excellent.  (So good, in fact, that Ralph jumped on in one of his rare appearances to substantiate we're getting mighty close to large scale on-line "front-to-rear" selling.)  With that, who could argue the Internet isn't here to stay?  My business has next to nothing to do with it, but no one in ADM has more respect for its relevance and power.

However, I'm in the "David Ruggles camp" on nearly every one of his points.  His observations about the importance of "friction" and the imbalance of information relating to dealer profit is classic.  (I wished I'd said it.)  I especially appreciated his concern that dealerships regularly "run off" talent to the detriment of customer relationships.  Fortunately, experience has taught me the problems of IT-created activities like "showrooming" and "lowest price dominance" do have viable counters.

I usually discount statistics as I'm a founding member of the "If you torture data enough, it will say anything" club, but I'll share one to reinforce the importance of salesmanship.  A recent AN broadcast reviewing a MaritzCX study as to the most influential source of information for the car shopper, #1 is the "salesperson at the dealership" (21.5%) and #2 was "family and friends/word of mouth" (18.8%).  They dominated the other 20 sources listed, which means, if you know what customers really want to hear, and back it up with solid after-the-deal follow-up, you've got a pretty good chance of surviving the Internet onslaught.            

Comment by Tom Gorham on June 6, 2015 at 4:58pm

Great article David!  First I want to say that I agree with Ralph that cars can be bought online (and already are) and I hope dealers lead the way rather than manufacturers.  Secondly, David Ruggles, I agree that the Internet isn't going away but traditional Internet is metamorphosing into an everyday, every hour, every minute, every moment connection. It is entertaining and useful to imagine the ways that Wearables, Internet of Things, Virtual and Augmented Reality devices will affect the sale of automobiles.  From the other perspective, we must imagine what the inevitable impact of smart cars will do to dealer franchise laws.  The only thing I can honest predict is massive change.  The one thing we CAN predict is the cultural change that is and has been occurring in the way people choose to buy from a particular dealer.  Customer service, a feeling of belonging to a special place  (family & friends), WOW Factor, expertise, and transparency will be the determining factors in future success. JMHO  Once again, thank you David Metter for a great thought provoker!

Comment by David Ruggles on June 5, 2015 at 10:49pm

Any dealer obsessing about any harm the Internet has caused better get over it and learn how to take best advantage of it.  It ain't going anywhere.

RE: "When the consumer has completed their research, decided upon a vehicle and visited a dealership to view and/or test drive it, many don’t actually end up buying the vehicle they came in to look at. They end up finding something more suitable to their lifestyle, or one that is a better fit for their budget."

Consumers don't complete their research before coming to the dealership, although many probably think they do at the time.  They have to come to a dealership or have telephone or email dialogue to get straightened out on the complexities they fail to grasp from the research they did.  I visit a LOT of dealerships and I see a common thread.  There is still a major issue with what a consumer thinks he/she should get for their trade and what their payments should be.  Many discover that the vehicle they've selected isn't bankable without a lot cash they don't have.  There are credit and tiering issues to be hammered out.  The common thread?  After all the research, many consumers leave with a different vehicle than what they came in to buy because of those lender and trade issues.  A lot of these consumers are troubled by the process because they don't hear what they want to hear at the dealership.

There is a lot of friction in car deals.  The price of the vehicle is one cause of friction even if the customer paid what the dealer pays.  Dealer profit is friction.  Only receiving wholesale for their trade is friction.  Paperwork demanded by state and federal agencies are friction points.  So is paying sales tax, license, and titling fees.  In today's world, dealers already barely break even on the sale of new cars.  Friction is required just to get it to that point.  Take away the dealer's friction and what do you have?  You still have friction not of the dealer's causing, but its still there.  Who is the consumer going to be piqued at when they don't get what they want at the dealership?  The OEM?  The state?  The Feds? The wholesale market?  The bank?

There are already dealers who have been doing deals "remotely."  It has been going on for years.  45 years ago many of my customers never came to the dealership except to take delivery, although sometimes they'd come in for a cup of coffee and to say hi.  I'd see them when they came in for service too, of course.  Sometimes I delivered their car to their house or place of business.  We did it all on the phone.  It helped that most of those were either one leases or agreed to yearly difference prices already established and agreed to.  There were many things that happened along the way to reduce the number of remote deals.  No one wants to address the root cause, which is turnover in sales staff.  We've run off a lot of good people.  This business isn't about the Internet.  A new car isn't a gadget.  This business is still about relationships.  You can't run off sales talent and expect to maintain relationships with your customers.  Look at what's happened over the decades.  Instead of talking about the root cause, we're talking about the Internet, a miniscule issue by comparison. 

Another way to do more remote deals?   Send the difficult customers to your competitors.  Then one can brag about how quickly they do their average deal.  

RE: "They arrive at the dealership, armed with all their Internet research -- ready to do battle should they experience anything less than a frictionless experience. However, many find themselves in a situation whereby they are perhaps not quite as ready for battle. Perhaps they now feel they will be at a disadvantage at the negotiating table."

Until consumers have the same information as the dealer, and equal ability to interpret that information, consumers will be at a disadvantage in negotiation.  Besides, we do it every day.  They do it every few years.  It is the lack of symmetry in information that allows us our gross profit, out of which we try to break even after expenses.  Be careful what you wish for.  A lack of dealer caused friction results in dramatically reduced gross profit.  If you want to find out if I am right or not, start posting your triple net cost and itemize your margin.  See how far you get with that completely transparent approach.

Comment by Ralph Paglia on June 5, 2015 at 9:32pm

Thank you David, for a thought provoking article, but I must disagree with you on the statement that "You can’t buy a car from the Internet.." because you can buy a car from a dealership online, there are, at this moment in time, more than 100 American dealerships with the website technology and the operational processes that allow customers to buy the vehicle of their choice online, secure financing, get their trade-in evaluated, etc.   This may not yet be commonplace, but dealers have been piloting, experimenting and attempting "Transactional Based Websites" for well over ten years now.  I personally believe we are on the verge of a major breakout of this online marketing strategy and could easily foresee 20% or more of vehicles retailed, being transacted primarily on the web within the next 5 years.

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