As if vehicle sales weren’t stalled already, now consumers have another tool in their car-buying arsenals: a web site called Carsala.
Carsala offers a number of nifty services, including a Price Checker feature and a team of professional negotiators. With Price Checker, consumers plug in a VIN and the dealer’s price — and a few other identifying factors, like mileage, ZIP code, and color — and the site will rate the sale price on a scale of one to four. Here’s a sample response, based on a 2005 Toyota Sienna query:
“This car is very common in used car inventories. This is based on a search for generally similar cars. We give the dealer’s asking price 1 star out of 4. We think we could get a better price.”
If the salesman won’t budge on the price, consumers can tap the site’s big guns — professional negotiators who will contact an average of 20 dealers to get a better price. They can even arrange for a mechanic to inspect the vehicle, for a fee.
With sites like this one around, vehicle sales are going to be tougher to get done, and margins will continue to shrink.
Let’s not forget there is not really “a” market value for a vehicle as Carsala is sort of suggesting. The “value” of a vehicle – even accounting for everything (assuming you could) – varies from dealer to dealer dependent on their expected ability to retail or wholesale the unit. Thus, it incumbent on the dealer to know 1) the market wholesale value net of expenses and 2) whether that unit to him might be worth more.
Good dealers (are there any others left?) already know this and operate accordingly.
Consumers have always wanted the deck stacked in their favor, but the Internet gives them a compelling tool to dictate negotiation. The Saturn business model allows the dealer in the market to set prices. Now the only business model that protects dealer profitability is going away.
Before the Internet, it was difficult to make money on new vehicles unless the demand exceeded supply. The Internet has triggered a “free for all” scenario on readily available vehicles. But the profit on the new vehicle is only the beginning of the dealer’s opportunity. Most dealers know that the most important thing is to get the deal without over appraising the trade to get it. F&I is the real profit center. And the new car franchise adds tremendous credibility to a used vehicle operation.
We should also keep in mind credit issues. Three years ago, approximately 37% of consumers had a car buying credit score over 700. Now the “good credit” threshold seems to have moved up to 720, while the number of consumers who fall in this category is estimated to be in the low 20’s. Many dealers advertise to credit challenged consumers who are glad to pay whatever if the dealer can get them “bought.” We shouldn’t assume that every buyer is “Internet armed” and “fast lane” credit qualified. But determining which customer is a traditional walk in, which is “Internet armed,” and which is “credit challenged” is difficult to do over the telephone or on sight.
In the realm of pre-owned, used vehicles are becoming more and more a commodity, thanks to the Web. To maximize “turn rate” it is essential for dealers to price competitively. The old “cost plus” model has been largely discredited, although some dealers still cling to the old ways. Read Dale Pollak’s excellent book “Velocity” for his take on how the pre-owned business has evolved. His company, vAuto, is predicated on these theories. And it is a thriving concern!
I wish I could predict where all this is going to lead, but we are truly on new ground these days. It seems clear that dealers will be forced to engage on the consumer’s terms or be left out. How to make money on the consumer’s terms is the new challenge.
A dealer who’s costs are too high on a per vehicle basis just can’t compete. Chrysler and GM think that by cutting dealers, the remaining ones can be profitable and build ever larger and more expensive monuments to the factory. The new reality is that the monitor on the consumer’s PC is the new showroom. The big fancy dealership with acres of inventory is a losing proposition. But the OEMs just can’t let go. Of course, it’s not their money.
It becomes apparent to me that cutting dealerships was largely mandated by the government “task force,” who were trying to make GM and Chrysler over based on their nebulous understanding of the Toyota model of high “through put.” I recently saw a piece quoting Mark LaNeve of GM as saying he is worried about losing so many rural dealers. The idea that consumers will drive long distances because of brand loyalty flies in the face of the new realities. Toyota has acknowledged that the lack of sales of its very fine Tundra truck is largely due to the distances consumers have to travel from rural areas to buy them.
Now I see Mr. LaNeve is leaving GM. One of these days LaNeve, Wagoner, Fong, Nardelli, Press, or another exec familiar with what happened with the dealer terminations is going to write a “tell all” book and we’ll know the truth. The idea that they would save appreciable money by closing dealerships is a total laugh. The idea that fewer dealers enables bigger and pricier facilities will go no where. Wringing all possible cost out of each transaction will be essential to success in the future as there will be loads of downward pricing pressure on gross profits.
I certainly echo the comments of Brian and David. The evolution of the web and its dramatic supply of information is fundamentally changing the way people are buying and selling cars. The consumer is armed as never before with timely and accurate information and this alone is the biggest reason dealers are seeing the margins shrink on the front end.
Carsala has developed a compelling hybrid of technology and personal assistance to broker sales in the pre-owned space. At AutoBids, we’ve chosen to focus on new car demand by bringing buyers and dealers together so they can negotiate online. Regardless, both are touching on the same nerve: consumers are hungry for a more straight-forward means to buy their next car – preferably online.
We, dealers (I was one for many years) have always known that you can’t put a price on service and reputation. These are the things that make each and every dealer unique, not the cars we sell. We all buy from the same outlets and advertise on the same channels but what the public wants is a predictable experience. The only ones I see as threatened by this should be the ones who are only selling cars not themselves or their business.
We have always taught that the consumer buys for 3 reasons. 1. the sales person 2. the dealership 3. the vehicle – and in that order.
But as consumers revel in their new found power, brought about by the Internet, they increasingly care less about making sure the dealer gets a fair return. Their loyalty to a brand or a dealer is reduced. They come to the dealership to take a sales person’s time gather info, and take a test drive. Then they go to their PC to control the negotiation. I wish it weren’t so. They are more ruthless than they ever have been, led by younger more tech savvy buyers. Without a lot of experience in purchasing big ticket items, these younger folks use the web instinctively to control the negotiation. They feel entitled and empowered. Yes, there are still many traditional buyers, but their numbers are dwindling and are being replaced by the young and the ruthless.