A high-powered human resource director wanted to spend Å“35,000 on a
high-powered car recently. Accompanied by her father, she duly trekked
from showroom to showroom to decide on the model she wanted. Time and
again, the salesmen they encountered insisted on talking to her father,
instead of talking to her, the person buying the car. The fact that her
father was there only for moral support didn’t seem to occur to the
salesmen.
This woman is a friend of Kevin Turnbull, who relates the story, but soon
she could easily be one of his customers. Turnbull is the UK’s chief
executive officer of Auto-By-Tel, the leading car-selling web site in the
US which aims to have a UK operation running by the end of the year.
He hopes to grab a large slice of the UK online car sales market which,
predicts research company KPMG, will constitute more than one in five of
new and used vehicles bought in the UK within two years (see panel on page
41). On a wider scale, accountancy giant Arthur Andersen thinks that the
internet will play a part in one in three of all vehicle sales in Europe
by 2004. These projections aren’t flights of fancy. In the US, research
from The Dohring Company found that 32 per cent of car buyers have used
the internet in their quest for a car.
The problem for Turnbull is the number of other sites springing up in the
UK, with varying business models. Customers could go to What Car?
Online (www.whatcar.co.uk), with information on 3,000 new car models from
the What Car? and Autocar magazines, or to Auto Hunter
(www.autohunter.co.uk), which contains a million ads for vehicles from
regional newspapers and is paid for by participating newspapers. Or they
might head for Autolocate (www.autolocate.co.uk) or the Virtual Showroom
(www.virtualshowroom.co.uk), set up by the Kalamazoo Computer Group, whose
revenue comes from subscribing dealers. Or they might be attracted to the
site belonging to finance company Paragon (www.paragon-cars.co.uk), or
browse the stock of CarLand, a second-hand car superstore in Thurrock, on
its site (www.carland.com).
Of course, they’re not just targeting women like Kevin Turnbull’s friend,
but are pinning their success on attracting all those jaded car-buyers who
see car showrooms as intimidating hell-holes. As a general rule,
purchasers will be quite well off, and won’t warm to traipsing around
windy forecourts on Saturday afternoons. Auto-By-Tel aims mainly at ABC1s
aged between 21 and 44 who are short of time, for example, and it has
proved especially attractive to women and ethnic minorities. Another
common key is convenience, so most sites also offer information on
financing, including loan and insurance quotes, in deference to the fact
that 46 per cent of retail car buyers pay for their car through monthly
payments. What Car? Online (www.whatcar.co.uk) even has an integrated
facility which gives loan quotes for a used cars found on the site. Many
also seek to address consumers’ anxieties about being ripped off, with
talk of warranties and RAC checks.
Turnbull is confident that there are enough such people for Auto-By-Tel to
really take off in the UK, and the company is entering the Scandinavian
markets as well. The company has three roles: to help customers decide
what car they want to buy, with new and used car prices; to offer an
e-commerce transaction system; and to make dealer fulfilment available
through it. In three years, it has found more than a million US car-buyers
and monthly sales currently run at 25,000 vehicles: some $500m.
”Buying a car is very complex, involving salesmen, closers and financial
services,” says Turnbull. ”No wonder women tend to bring their husbands
along to help them tackle this chauvinistic industry. More than 40 per
cent of drivers in the UK are women, and our sales in the US have
reflected that. Women are also one of the fastest-growing sectors of the
internet in the UK. Contrary to the industry’s perceived wisdom, consumers
will go a long way to get good service: in the US, consumers travel
hundreds of miles.”
On the Auto-By-Tel site users can browse thousands of new and second-hand
cars for sale by registered dealers, and request more information, a test
drive or even to purchase a car. A dealer then contacts them within 24
hours. The site has a pricing guide, rather than price lists. To
subscribe, dealers pay a $5,000 to $7,000 sign-up fee, as well as a
monthly fee split between new and used cars sold. The incentive is the
quality leads provided by the site, with a claimed close rate of 40 per
cent. Auto-By-Tel claims that more than 90 per cent of people who say they
want to purchase a car on the site do so within 90 days.
According to Turnbull, the UK site will have more used cars than new,
reflecting the fact that eight million used cars are bought each year in
the UK, compared to 2.2 million new ones. But it also aims to harvest the
corporate drift away from company cars towards giving employees a car
allowance. Indeed, Turnbull’s ambitious remit is to make Auto-By-Tel as
renowned in the UK as in the US where, helped by ballsy marketing such as
a $1.3 million, 30-second TV ad during the Superbowl, the brand has become
synonymous with online car sales.
How well Auto-By-Tel performs hinges on it getting to grips with the
differences between the UK and US car markets. The UK has a larger company
car market (although this is changing fast), while retail finance
programmes are more sophisticated in the US, where leasing is more
prevalent. John Bacon, managing director of What Car? Online (see panel,
above), thinks such subtleties favour the home-grown players. ”Auto-By-Tel
doesn’t have the power of our brand nor the knowledge of the fundamentally
different UK market,” he says. ”We have a greater dependence on part
exchange, for example, and the dealer-franchise model gives manufacturers
more control over the market-place.”
If knowledge of the UK motor trade counts most, then Auto Hunter will fare
well. Launched in February 1997, it comprises ads from more than 800
subscribing regional newspapers. Managing director Marlen Roberts thinks
the strong relationships forged between regional newspapers and the car
dealerships that advertise in them will be difficult to erode.
”The newspapers we have on board have been in contact with their local car
dealers every week for years,” she says. ”We’re not complacent, and we’ll
work to keep these strong, but it will be difficult for players like
Auto-By-Tel to interfere with these bonds. You cannot overestimate the
influence of regional papers.”
Roberts thinks Auto Hunter appeals to women in particular, and cites a
recent purchase by a London-based woman who travelled to
Stratford-upon-Avon to buy a Toyota MR2 - ”it was exactly what she was
after.” Auto Hunter already provides links to dealers’ web sites and,
responding to the influx of online players, is introducing valuation
services, financial information, and request facilities for brochures and
test drives. ”In the past, the regional press has been passive about
getting buyer and seller to meet,” says Roberts, ”but the internet means
we can do a lot more to see the transaction to fruition.”
The competition online will have inevitable knock-on effects for the whole
motor industry, and increase competition all round, says Alex Simons,
group product planner of CarPoint, Microsoft’s US car-selling site which
generates more than $300m in monthly car sales. ”Internet users have high
expectations of customer service,” he says. ”The myriad of choices of
where to buy online, unlike the real world where choices are much more
limited, means that they’re quick to move along when they don’t get the
service they expect. Dealers who do well online are those who commit to a
complete internet programme focusing on immediate responses to customer
inquiries and on delivering a level of customer service previously
unavailable in automotive retail. Dealers without the right skills or
attitude to operate online will miss out on many sales opportunities.”
Manufacturers, too, will be affected, in particular their prized dealer
networks and marketing plans, as Malcolm Hill, UK managing director of
Volkswagen Financial Services, underlines. ”The used car market will be
radically expanded with large groups of dealers getting together under the
umbrella approach of their manufacturer,” he predicts. ”They’ll produce
sites with links for centralised car locators with a linked finance
facility offer. Some of the new entrants from North America are making the
pace and pose a real threat to dealers.” Indeed, two other large US sites,
Autoconnect (www.autoconnect.com) and Autoweb (www. autoweb.com), are
rumoured to be ready to join Auto-By-Tel in the fray over here.
Some industry insiders consider the threat posed by the likes of
Auto-By-Tel overblown, and point out how slow manufacturers in the US were
to get online, allowing companies like Auto-By-Tel to sew the market
up.
”No US manufacturers sell used cars on their web sites,” says Bill
Sullivan, Peugeot’s direct marketing manager. ”We don’t intend that to be
the case here. Vauxhall has established a recognised used car brand in
Network Q, and we’re planning something similar to encourage online sales.
We’re creating dealer web sites to allow customers to search for used cars
nationwide.
”New cars are already being bought online in the US and, with greater use
of interactive video on web sites, that will probably happen here.
But we don’t yet have any plans to sell direct to consumers. For a start,
I believe that people enjoy the triangular manufacturer-dealer-customer
relationship, and second, such a move would have enormous repercussions
for dealers.”
But Peugeot is making its site work in other ways. Since going live in
mid-April, it’s been getting around 5,000 weekly visits, with one in 10
users requesting contact from Peugeot, whether asking for a brochure or a
finance quote.
Matthew Timms of Vauxhall agrees that manufacturers will increasingly use
the internet to push consumers towards individual dealers, just as GM has
started doing with its US site GM BuyPower (www.gmbuypower.com).
Customers enter the type of car they’re looking for, and are then put in
touch with their nearest local dealer with that car in stock. ”The
internet’s low overheads means it’s a very efficient way to draw in
customers, so we certainly plan to use it more,” says Timms. ”The fact
that more people are getting online will make them more disposed to buying
over the web as well, although I can’t comment on whether manufacturers
will ever start selling direct online.”
Such initiatives will only work for those who already know what marque
they want. The majority of car-buyers, however, have no clear preference
and search more according to what they want the car to do for them, its
engine size, age, type of gearbox maybe, and cost. If they find a car to
suit, they will be more inclined to travel a greater distance to a chosen
dealer because they’ve saved time during the pre-shopping stage.
And dealers are getting fewer in number, as manufacturers seek to
rationalise their dealer networks and reconsider their representation
strategies.
In 2002, manufacturers will be barred by a change to EU law from forcing
dealers to sell their products exclusively. It means that UK dealers will
need to become much more proactive in attracting customers.
The more enlightened will see new media as an opportunity, perhaps
subscribing to an intermediary or even setting up their own web sites.
They should bear in mind the fabled case of Dave Smith’s Motors in
Kellogg, Idaho (population 2,600), which sells 4,000 cars a year to a
300-mile customer radius. Nowadays, Dave Smith even provides an airport
pick-up service for potential customers. And all because of an effective
web site.
THE US MARKET LEADS THE WAY
Widely acknowledged as being 18 months ahead of the UK, the US is already
yielding some impressive statistics. One in ten Americans would buy a car
without even driving it first, according to US researchers Dohring,
compared to four per cent of people a year ago, while 44 per cent of
car-buyers now have access to the internet. And almost half of these say
they’ll use it to help find their next vehicle, compared to 32 per cent
who already have.
”The tremendous potential of the internet should not be underestimated,”
says Rik Kinney, vice president of The Dohring Company. ”Car dealers who
learn to harness the net’s true power will enjoy significant gains in
market share.”
Other trends in the US market support these findings. For example, an
increased demand for used cars over new cars is likely to strengthen the
web’s influence, because each used car is unique, only available in one
place, and so requires more searching for than does a new car. And the net
is the best tool for doing that search.
There are two reasons for the popularity of used cars. First, vehicle
quality has increased and, as a partial consequence, more two and
three-year-old vehicles are available off leases. Second, used vehicles
contribute more than five times as much to dealers’ net profit per vehicle
than do new ones, so they have a vested interest in promoting used cars,
and helping customers to find them. And the net is one of the most
effective ways of doing that.
The web can help dealers in other ways. Marketing consultants JD Power and
Associates found the average dealership’s marketing costs per vehicle sold
through online buying services is 61 per cent of the average cost of
traditional advertising media. And dealers selling more than 12 vehicles a
month online spend only 23 per cent of the average cost of traditional
forms of advertising.
WHAT CAR? ONLINE WANTS WELL-INFORMED CONSUMERS
A major intermediary between customers and dealers is What Car?
Online.
Launched as Car Shop in June 1995, as kiosks in dealerships in the Bedford
area, by March 1996 it was available through the web and Sky Interactive
Text. Purchased by Haymarket Publishing (publisher of Revolution) at the
start of this year, its name was changed to What Car? Online.
”We relaunched in April with three enormously powerful brands - Autocar,
What Car? and The Book - providing us with unrivalled credibility,” says
managing director John Bacon. ”Most car-buyers must negotiate
commission-driven salesmen, part-exchange deals and a myriad of financial
options and discounts. This can take up to 12 weeks and involve up to six
dealer visits. I want to split the process into two stages - the pre-shop
and the transaction - and turn car dealers into merchandisers, rather than
salesmen. Our job is getting people to the screen and keeping them
committed until we hand them over to the manufacturers, dealers or
added-value service providers such as insurers. The question then is
whether manufacturers respond efficiently, and pass them on to their
dealers.” The site (www.whatcar.co.uk) lets users search for a used car
from Autocar’s classified database, and Bacon wants to quadruple its size
to 10,000 vehicles.
Users can also ask for brochures or test drives from 57 manufacturers of
3,000 models, or for Å“46 place an ad to sell their own car.
Much is made of the What Car? connection, and the site boasts road tests
from the magazine. The result, claims Bacon, is that 90 per cent of users
who test drive a car buy it, against an industry average of only 60 per
cent.
What Car? Online is hoping manufacturers will pay for the well-informed
consumers it provides. Isuzu and BMW have already signed up, encouraged by
some impressive statistics. In the four months after its launch, What Car?
Online had around two million page impressions from 200,000 user sessions
lasting just under ten minutes each. Test drives were booked by 550
people, the same number again asked for dealer information and there were
nearly 4,500 requests for brochures.
What Car? Online will really come into its own once digital television is
launched, adds Bacon. ”Even now, Teletext sells more than a million
holidays a year, showing the power of TV. The possibilities are
exciting.”
AUTOLOCATE ENCOURAGES BUYERS TO LOOK FURTHER AFIELD
Autolocate (www.autolocate. co.uk) is not just proving very popular - it
attracts around 35,000 visitors a month - it is also encouraging
car-buyers to look much further afield, says its sales director David
Hawkins. It’s a trend which will continue, he says, especially as the
25,000 or so cars on the site all come with warranties and dealers’
guarantees.
”Most of our visitors still come for information, they use our site for
pre-shopping, to narrow down their choice,” he says. ”But we’re starting
to get more sophisticated searches, such as users asking to test drive an
Audi A4 when they’re going to be in Bristol next Thursday, for
example.
All types of cars are featured in autolocate, from Ford Fiestas to Lotus
Esprits.
”However, while the common feature to all used cars is that people will
always want to kick the tyres and see what they’re buying, that’s not the
case with new cars. These are seen more as a commodity item, so people
don’t care where they are sourced from.” Autolocate has 420 car dealers
out of the 7,000 nationwide, including the Bristol Street and Hartwell
groups with more than 40 showrooms each.
Subscribing dealers pay a flat subscription of Å“95 per outlet per
month.
They in turn must undertake to contact any interested user within two
hours. Autolocate provides more than 75 leads every day, claims
Hawkins.
Autolocate manages and hosts subscribing dealers’ web sites, and lets
dealers source used cars from other dealers for customers wanting specific
vehicles. Any profit is then split between the two dealers concerned.
There are 350 independent reviews on the site, as well as links with other
sites - such as www.guardian-direct.co.uk, for example.
Hawkins is keen to prevent any comparison with AutoTrader Online. ”The
fact that it has classified ads means that it’s in a different market to
us,” he says. ”It doesn’t know who’s selling the cars, which is why it has
great big disclaimers up on the site.
”In contrast, we know who all our dealers are. We appeal to consumers who
want fast service, and find out what stock various dealers have. For
dealers, autolocate should be a complementary channel.”
ONLINE CAR SELLING IN THE UK
”The level of online car sales is low in the UK, but it will definitely
take off; the issue is when,” says automotive consultant James Rodger of
accountants KPMG.
”We predict that more than 20 per cent of new and used vehicles will be
bought using the internet within two years.
”But to start with, you have to make a distinction between informational
use and transactional use. We found that only about four per cent of
people in the US had bought new or used cars outright over the internet,
and they still had to sign the paperwork in person. There’s still not the
security, consumer confidence or inclination for Å“15,000 online
transactions.
”There is, however, a new breed of empowered car buyers who like to do
their initial car-buying research using the net. Remember, 85 per cent of
large corporations now provide access to the net. In the dynamics of
buying, it means people are coming into dealers at a later stage, and are
better informed.
”The result of this price transparency is that one survey found 22 per
cent of US car buyers paying the asking price, against only 9.3 per cent
of online buyers.
”There are two clear stages to using the net for car buying. The first is
as a way of filtering down product choice, and the second is to decide
where to buy and at what price. The dealer is still a fundamental part of
the process, but if manufacturers don’t learn to use intranets properly,
dealers might end up knowing less than consumers about the latest model,
or whatever.
”Companies such as Auto-By-Tel seem likely to succeed because they have a
proven formula that works and have the credibility of having no brand axe
to grind. But dealers and manufacturers must understand there is no great
online threat. The internet is simply a new marketing channel, albeit one
they must embrace.”
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