Questions for a 21st Century Car Dealer

An unprecedented shift in media formats and effectiveness is occuring.  I ran aross this quote in "Goodbye to Newspapers?" earlier this week and it got me thinking about OEM's, car dealers and the Internet.  

"...advertising and circulation are being drained away by the Internet, and its owners seem stricken by a failure of the entrepreneurial imagination needed to prosper in the electronic age. Surveys showing that more and more young people get their news from television and computers breed a melancholy sense that the press is yesteryear's thing, a horse-drawn buggy on an eight-lane interstate."

Thankfully the author was talking about newspaper owners not car dealers... but as I thought about it, it dawned on me... All the same warning signals are there in retail automobile distribution.

It may not be happening in your dealership, but from any of the advertising effectiveness studies I have seen, the same early markers of traditional media decline and the pending impact are present in OEM's and dealership's operating practices.

So what is this doing in the dealer world?

Traditional media sources are now less effective in their reach and influence.  As a result OEM's and dealers now have a higher cost per vehicle sale.  Okay, not too difficult to understand so far, but not okay from a business owner's perspective either.  Back to the original quote... Dealers and OEM's have recognized this and started to shift their spending.  However, there is a dilemma.  Money spent on the Internet goes a long way, but all too often it doesn't seem to have much direct effect either.  Unlike a newspaper ad placed on Wednesday to run on the weekend, customers are not in the showroom on Saturday when you spend money on the Internet.  The new media is more like making water boil.  You have to apply the heat for a while and you're not always sure it is doing much, then when you are not looking... suddenly bubbles + steam.  On the Internet, you sign up to do things, raise your search engine rankings, improve soft issues like your consumer experience, consumers shop over a much longer period and you harvest over time.

As frustrating as it can be, the Internet is where the action is.  However, as much as the magnitude of the shift startles me, I don't consider the Internet to have had a particularly profound effect on the total automobile market - yet.

Why do I say this?

Well the online lead companies make a lot of noise, but by my non-scientific reckoning, online leads, don't DIRECTLY account for more than 3-5% in determining which vehicles are bought and from whom.

Or let's look at it another way.  Some of what I consider to be the best Internet dealerships I have seen have metrics that look like this:

• 35-40% of total store volume sourced from the Internet
• per vehicle and finance + insurance gross profits equal to their showroom operation
• Per vehicle sold advertising costs = showroom (includes leads, SEM, SEO, and anything else used to attract consumers)
• 10-15% sale: prospect (lead) ratio

While you are welcome to compare your operation to that standard, I find even those stellar results inefficient.

Why inefficient?  Well the above dealership would be one of the very best there is.  Yet if 70-80% of consumers use the Internet when purchasing a car and these best dealers get 35-40% of their consumers from it... where exactly are the other 35-40% of even the best dealers' consumers going?  Back into the waiting arms of everyone else's showroom experience?  Almost has to be.  Is it likely to stay that way or have we just seen the tip of the iceberg?  Let's hold that thought for a moment.

Since the market is NOT yet being DIRECTLY shaped by the Internet, and yet somehow consumers are there in the overwhelming majority... what will be more efficient in getting them to your dealership?  In getting them to identify themselves to you, to shop you and ultimately to buy from you?  What message will reasonate with them?

That's where the action is and from what I've read, I doubt the current Internet lead model is the maximum, effecient end state.  Do you need some convincing that consumers don't particularly like leads?  See what the front line has to say about it on this popular blog for Internet Managers.

Thomas Jefferson once said "Knowledge without action is just a dream."  Well in the case of the Internet and car buying participants I would say it is also frustrating for everyone concerned.

As a leader in your business, if you are not spending your time thinking about the answers to these questions, I can guarantee you that the large public dealer groups and OEM's have very talented people whose primary mission is to figure this out.  They see it as the new frontier, where the opportunity for gain and competitive advantage lies.

Personally I believe that these thought leaders are going to find their answers.

Time for the shameless plug:  As any entrepreneur would, I do believe that the eCommerce product my company provides to car dealers for them to provide to their online consumers (credit, tiered interest rates, trade in, accessories, extended warranties, protections, tax, title, fees and accurate monthly payments) is one emerging trend about to reshape the competitive landscape of automobile distribution.  But that is only one lone voice in the wilderness.

In Gen 1.0 of the Internet, the DotCom meltdown put an end to the plans of the 3rd parties otherwise known as "disintermediaries" who were going to replace dealers or interpose themselves in the relationship with the consumer.  In the intervening years, the 1.0 companies that survived have morphed into lead companies with business models based upon gathering, harvesting and directing consumer interest then selling that in the form of leads to OEM's and dealers.  I call that Gen 1.5 of the Internet.  Progressive dealers have done their part reacting to this model, outfitting their operations with websites, CRM tools, SEO, SEM, BDC's and all kinds of alphabet soup products and services.  To me, enabling dealers to effectively expose their businesses to the Internet (100% online dealer to consumer direct sales is eCommerce.  Leads are not eCommerce.  They are inquiries, although we are not above getting more of those too, which we do by requiring consumers to validate their email address in order to access their shopping cart) is Gen 2.0 to me.  If social networking fits in to this mix, okay, but it is icing on the 1.5 and 2.0 cakes only.  For the record, I've been wrong before and what I think is not important as you read this.  It is your thoughts and actions to this information which count.  

GM, Ford and Chrysler have a significant need to trim their dealer networks.  Of their dealers, who do you think they will support and allow to survive in the 21st Century - the dealers who effectively and profitably harness the Internet and achieve competitive advantage or the ones who cut to the bone on expenses and refocus their efforts on the way things have always been done in the car business?

If having a profitable, effective Internet operation is imperative to the very survival of your dealership, how do you get there?  Do you hold your Internet Department to impossibly high standards and ask it to guarantee immediate success when it comes to expenditures?  Why?  Hopefully it is not because you and your managers don't like or understand the Internet and are therefore hostile to it.  Just ask honest, imperative questions like:  How does your spending on the Internet compare to traditional media spending and the total ROI over the period of which they both generate an ROI?  How do you know?

The idea for this week's article came after speaking with a frustrated Internet Manager.  I promised her to write this piece as my support for all the Internet Managers in her situation.  I also warned her, that such a request would be a double-edged sword since, in my experience, support on expenditures in dealerships also carries with it the responsibility for producing results.

I'm okay with that.  Good selling.