Imagine, if you will, an alternate Internet reality. A strange reality, in which online sales involve mandatory visits to bricks-and-mortars stores to complete the transactions. Hankering for a new MacBook? Apple.com will display the specs for various configurations, but will then direct you to the nearest mall to pick up the laptop. Need a new power adaptor for that blade server that's been acting up in the server room? The manufacturer's website will only be too happy to provide you with a list of distributors in your zip code. Want to get a copy of a reference manual that you need to review for an upcoming certification exam? Don't go to Amazon.com (in our alternate reality, it's a website promoting ecotourism in the Amazon river basin). You can see the official price and summary on the publisher's website, or check out one of the third-party review sites, but when it comes time to pay, you'll need to go in person to a book store.
Strange, huh? But the really bizarre thing about this alternate reality is it mirrors the real-world situation for buying cars. For 15 years, the Web has presented a huge opportunity to upend the sales of new cars and trucks in the U.S., but the reality is the system remains firmly chained to bricks-and-mortar middlemen -- the local dealerships -- which have dominated retail car sales since the early 20th century.
That's not to say the Internet has failed to change the way people buy cars. According to J.D. Power and Associates and Compete, more than three out of four purchasers of new vehicles use the Internet in the runup to buying a car. They visit manufacturer and dealer websites, as well as third-party sites such as AutoTrader, Edmunds.com and kbb.com. While they're definitely interested in buying cars, they're pretty much limited to research -- digging up technical specs, comparing models, checking out special deals at dealerships, and determining the trade-in values of used cars. In other words, practically everything short of making an actual purchase.
Is this what consumers want? While there may be a few brave souls who actually enjoy haggling with car salesmen, most would rather bypass the high-pressure sales tactics, bogus add-ons and outright lies that are often seen at car dealerships, and order a car on manufacturers' websites to be delivered directly to their driveways. There are even a few people out there who would probably buy a car through Amazon -- if they could.
But they can't. When it comes to retail auto sales in the United States, all roads lead to local dealerships. Over the years, there has been lots of talk about transforming the system, but nothing has come of it. There have also been many dealer-supported initiatives to bring car sales to the Web, but none have succeeded. Consider the recent GM/eBay trial in California that managed to sell 13 cars in the last two weeks of operation. While 13 cars would be OK for a single dealership, the experimental program covered the entire state, and involved 21,000 listings. In other words, the sell-through rate was less than 1/10th of 1 percent -- surely not much greater than the click-through rate for Acai berry cleanse spam. Another experiment in 2006 between Lincoln and Amazon also fizzled.
These failures should hardly come as a surprise. Both efforts sluiced potential customers to local dealers. The same thing is true of Ford.com and Cars.com -- the sites have tools to search for new cars based on user-determined criteria, but visitors are always passed off to dealers.
Will online auto sales ever be transformed by the Web? Don't hold your breath. The e-commerce technology is there, and customers are certainly ready, but as long as the auto industry remains beholden to hlocal dealerships, we'll remain stuck in this twisted alternate reality.
Sources and research: BusinessWeek.com, Wall Street
Comments
Cars are a bit difficult to ship via UPS and if you don't like what you receive the reverse shipping charges are a bitch. They also tend to require more local support staff, cause you can't ship off your car to a garage in Detroit from New Hampshire to troubleshoot what ails it. Having a northstar type system that can troubleshoot your car electronically via teh interwebz is nice but the car industry employs so many people that, esp with so much government ownership and interference these days, its politically impossible to ditch the dealer network as well as unfeasible for anybody but a sunday mechanic.
Thanks IntLibber. Regarding shipping, you could say the same thing for any large piece of merchandise, from a data center a/c unit to a professional PA system. Yet buyers still manage to buy this gear online -- either through manufacturers' websites or online retailers -- and shipped to their places of business without having to visit a bricks-and-mortar store. As for troubleshooting a problem with a new car, why shouldn't a manufacturer-authorized garage be able to take care of the problem, as they already do for out-of-warranty vehicles? Even better, how about factory-authorized mobile technician, like the guy who recently came to our house to replace a defective chip board and lighting unit in our Samsung fridge?
The main area in which the dealers have an obvious edge is letting potential buyers test-drive vehicles. But even a new technology-driven business model might be able to help there -- a sort of "zipcar" model of test cars left in various locations, or at the local distribution center. For adventurous souls, there might be an opportunity for virtual worlds to play a role in simulating local environments with different vehicle configurations.
I agree with you that it is very difficult politically to bypass the dealers. On the other hand, the current economic disruption and technological advances might provide an opening to either a powerful manufacturer or new market player to disrupt the old order.
Ian Lamont
Managing Editor
The Industry Standard
twitter.com/the_standard
twitter.com/ilamont
The achilles heel of cutting the dealer (middleman) out of the deal has always been and always will be the TRADE-IN. Who's going to buy it and for how much? Does it have any money owed on it and if so, is it more than the car is worth? Who's going to make up the difference? Last time I checked, banks, credit unions and price guides don't buy used cars, but middleman do.
Here's the rub, what you think your worn out car is worth and what I'm willing to pay you for it are two different things. This age old problem isn't going away. It's got to be handled face to face not sitting behind a computer screen. The (TRADE-IN) is the reason that the net will remain a minor player in the buying process.
Jerry
Jerry I agree that the trade-in issue is an aspect that some people would rather pass off to someone else. But does that someone else have to be a new-car dealer? Everyone knows that they don't give Kelly Blue Book value prices, and will use the trade-in as a point of leverage on other parts of the deal -- naturally the ones that favor them.
Again, I think technology and new business models may be a solution, either by cutting out the middlemen or developing painless come-to-the-customer services that don't tie in additional sales. I bought my last car through Craigslist, and both the seller and I thought we negotiated a fair price for the vehicle. He got more than he would have from a trade-in, and I paid less than what I would have at a used car dealership. Or, imagine an online service that will guarantee KBB price -n%, in return for someone coming out to the house to inspect and pick up the car.
Ian Lamont
Managing Editor
The Industry Standard
twitter.com/the_standard
twitter.com/ilamont
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