More auto shoppers relying on the Web for research
Jane Wolff used to spend days visiting car dealers and reading auto magazines to figure out which car to buy. Even then, the retired schoolteacher said she wasn’t sure she was getting the best deal.
The Internet has changed all that. Wolff went digital with her research this time, collecting price and trade-in data from auto information websites operated by Edmunds.com, Kelley Blue Book and TrueCar Inc. The bottom line: Wolff last month negotiated a Subaru Outback Limited for near the invoice price.
“I went to the dealers better prepared,” the Chino resident said.
Shoppers such as Wolff are driving more traffic to such websites, many of which are based in Southern California, and turning the region into a Silicon Valley south for online auto information companies.
The three websites combined have hired more than 200 workers this year as consumers increasingly rely on the Web to figure out which vehicle they want to buy and how to negotiate the lowest price. All three are said to be profitable and project revenue growth despite an overall economy that continues to be sluggish.
Such companies, including Southern California car sales referral sites Autobytel.com and CarsDirect.com, are attracting tens of millions of visitors a month because they enable shoppers to gather information without having to journey to car dealers and face down the sales staff.
“That whole concept of working out a deal and coming out with a final price is the area of car buying where customers are the most dissatisfied,” said Jim Gaz, senior director of automotive retail research at J.D. Power & Associates, a Westlake Village consulting firm that surveys buyers about auto purchasing experiences.
That’s why almost 80% of the car shoppers J.D. Power surveyed about their car purchasing experiences last year used the Internet for research before buying a vehicle, Gaz said. They wanted to “arm themselves with information about price and features before they approach a dealership.”
Edmunds is experimenting with ways to answer consumer questions even from the showroom floor.
When Denver resident Carrie Barker used her iPhone to tell friends on the Twitter social network that she was car shopping earlier this month, a member of the EdmundsLive team tweeted back, offering help. Later that day Barker suspected she had received a lowball offer for a trade-in from a Hyundai dealer and tweeted back to Edmunds, asking for used car price data for her aging Ford Escape.
“I found out they should have offered me about $200 more and once I am ready to sell it back, that is what I will ask for,” said Barker, who at age 23 is nervously navigating her first new car purchase.
Although there are other sources of digital auto information, including Consumer Reports, the trio of Edmunds, Kelley Blue Book and TrueCar have become the major players by closely tracking sales and pricing data, hiring analysts to identify trends in the data, evaluating new models and estimating the amount of money individual automakers are pouring into sales incentives and other discounts.
They don’t charge for their information. The companies, which keep their revenue figures private, collect money from manufacturers, dealers, insurers and finance companies for advertising and sales leads.
“We now get about 18 million visitors a month, and they are looking at about 250 million pages of new and used car information,” said Paul Johnson, chief executive of Irvine-based Kelley Blue Book.
At times, the research and opinions of these companies generate angst among automakers and car dealers.
Edmunds tussled with General Motors Co. last year after it became one of the first organizations to label the auto company’s Chevrolet Volt a plug-in hybrid rather than the electric car description GM was using in its marketing campaign. Edmunds’ classification was supported by California’s Air Resources Board, which also calls the car a plug-in hybrid because it can be powered by both electricity and gasoline.
TrueCar and Edmunds, both headquartered in Santa Monica, received angry calls from auto dealers earlier this year when analysts at the companies suggested that consumers delay purchases until an inventory shortage and price rise caused by the Japanese earthquake subsided.
With about 4 out of 5 auto shoppers already tapping the Internet, Edmunds Chief Executive Jeremy Anwyl doesn’t see a lot of opportunity to attract new eyeballs. Instead, digital auto information companies will have to become more involved with the sales process.
“We all need to be doing a better job connecting the dots for people,” he said.
He said dealers will “need to get comfortable” with using Edmunds and other companies as a conduit for presenting fixed, or “upfront,” pricing, and real-time inventory reporting. These sites also must become portals for online appraisals for trade ins — subject to verification — and online credit approval, Anwyl said.
Scott Painter, chief executive of TrueCar, sees the industry moving in the same direction. But he believes dealers will have to make even more of a change and become comfortable with the fact that their products are “just commodities.” Once a shopper settles on a specific model, he said, whom they buy it from makes little difference as long as the price is low.
“The BMW 5 series you buy in Beverly Hills is the same car in Kansas City,” said Painter.
Shoppers scanning the TrueCar site have free access to data about closed sales by model and options and other pricing information that they can use to negotiate a purchase or to validate whether dealer offers through TrueCar will save money. Dealers pay TrueCar $299 for each completed new vehicle sale.
Painter believes the information available to consumers via the Internet these days is placing fixed price transactions on the fast track.
Dealers and even entire car divisions, such as General Motors’ defunct Saturn brand, have tried such pricing as a way to reassure buyers that they aren’t being gouged, but it has never become more than just a slice of the business. In the end most buyers go back to the haggling that has ruled car sales for nearly a century.
And while buying systems such as TrueCar might enable consumers to bypass haggling over car prices, shoppers still need to be careful. They must still dicker over the value of a trade-in if they aren’t willing to sell their old car privately. And buyers will still face pressure from the sales staff to purchase extended warranties, special paint coatings, anti-theft tracking devices and other dealer add-ons.
Some dealers see TrueCar as an important sales channel. Mike Maroone, president of AutoNation Inc., which operates 254 new-vehicle franchises in 15 states, sits on the company’s board of directors.
But others aren’t convinced the practice of auto selling is going to change as much or as fast as Painter predicts.
Beau Boeckmann, vice president of Galpin Ford, the nation’s largest Ford dealership, said he disagrees with the concept that an entire — and often complex — car transaction can be conducted online.
“I would also venture to say there is more to the deal than just the price,” Boeckmann said. “There is the financing aspect, the trade-in, customer service, building a relationship with a business in your community — all things that aren’t just the lowest price thrown out on the Internet.”
