The Danger of Factory Forays in Online Retailing
Publisher & Editor Mike Roscoe conducted this interview under the condition of complete and total anonymity with one of the country's most prominent dealers who is selling a lot of cars through his web site. There may be "gold in them thar hills" (the Internet), but there's danger too.
What's on your mind, Mr. Dealer?
Factory web sites that are going to get leads and funnel them to dealers.
What's wrong with that, dealers getting leads from the factory?
It does sound good on the surface. I think most dealers would buy into it. However, there are a lot of dealers who are going to be hurt by it because it is just one more step toward the manufacturers getting control of all the leads. They want to control retail from A to Z, and through their web sites they can obtain customers at the initial contact and funnel them only to certain dealers. For example, if a dealer doesn't meet their standards, hasn't passed their tests, or if a dealer's web site doesn't meet their standards, that dealer won't get those leads. And if you do get the leads, they will be just from certain defined areas, most notably, right around your store. The beauty of the Internet today is the ability to appear much bigger than you are and take business from other areas, to do conquest sales.
Right now we have third party lead generators. You pay them money and they send you leads. Don't you think it is better that the manufacturer controls this rather than these third party intermediaries?
There is no question that those people are intermediaries, and they are like brokers. The dealers are probably better off without them. Dealers controlling their own web sites and generating their own leads, that's the ideal situation. Imagine if the only advertising you could do was the factory advertising and they controlled all of your advertising. That is exactly what will happen with the majority of Internet leads going to the factories. You are going to be getting leads from them, only on their criteria, and only if you do certain things that they say you have to do.
How can they take a lead out of one market area and give it to a dealer in another market area?
With several of the manufacturers, if you aren't certified and if your Internet department isn't certified to their standards, whatever that is, you will not get leads.
First, the manufacturer's web site has to get the leads. Why is it that you think they are going to be getting all of the leads?
Imagine if all of the intermediaries go away, which it seems likely they will, they are going to run out of money. General Motors is going to purchase either AutoWeb or Autobytel. The other ones are going to drop off and the rest of the little guys are going to disappear. The only people out there harping for web business are going to be dealers or the manufacturer. Now how can I, as a single point dealer, or as a small dealer group, even as an AutoNation, ever compete with General Motors, Honda, or Ford, to get leads from a web site? I can't. Therefore, I am going to guarantee you that, for example, it will be promoted that the best place to buy a Chevrolet is from Chevrolet.com. More people are going to go there than will go to Joe Blow Motors.com.
But don't you think at some point people will understand that when they go to Chevrolet.com, they are not buying it from Chevrolet, they are just getting passed along to a dealer?
No doubt, the customer will.
The customer will find that out at some point?
Yes, the customer will. That's fine. That is exactly what the manufacturers want. They want that to go to the local dealer in that market. The trouble is, if I'm a successful Internet dealer now, I'm stealing business from other areas.
Conquesting.
Conquest sales.
I understand that, but I think one of the reasons that the third party lead generators got traction is because when somebody bought a car, they thought they bought it from AutoWeb or whoever. I always said when people find out that all they are doing is getting passed to a dealer who paid for that lead, they are going to have a different perspective on this. Why is it that you think when somebody goes to a GM site and gets sent to the nearest GM dealer, he is not going to check with some other dealers in the surrounding area?
Undoubtedly, some of them will. The manufacturer wants to keep that business home, keep the dealer loyalty, keep the customers within a close proximity so they will come for service. But if, as a dealer, you want to grow your business and, undoubtedly and inevitably, that involves conquest sales and getting business out of other markets, you are going to have a tougher time doing it because you are going to be competing with the manufacturer, who is trying to give that lead to the local guy. Now, there are a lot of dealers to whom the factory web site will be a blessing. There is no question. Those are the people who are doing no business on the Internet today and aren't out there trying. But for the ones who are, if half of them are and half of them aren't, it's going to be good for half and bad for the other half.
How is this different from advertising co-ops? There is advertising money that gets spent, and it promotes, say, all of the GM dealers in one market.
The difference is, that leaves the customer with the choice of going to any of the dealers in that market area to do business. Under the proposals that I have heard suggested, all of the leads will be gathered and routed to one or two dealers without giving freedom of choice to the customer.
I can't see the state of Texas letting that happen.
I'm not in the state of Texas, so I can't tell you.
What about the state in which you reside? Can you see that happening there?
Absolutely, it is already happening.
That seems like a breech of the franchise agreement.
The only thing that isn't happening right now is that they are not spending a lot of money promoting it yet. Once they start that, their ability to drive the lead generators out of business is just a given.
Is that a bad thing?
That's not a bad thing. I didn't say that. I use those people and I like getting the leads, but in the long run, I would rather have my prospects all go and come from my web site.
My warning to all of the dealers is, this is not a dealer-friendly situation. It is the manufacturers moving one more step down the chain to control every aspect of the sale. You can build your own web site, your own web presence and your own brand identity on the Internet, and you will be light years ahead of the guy who doesn't because you can still grab leads from out of your area and bring them into your web site and make the sale. That will disappear.
How is it bad for the consumers that the manufacturer wants them to buy the car from the nearest dealer, the dealer who, by proximity if no other reason, is maybe best suited to serve them?
I'm not sure the customer is going to get the lowest price. Certainly the customer will have the option, but I am going to guarantee you that the dealership will make it so easy that the customers probably won't be going to any other stores. Then you have a situation where the consumer is probably going to pay higher prices. That's probably good for some dealers because they are going to get more gross, but it is going to be bad for the dealer who is really out there aggressively running an Internet operation now. It's going to be a killer.
That's a minority of dealers who are aggressively running Internet operations.
I'm not sure that it's a minority of dealers. I know it's probably not the majority, but I wouldn't be surprised if half of the dealers are stealing from the other half. I mean conquesting.
Do you see that this will be more of a carrot or a stick? I think the danger is not as much for the dealers who have a strong Internet presence, but the fact that the manufacturers will have one more stick to beat the dealers with to get them to do what they want. If you are not Blue Oval certified, you don't get any Internet leads. If you are not a Five Star dealer, you don't get any Internet leads, etc.
Exactly.
I think that is the thing that dealers should be worried about.
I hadn't even thought of that, but you are right. It's just one more step like Blue Oval. If half the leads coming into your showroom are suddenly coming from the manufacturer's web site and not walking in, imagine what they can control. If they don't like your bathrooms, you don't get leads.
Not only do you pay more for your cars, but you don't get leads.
Right. Now they have control of leads coming into the store and if you don't meet their standards, whatever they are good, bad, crazy, you're screwed. I can tell you, as a Chrysler Five Star dealer, some of the stuff they wanted was just total bull. What we spent getting Five Star certified was a waste of money.
How many more cars did you sell because the store was five star certified?
None.
That's what I'm talking about. Here is something else with which they can beat you over the head and/or drive you out of business.
Or, say you are a small rural dealer and customers are still coming to you from the Internet. They are going to send these customers, even in your market, to someone else because you won't invest in a separate Internet facility. You won't spend on the technology that they say you need. They've got you. It is probably, in a way, almost more threatening than Blue Oval if you really believe the expansion of the Internet will be huge, and I really do.
The next generation is not going to be afraid to buy a car because more and more, a car is becoming a commodity. I don't care what anybody says. They are not going to be afraid to buy that car totally on the Internet. Maybe they will come in and kick the tires, maybe they will test drive it before they actually buy it, but they will have initiated the purchase online.
I'm going to tell you that the guy in Des Moines, Iowa, is going to be getting half his leads from the Internet too. But if he doesn't do what big daddy Ford or big daddy GM says, he's screwed. He won't get any more leads. It's kind of like the old, "It's my football, we are playing with my rules. You don't like my rules, I'm taking my football home."
Isn't the Internet just another way to advertise, not a new way to sell cars?
Right, getting leads to your showroom, into your virtual showroom, or your real showroom.
So what is it that makes you think manufacturers are going to do such a great job of this that they could control a portion of the market and keep it away from some of their dealers?
Because they have so much money.
Is it just a matter of money? They have always had a lot of money but proved they couldn't run car dealerships.
It doesn't take a lot to do this. All they are doing is getting the lead and then deciding which street to send it down, to which dealer. They can get those people to their web site. They have already proven it. With almost no advertising they are getting millions and millions of hits. They just can't do anything with them. Now imagine if they are suddenly advertising. Take Forddirect. They are going to advertise the "street" price. Holy Toledo!
Tell me where I am wrong. I still have a hard time believing people are going to go there to buy a car. I think they are going to go there for information and specs, but don't most people still understand that you buy a car from a dealer?
They do now, but I'm telling you, the next generation will not ask your kids. See what your kids buy on the Internet, how they do it. These things become commodities. Not necessarily a Chevy truck or a Ford truck when you are trying to tow and all that. The main cars and SUVs are going to become more and more commodities. They know what they want; their friends drive them. That next generation is just light years different than we are.
You and I, when we were ten, couldn't type. I'm still a rapid hunt and pecker. They can sit there and bang out forty, fifty, sixty words a minute and they are not afraid to make a mistake. The next generation will be buying cars that way more and more.
It seems inevitable that, if the manufacturers want to do this, they can do it.
Absolutely. If they want to do Blue Oval, they can do it, right?
What, if anything, could be done?
That's a good question. I think it is an issue that the dealer councils should be addressing, and the state associations should be aware of. It is a total restriction of competition to the average dealer, and the implications are huge. I don't think anybody is focusing on it yet. They are fighting so many other battles that they don't even realize that this one is about to be lost.
What about NADA?
NADA–why couldn't they fight it? We are signed up for their web site but have yet to get one lead from it.
If somebody is smart enough to go online to get information on cars, I would think the association of car dealers would be the last place you would look.
Yes, the first place you are going to look is probably the manufacturer and then try to figure out where to buy the car they want. The reason people go to the Autobytels, Carpoints and AutoWebs is that they don't know how to find the best local dealer. It would be great if they could open the newspaper and see fifteen Honda ads, then go to the Internet. How are they going to find fifteen Honda dealers on the Internet around here, unless they call several of them and get the web address? But Honda is going to be hammering to go to Honda.com to buy a Honda.
So it is inevitable, and if the factories want to do it, they can, and they are doing it.
What we should do is try to make the manufacturer recognize that this is an information source. Let the dealers do the marketing of it. If you are going to step in and control that channel of marketing, which is probably the best way to describe it, they are going to control one channel of the marketing. It is going to be the biggest channel, in my opinion, in another ten years.
If manufacturers have franchisees who are not really getting it done and they are looking to pick up market share against other makes, how can you say they shouldn't have these Internet initiatives? How can you say, "Just provide the information?"
That's a good point, I don't know the answer to that.
They almost have to do it. But what can an individual dealer do?
What an individual dealer can do is get off his rear end right now and spend every penny he thinks he can afford building up his own web site. That is his independence to combat these guys. The guys who are relying solely on Carsdirect, AutoVantage or AutoWeb will be history because those guys will be gone, and then they will have no leads.
The conquest opportunity may not be as strong under this scenario, but you still have the opportunity to maximize your own back yard.
Yes, that is right.
