Digital Dealer
By John Holt
Without a doubt, online pricing is one of the stickiest issues in automotive e-commerce today and, understandably, a sore spot with many dealers. Most of us in the industry already are well aware of the basic facts: Currently there are more than 50 Web sites that provide vehicle invoice pricing online. Car shoppers increasingly rely on online information before they buy. And, as always, pricing continues to be the number one area of interest for car shoppers researching online.
It's not uncommon to hear dealers express frustration that:
- 1. They're the only retailers whose profit margins and factory invoices are publicly disclosed (true).
- 2. Customers often come in with incomplete or inaccurate pricing information (true).
- 3. Customers don't know or care about the advertising, marketing and other costs that are incurred by the dealer but not covered by the invoice price (sad, but also pretty much true).
No question about it, the game has changed. Like it or not, invoice pricing is readily available, consumers know it and, naturally, they're taking full advantage of it. Now that the price genie is out of the bottle, how should dealers handle the situation? Like this: Accept that there is no turning back, post the most accurate invoice pricing possible online, and turn a seemingly bad circumstance into a competitive advantage.
I realize that this advice will make some of you bristle. But, given that the invoice information already is out there, posting it yourself on your Web site can only increase your dealership's credibility in the eyes of the consumer. And that's the way to beat the dot-com e-brokers at their own game. Dealers already have a major leg up here. According to recent Gartner Research, 70% of all dealer profit is gained after the sale by providing maintenance and repair service. There's not a dot-com broker on the planet that can make that claim.
The National Automobile Dealers Association, of course, already has embraced this open book pricing strategy by listing invoice prices on DriversSeat.com. Not everyone in the dealer community was thrilled with this decision, but the majority of NADA dealers recognized that it was sound business, given the current market realities. NADA's Don Gentry put it best in a recent USA Today article in which he said, "Most dealers know what the facts of life are out there. To be competitive with the dot-coms, we have got to play the game. It gets down to what the customer is looking for. The top thing consumers look for is pricing."
True enough. But dealer strategy in this area has to go beyond just open book invoice pricing; it must also encompass operational procedures at the dealership level. One of the best things you can do to alleviate pricing-related headaches is to make sure that there's a good line of communication between your floor sales staff and your Internet sales manager (ISM). Everybody needs to be on the same page, talking the same talk, walking the same walk. Clear communication prevents embarrassing pricing discrepancies and misunderstandings that can undermine your credibility with the customer. Internet sales managers should keep themselves up to date on some of the higher profile online pricing sources. Accurate or not, customers will come in brandishing prices from all sorts of online sources. ISMs and floor sales staff need to be prepared to counter these discrepancies with calm diplomacy and accurate information. Needless to say, the ISM has a responsibility to keep the sales floor staff supplied with the information and backup support they need in these circumstances.
You notice I haven't said dealers should sell at invoice. That's because I don't think you should. It wouldn't be reasonable or fair. Obviously, what is fair is for dealers to sell cars for invoice plus a percentage. And that percentage should be determined by a dealer's value proposition, i.e., excellent service, loaner cars for life, free oil changes or whatever perks your individual dealership specializes in. Whichever profit percentage you decide on, you have to be prepared to communicate openly to customers why you're entitled to a margin over invoice. We all know there are plenty of good reasons and most people are reasonable enough to understand that a business can't operate without making a profit.
The debate about online invoice pricing is likely to continue, but even the most well-reasoned objections are moot at this stage in the game. It's out there and it would be out there whether or not NADA put it there. Dealers should recognize the inherent advantage they have over the dot-coms when it comes to after-sale profits and try not to do too much teeth gnashing over the reduction in initial vehicle sales profit margins. In the big picture, whatever the disadvantages of online invoice pricing, they won't outweigh the significant advantages and efficiencies that Internet technology has to offer the modern dealer.
John Holt is the president and CEO of The Cobalt Group, Inc., the largest provider of Internet solutions and business-to-business services for the automotive industry. Cobalt operates the automotive industry portal MotorPlace.com and the PartsVoice.com parts locator. jholt@dealeronline.com
