Vitrual showrooms click with car buyers

Web posted March 1, 1998

By Greg Johnson
Los Angeles Times

Jerry Carver smiles as he tells of buying a maroon 1997 Toyota Camry over the Internet.

No time wasted driving from dealership to dealership. No sales managers lurking behind the scenes, nudging him to make a deal. Just an easy fact-gathering trip on the Internet and a 15-minute stop at a Southern California dealership to sign papers and pick up the keys.

Carver's experience provides a glimpse into an ongoing evolution in the United States' $1 trillion business of buying and selling automobiles.

Consumers can now wander into virtual showroom floors around the clock -- gathering information about competing models and requesting guaranteed price quotes from dealers.

They can apply for financing and insurance, check out accessories and contact consumer-oriented guides that promise to deliver inside information on the real cost of new cars and trucks. Consumers need leave home only to test drive the vehicles or pick up the keys.

The rapidly evolving world of online commerce is forcing dealers and manufacturers to reassess their roles in a world where consumers can use home computers to strike online deals without ever visiting a showroom.

Consumers are no longer dependent upon dealer showroom salesmen for answers to questions ranging from, ``Does it come in red?'' to ``How many pound-feet of torque will it deliver at 3,500 RPM?''

And, for an industry that is accustomed to controlling the flow of information, ``this is nothing less than a structural power shift for manufacturers,'' said J. Ferron, a partner in charge of Global Automotive Practice at Coopers & Lybrand. ``They're being forced to enter into a two-way dialogue.''

Manufacturers, dealers and third-party operators are opening online showrooms as they rush to join the growing digital marketplace. Web sites such as Microsoft's CarPoint are challenging distribution systems set in place by auto industry giants such as General Motors -- which has opened its own Web site, BuyPower, where customers can set a new-car deal in motion.

Though Internet sales now account for a fraction of all new cars sold, many dealers fear that the Net could one day force them out of business or reduce them to mere order takers.

A new poll by Agoura Hills, Calif.-based consulting firm J.D. Power & Associates indicates that just 10 percent of dealers view the Internet as a positive development; almost half view the Internet as a threat to their survival.

``A lot of these dealers are afraid of the future because they don't think they can make it,'' said Payam Zamani, co-founder of Autoweb.com, a Santa Clara, Calif.-based Internet brokerage.

Manufacturers are trying to calm dealers' fears, arguing that Web sites such as GM's BuyPower and Chrysler Corp.'s Get a Quote are really designed to serve dealers by creating a less-expensive way of steering real customers rather than tire-kickers onto their showroom floors.

Manufacturers envision their still-evolving Web sites as tools to fend off competition from savvy retailers such as AutoNation, which is building a nationwide dealership chain that markets cars in much the same way that apparel, electronics and appliances are sold.

``With BuyPower, (dealers) can have the look and feel of a sophisticated (nationwide) retailer without all of (the) infrastructure costs,'' said Ann Pattyn, manager of GM's Thousand Oaks, Calif.-based consumer marketing operation, which developed BuyPower. ``And our individual dealers can also use technology to better compete.''

CarPoint and BuyPower are targeted directly at consumers such as Homer Porter, who once spent a miserable afternoon trying to wring a $75 price cut from an auto showroom salesman.

Last fall, the Pasadena, Calif., pharmacist drove away from his first online adventure in a 1997 Ford Explorer. Brokered by CarPoint, the deal included a price that was just slightly higher than the dealer invoice, and Porter vows he'll never again do business directly with a dealer.

Internet proponents say frustrated motorists are hungry for options other than buying directly from dealers. In 1997, J.D. Power reports, nearly 3 million consumers turned to auto clubs, credit unions and other car-buying services.

FindSVP, a New York-based market research firm, reports that only 2 percent of 15 million new-vehicle sales and 33 million used-vehicle sales were consummated over the Internet in 1997. But the firm is predicting that 25 percent of sales will be initiated electronically by 2000.

Not surprisingly, even as Internet commerce blossoms, consumers are bumping into the online equivalent of slick salesmen in loud sports jackets. Chat rooms are starting to buzz about electronic versions of bait-and-switch tactics, in which brokers and dealers lure consumers in with the promise of low prices -- and then try to sell them on more expensive cars with fatter profit margins.

``(Internet) services aren't always providing customers with what they want,'' said Tom Libby, a director at J.D. Power. ``Frequently, consumers are being asked to come in to the dealer to get a price -- which puts them right back where they were. One reason consumers use these services is they want to avoid having to come into the dealer at all.''

Experts caution that deals on the Internet aren't necessarily better than those negotiated face to face. Some consumers who have tried the Internet are heading back to dealers.

``I don't mind driving all day if it'll save me a grand,'' one chat-room participant wrote. ``At least I can avoid the feeling of being ripped off (online).''

Critics of online dealing say there are built-in expenses that can add to costs. Some online dealers generate a profit by charging dealers as much as $3,500 per month to steer buyers to them. Autoweb.com last week broke ranks, however, with a new pricing strategy that charges dealers only when hot prospects are delivered.

Some industry analysts say dealers who learn to harness the marketing potential of the Internet could actually bolster profitability. ``They can concentrate on selling things like insurance, accessories, repair services, used cars and financing, all of which have better profit margins than new cars,'' said Herbert Tay, an industry consultant with A.T. Kearney in Costa Mesa, Calif.

Yet, even as dealers fashion their long-term online strategies, they're struggling to reprogram analog salespeople for the digital age. J.D. Power's Libby notes that some car salespeople wait days before calling back prospects who clearly are ready to buy a car or truck.

``The hardest part is getting them to recognize that e-mail is like a phone call,'' said Ron Claudon Jr., an Auburn, Wash., dealer. ``Some of these guys can't even type.

``And if (someone) messages you saying he has 50 grand in his pocket and he wants to buy a couple of cars, are you going to wait till next week to call him back?''