November 10, 2005

Internet changes the way people buy cars

By Grant Yoxon

Toronto, Ontario – The Internet has “fundamentally changed the bargaining relationship” between consumers and car sellers, says Canadian automotive analyst Dennis DesRosiers.

Speaking yesterday at a presentation sponsored by Google Canada, DesRosiers said “consumers are armed with more information than ever before.” As a result, when negotiating to purchase a vehicle “consumers are potentially in a controlling role.”

With access to a vast array of information online and with the time to consider purchases carefully, consumers no longer shop at dealerships, but go there only after deciding what they want to negotiate a deal.

Only one business in Canada – – has successfully sold cars online. Canadians still prefer to buy at a dealership, but they are going there well informed, even better informed than sales people. “Consumers are doing their shopping online and their negotiating face-to-face,” said Desrosiers.

DesRosiers’ comments were supported by data from a recent survey conducted for Google Canada. The survey, conducted by Media-Screen in October 2005, showed 55 percent of Canadians visit a dealer after finding a car online that they’re interested in purchasing.

The shift to shopping online has had an impact on dealer bottom lines. “Part of the margin erosion in our industry is related to this changing relationship” between buyers and sellers, said DesRosiers.

Not only are consumers getting better deals by informing themselves first, noted DesRosiers, it is the manufacturers and dealerships that are supplying the information. “Billions” have been spent getting information out to consumers on the Internet, from “build” functions on manufacturer web sites, to supplying test cars to automotive blog sites.

While it may appear that car makers are hurting themselves, the automotive marketplace is very competitive and the Internet has a role to play in promoting new vehicle launches – DesRosiers’ research projects 45 new model introductions in 2006 and 67 in 2007 – and attracting customers. “Existing marketing strategies may not differentiate products as successfully as in the past, so we expect e-strategies to become a very significant element with some of these new product launches,” said DesRosiers.

As examples, DesRosiers pointed to the BMW short films, Cadillac’s V-Series “Under Five” contest and Mercedes-Benz’s “The Answer is B” campaign as successful uses of the Internet to promote new products.

DesRosiers prefaced his remarks with an overview of the Canadian automotive industry. He expects the decline in sales of new vehicles recorded over the past two years to continue for another few years, followed by “a strong recovery toward the end of the decade.” Manufacturers are starting to back off incentives, as they have not been very successful. However, incentives have contributed to a gradual decline in resale values. Since 1999, average resale values for passenger cars after a 48 month period have dropped from 46.6% to 36.9%. Average light truck resale values after 48 months have dropped from 50.3% to 39.4% in the same period.

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