by Grant Yoxon
When Kevin and Karen Looby leased a Chrysler van in January, they turned to a purchasing service called Auto-By-Tel to help them find the vehicle they wanted.
Auto-By-Tel is the best known of a growing number of online car purchasing services operating on the World Wide Web.
For consumers wary of traditional car-shopping, it promises a fast, simple and safe way to buy or lease a new or used car.
Fill out a free, no-obligation purchase request on your computer, and you will receive a “no-haggle, no-hassle, low-price quote” by telephone, e-mail or fax from an accredited dealer. No wasted time travelling from dealership to dealership, no horse-trading with uncompromising salespeople, no need to even leave home except to sign the papers and pick up the car, the company says.
For car buyers, it’s an enticing scenario. Although online buying represents only a small portion of car sales, it’s finding more of a market each year, particularly among young people with above-average incomes.
“You’ll get the lowest price without haggling, and so there was some attraction in that, the new car buying experience being what it is,” says Mr. Looby, a sales representative with BBD Electronics, a semiconductor distributor.
The Loobys learned about Auto-By-Tel through its advertisements in American computer magazines.
Did the service live up to its promise? For the most part, it did. But because the Loobys wanted to be sure they were getting the best possible deal, their buying experience wasn’t completely haggle-free.
Nor was it easy. The Loobys spent time shopping around to make sure that the price they were offered was the best price they could get.
The Loobys made two requests to Auto-by-Tel. After the first, for a Chevrolet Cavalier, they received a call from Auto-By-Tel. “Where exactly is Ottawa?” asked the caller. “Is it in Ontario?” The caller then asked, “Would you be willing to drive to Napanee to talk to somebody?” There was no accredited GM dealer any closer.
After visiting dealers to shop for a Cavalier, the Loobys decided a van would better meet their needs. Again they tried Auto-By-Tel, clearly stating their location and desire to lease from a local dealer.
This time they received a call promptly from Capital Dodge Chrysler, whose representative was willing to talk price on the phone.
“The first price they gave me when they phoned me seemed to be a really good price,” says Mr. Looby.
Still, they had to be sure. They took Capital Dodge Chrysler’s lease price for a Caravan to another dealer, who wanted $50 to $60 dollars more a month. Back at Capital Dodge, they tried to improve on their offer.
“I tried the typical approach,” says Mr. Looby. “I said, ‘Well that’s too much — you’ve got to give me less,’ and they said, ‘We can’t, because the Auto-By-Tel price is so low profit there is no room to give you anything less.’ ”
As in any sale, the Loobys were offered optional extras like a CD player, which they declined.
Auto-By-Tel is the dominant purchasing service on the Internet with a network of 2,400 dealers in the U.S. and about 300 in Canada. In its first year, 1995, the Irvine, California-based firm says it sold $274,000 in vehicles. Now, more than one million cars and trucks later, it reports sales worth $300 million a month.
Brent Jones, Chief operating officer of Auto-By-Tel Marketing says the company receives 2,000 purchase requests a month from Canada, “up 20 to 25 per cent per month in the last three months.”
Autoweb, the number two service in the U.S., also operates in Canada. But it is largely concentrated in the Toronto area, where it has a handful of dealers signed on.
Autonet.ca, based in Toronto, is the dominant Canadian buying service, operating since early 1996. Ron Frank, director and co-founder of Autonet.ca, says the service refers requests to a list of 25 Ottawa-area dealers that cover the manufacturer spectrum. “Of the 12,000 online requests that we have had from consumers in the past year, almost 10 per cent have been from the Ottawa area.”
At Autonet.ca, consumers can order brochures or a test drive before submitting a purchase request. Ask online for a test drive and a dealer will bring the car to your home or office and accompany you on a spin.
Through a partnership with CIBC, it also offers online financing and insurance, something the American services do not currently offer Canadians. Visitors to Auto-By-Tel and Autoweb will find U.S.-only services, even on their Canadian web sites.
In fact, all services and consumer information sources listed on Auto-By-Tel and Autoweb are American. This is fine if consumers are researching broad vehicle categories, comparing makes and some models; not so good if they want to compare prices.
All pricing information is in U.S. dollars and not applicable to this market. As well, model specifications between Canada and the U.S. often differ considerably, with fewer variations offered in the Canadian market.
Autonet.ca’s Autonet Guide provides Canadian model specifications and Canadian Manufacturer’s Suggested Retail Prices, but rarely will consumers pay the MSRP.
Financial arrangements vary between services and dealers, but in a typical arrangement, a dealer will pay an upfront fee and a monthly rate based on the service providing a certain number of leads. If the service doesn’t provide the agreed number, the monthly fee doesn’t apply.
One stop shopping — research the cars, price them, buy them, insure and finance them — is the marketing theme of many of the purchasing services. However, only Autonet.ca comes close to providing this service for Canadians.
Mr. Jones says this situation will soon change at Auto-By-Tel and promises that dealer invoice prices in Canadian dollars will soon be available. “It is something we need to take care of. We’ll be there within two weeks.” But not yet, at least at time of writing.
More car-shoppers are turning to the Internet for free information, which can range from new car reviews to pricing and option details to online discussions with other car-buyers. An estimated 20 per cent of new cars and trucks sold in the U.S. last year were bought by customers who used the Internet for help.
But how many are actually buying online? Estimates range between two and four per cent of all transactions.
J.D. Power and Associates, a leading automotive market research firm, predicts that the number of consumers using alternative sources to purchase cars will grow rapidly.
The company says users of online services typically are younger and have higher income than traditional dealer shoppers. As well, they consider a larger range of makes and models.
“New vehicle buyers that are considering multiple makes are prime candidates for these new shopping methods,” says Jon Osborn, manager of auto sales research at J.D. Power.
“We believe more multi-make shoppers will move into cyberspace as they become more familiar and more comfortable with online vehicle services.”
The movement has not gone unnoticed by the vehicle manufacturers. Chrysler Corporation chairman Robert Eaton told a recent convention of automobile dealers that using the Internet to research and even buy cars is “part of the change that’s occurring in the industry.”
“I don’t think you can stop that. Dealers are going to have to move, change with the technology.”
Chrysler itself is changing with the technology, testing its own online buying service through participating dealers in Maryland and California. And General Motors is test-marketing an Internet buying service, GM BuyPower, in four American states.
Ottawa area dealers have embraced the new technology and the Internet buying services to varying degrees. More than 30 of Ottawa’s 55 dealerships have web sites and some have made arrangements with Internet buying services.
Capital Dodge Chrysler, where the Loobys leased their van, signed up with Auto-By-Tel two years ago, when the buying service entered the Canadian market. At first there wasn’t a lot of business.
“We knew there wouldn’t be a big payback right away,” said Capital Dodge Chrysler president Christopher Davies. “I just felt in my heart with what I knew and what I could see with our own web site and where this thing was going that it would be a real going concern and it was going to be significant.”
Mr. Davies’ foresight was keen. In January, 13 per cent of Capital Dodge Chrysler’s sales originated with Auto-By-Tel.
In contrast, the Internet has contributed little to sales at Surgenor Pontiac Buick, a member of Autonet.ca. “We haven’t sold too many cars off the Internet,” said general sales manager Andrew McGurn. “A lot of people still want to come in, smell the new car, see the new colours. I think it’s going to be big, but I don’t think it’s here yet.”
Still, Surgenor wants to be ready when it happens. Last week, a representative of Autonet.ca was at the dealership to help it fine-tune the way it responds to Internet inquiries.
Dan McKenna, president of Donnelly’s Ottawa Ford, feels the online buying services are not cost effective for his dealership and would add costs to consumers. Donnelly’s, though, has its own web site, which Mr. McKenna said results in five to seven sales a month.
But making sales through the Internet was not the sole motivation behind Donnelly’s site. More and more people are using the Internet to search for dealership information, browse used car inventories and get a “feel” for the dealership before they come in. “You have to be there,” says Mr. McKenna. “It’s like the Yellow Pages. Clearly you are going to lose business by not being there.”
All three dealers agree on one thing. Ottawa residents are shopping smarter and the Internet is at least partly responsible. “Today’s shopper is considerably better educated than he or she was as recently as five years ago,” notes Mr. Davies. “They come to us or phone us already knowing an awful lot about the vehicle. They also know an awful lot about the buying process and the leasing process.”
He notes also that online services will never remove the human aspect — buyers still must meet a salesperson, even if just to complete the paperwork. “It still requires people at our dealership to effect the transaction. You still have to be comfortable with the dealership.”
Whether you buy a car the traditional way or decide to try out an online purchasing service, the best advice is to buy smart. Don’t accept without question the service’s promised low price — after all, it represents the dealer, not the consumer. Do your homework, shop around and buy only when you are sure you have the best price.
Warns Kevin Looby: “It’s like people who walk into the Price Club and throw everything into their cart because, gosh, it’s at the Price Club, it’s got to be cheaper. You can’t leave your brain at the door.”
Grant Yoxon is an automotive writer and editor of Autos. This article first appeared in the Ottawa Citizen, March 28, 1998.