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Used Car Dealers and Buyers - the Online Channel
More buyers turn to the online marketplace in search of their next used vehicle purchase every day. Nevertheless, this new marketing channel has increased supply while demand has remained relatively stable. What is the end result? Lower prices of vehicles offered through the online channel relative to those offered at the traditional dealership. We have all seen the “internet only pricing” or “online specials” tactic employed by dealers for marketing their virtual listings.
New Vehicles Online
Easy access to information on the internet has precipitated the advent of an ever expanding online new vehicle marketplace. Private sellers now have access to an increasing pool of potential buyers, far beyond the limitations of the local newspaper classifieds section audience. It is the vehicle dealers, however, who have discovered the power of the online marketing channel and are now achieving a significantly higher reach compared to the traditional means of local advertising. Expansions of the reach radius to 30 miles via the online channel compared to conventional reach of 10 miles are more or less standard these days. This phenomenon is due not in small part to the much lower cost of online marketing.
Used Vehicles Online
This new expansion of the geographical reach dealers have achieved through the online channel has had an impact on used vehicle pricing as well. This is especially true for those units listed outside the traditional customer reach radius accomplished via the traditional marketing methods. This comes as no surprise. Local dealers now have to compete with the online used car dealers encroaching on their turf resulting in outright price wars.
This begs the question: Will the online channel bring the dreaded (at least from the dealer’s point of view) disintermediation in the used car business similarly to what Dell did in the computer industry? Not just yet. Manufacturers won’t be bypassing their networks of franchised dealers to sell new vehicles directly to customers anytime soon. They just can’t. For the most part, this holds true in the used car market as well. There is one small exception to the rule, however. Some pure online outfits have adopted the brokerage model and are now offering public access to the otherwise restricted wholesale car auctions, while avoiding holding costs of inventory altogether. Though this isn’t quite true disintermediation per se, it does eliminate the traditional used car dealership setup as we know it, resulting in significantly lower selling prices of vehicles purchased via this channel.
The Savvy Online Customer
But who are the customers they are competing for? Some argue that the online dealers are taking customers away from the local dealers, but are they really? I doubt it. It’s not very easy to convert a car buyer who prefers to kick the tires into a pure online buyer of used cars sight unseen. After all, we’re talking about what is arguably the second largest purchase the average consumer makes after buying a house.
Yet, a considerable number of these “conventional” used car buyers have found a myriad of ways to harness the power of the ever expanding online automotive resources and tools available at their disposal to make informed buying decisions. Although this doesn’t completely eliminate the face-to-face contact with the dealer to seal the deal, it certainly ensures that the dealers with solid online presence have a considerable advantage over their brick and mortar only counterparts.
The Savvy Online Used Car Dealer
Dealers love to see customers walk in carrying folders with web printouts indicating that they had done their homework and have more or less made a decision to buy. They know these savvy buyers are not spending their weekend driving around to different dealerships to find the used car they want. These have seen the inventory online; they have researched prices and checked the target vehicle’s history. According to a J.D. Power and Associates August 2004 Used Auto Shopper.com study, 36 percent of all used vehicle buyers are influenced in their make/model decisions by information they find online. As a fellow dealer so eloquently put it - “most of the work is already done, so the only thing that we need to do is get them in a car and get their hearts pumping!” The same J.D. Power and Associates study also found that 22 percent of all used vehicle buyers are influenced in their dealership selection by information found online.
Minimizing the face time seems to be a common goal for both dealers and buyers alike. Let’s face it; there are very few buyers that enjoy the time spent at dealerships buying a used car. Dealers, too, know this. The online channel has enabled them to move the research and decision making phases of the car-buying process from the confines of the dealership to the computer screen of the potential buyers.
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