Car retailing NO.11

Car retailing

If there was ever an industry vulnerable to technological change, it would have to be selling cars in America. For decades a franchise network made up of thousands of dealers has peddled ordinary cars as though they were exotic goods in a Moroccan souk. Each dealer seems to have his own opaque pricing scheme, consumers have to endure endless haggling and the financing is murky at best. Small wonder, then, that the shifty car salesman has became such a stereotype.

A decade ago a few brave souls tried to use the emerging power of the internet to modernise this fragmented and frustrating business. Scott Painter, a Californian entrepreneur, founded Cars Direct in an attempt to sell vehicles direct to consumers online. But the business failed to work as he had hoped, and he eventually left the company.

Hope springs eternal, at least where the internet is concerned. This week Mr. Painter is launching Zag, his latest attempt to modernise automobile retailing using the internet. His first big customer is Capital One, a financial giant that is one of the country's biggest providers of car loans. Meanwhile, Auto Nation, the country's largest car retailer (with over 300 dealerships), is launching Smart Choice, its own internet marketingª²scheme, in June.

So is the time finally ripe? Glenn Mercer of McKinsey, a consultancy, believes that internet sales efforts, even fixed price schemes, will not save customers much money because the internet firms by law cannot buy cars directly from manufacturers; they must get them from dealers. Brian Reed of Capital One retorts: "It's true, we may not offer the lowest priceª²but we will offer a fair price with a lot less pain."

But the pain is not always so easy to escape. Visit many online sites to research a car, and they will sell your name immediately to local dealerships which will then harass you in the oldª²fashioned way.

Still, there are reasons to think that conditions may finally be favoring online sales. J.D. Power and Associates, a research firm, reckons that twoª²thirds of new car customers use the internet for research, up from a quarter in 1998. Auto Nation reports that car sales originating on the internet have increased from 14% of its total in 2002 to about a quarter last year. Because price transparency is squeezing margins, argues Sid De Boer of Lithia, one of the country's biggest car retailers, dealers are now desperate to find ways that the internet can help them. He is convinced that online sales of new cars will soar from nothing to a quarter of Lithia's total within a decade.

So will all this mean the death of the salesman? Do not count on it says Mike Jackson, the boss of Auto Nation. His firm has already cut in half the time taken to buy a car, and it wants to cut it in half again by automating various bits of paperwork. But Mr. Jackson is convinced that consumers will always want to kick the tyres on their new car, b

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