As a car-purchasing tool, the Internet has faced many entrenched obstacles in the past decade, although it has already proved its value as a consumer information and comparison service in almost every market worldwide. This article has been taken from a new report published by ABOUT Automotive, and has been sponsored by PricewaterhouseCoopers and AUTOFACTS.
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A tide of independent Internet referral services has risen (and often fallen) during this time in the United States and elsewhere, and the continued viability of many of the remaining companies is certainly not assured at this point. Likewise, some of the plans dramatically unveiled by the automakers themselves to create virtual communities of car owners and brand aficionados have not taken hold as originally envisioned.
At this point, the clear beneficiary of increased Internet penetration has obviously been the consumer. Information that was previously difficult to obtain, such as new vehicle configurations and prices, dealer margins, used vehicle valuations as well as consumer and dealer incentives, is now freely available. OEMs have collected a lot more data from their websites about customers, but to date have not done much with it, though clearly there are tremendous amounts of predictive data regarding short-term demand and other variables to be mined here.
The link between the automotive Internet and car-mounted telematics systems remains fairly tenuous at this point, because whilst the Internet has proven its ability to attract consumer interest, the telematics systems have not. The industry, therefore, faces the major task of both attracting customers and then getting them to pay for services – deriving revenue, after all, remains the one overriding challenge of the Internet business model.
A quick overview of some of the online participants follows:
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By GlobalData- Independent car referral services: While these companies have largely been stymied in North America and Japan by their inability to disintermediate franchised dealers, there might be new opportunities in Europe. However, even here, the revisions to the block exemption would not empower pure Internet players to buy cars from OEMs and sell them directly to consumers.
- While some independent surveys have documented that real savings can be generated via shopping services, thus proving their usefulness from the consumer’s perspective, the larger issue for these sites appears to be the apparent unsustainability of their business models. The structural problem for the typical car referral service is its inability to disintermediate the franchised dealer. Without doing so, such services can end up simply adding complexity and cost to the current channel (one independent study inadvertently illustrated that these constraints limit the real savings to about 2%, or $450, and part of that 2% is due to the willingness of Internet-participating dealers to offer larger than average discounts).
- Content providers: Companies such as Edmunds.com or the Kelley Blue Book appear to be early winners in the Internet sweepstakes. These types of services sell automotive content to many other automotive and non-automotive portals, they also sell advertising on their own sites as well as leads to referral services and other parties. As a naturally occuring nexus of Internet automotive activities, and with carefully managed reputations for objectivity, content providers have also created partnerships with other participants on the web. Edmunds, for example, is offering a new ‘showroom’ feature, where a company can purchase the rights to display future vehicles, alone, on Edmund’s homepage.
- OEMs: These companies have spent hundreds of millions of dollars establishing state-of-the-art websites, and hundreds of millions more advertising their products over the Internet. Clearly, the Internet has become a major communications tool for OEMs, and just as clearly, it is beginning to become a routine part of communications as well. The stirring declarations of how the Internet will change automotive retailing have become fewer and further between. Indeed, one informal way to gauge focus at OEM websites is to count the latest press releases emanating from those sites.
- New car dealers: Dealers in North America and Japan remain the ultimate deal makers for both online and offline new car shoppers. In Europe, some experiments with OEM-owned or controlled dealerships, as well as in some cases the actual ability for a shopper to purchase a new car directly from an automotive OEM’s website, have expanded the opportunities for innovation in Europe. However, recent actions by the European Parliament to significantly reduce privacy thresholds may be a worrying sign for the future.
In assessing the potential for future innovation via the Internet in the United States, Europe and Japan, it seems appropriate to look at two main factors:
1)The overall Internet access penetration at the household level, which gives an estimate of demand; and
2)The degrees of freedom available for innovation, which in this case is a measure of how freely automakers can sell cars directly over the Internet to consumers (our definition of sale is that the vehicle is configured and the deal set and paid for prior to the customer’s arrival at the dealership to take delivery).
Figure 1: Automotive Internet leverage comparison: the Triad
Source: eMarketer, Jupiter MMXI, NUA, Population Reference Bureau, author analysis
In plotting estimates of each for the three regions, we see that while the United States currently enjoys a deeper consumer access to the Internet, it is held back by strong dealer franchise laws. Another problem in its attempts to step beyond the traditional OEM-to-dealer-to-consumer business model is the country’s wide geographical dispersion.
Tokyo, the worst off on both measures, not only is hampered by a low Internet penetration, but also by strong dealer power. This, apparently, is created more by the long-standing relationships between dealers and the OEMs than by the legislated constraints that are seen in the US. Ironically, of the three market areas, Japan, with its huge urban population densities, limited geographical area, and highly capable automotive industry, should be an ideal market for testing an entire range of Internet-supported services, from build-to-order vehicle selection to purchasing vehicles online.
At this stage, Europe would seem to be the market most likely to integrate the Internet into the carbuying process to a much greater degree than either of the other two markets. OEMs can own dealerships and terminate dealers without the massive resistance seen in the US, and they can sell cars directly to consumers as well. The new block exemption will likely only affect these capabilities at the margin, which should put Europe in the best position of the three regions for leveraging much of the power the Internet can bring to the car-buying experience. Whether European manufacturers do so en masse remains to be seen.
North America: The Internet remains attractive within constraints
62% of all new-vehicle buyers logged on to the Internet for automotive information while shopping for their vehicle in 2001, up from 54% in 2000 according to a survey by JD Power. But consumers continue to close deals at the dealership, not online. And many of the Internet vehicle finder services that sprouted up in the late 1980s are now either gone completely or have significantly toned down any talk of a retailing revolution.
The Achilles heel of most services, initially overlooked in the euphoric early days of the industry, is that almost all new cars and light trucks sold in the United States are ultimately sourced through dealers. Given the robust defence the dealer body has made against all comers – both OEM and pure Internet – the early euphoria for a radical re-imagining of the way new cars are sold has begun to ring decidedly hollow.
Europe: The Internet sparks an information revolution
One of the primary effects of increased Internet access throughout Europe has been the education of consumers regarding price differences across countries. Indeed, the UK has been a hotbed of Internet carbuying service activity, driven in large part by the controversy surrounding UK new car prices, which have averaged out at 20% – 30% higher than in some nearby countries on the Continent. Web-based entities have emerged to act as the most efficient go-betweens for consumers and foreign dealers in making such sales.
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While it was always possible for UK carbuyers to travel to these countries to make the sale, bureaucratic red tape and unfamiliarity made such purchases difficult. Enter the car buying/importing services. The value proposition of sites such as OneSwoop and VirginCars.com is that they can effectively arbitrage the price differences between the UK and nearby lower-cost countries. This results in savings of between 20% – 25% from UK retail prices (according to their own advertising). On the downside, there have been reports of excessive waiting periods for car delivery (a factor that the services admit they have little control over) and loss of down payments as some sites have gone under. Many independent pure Internet players in Europe remain small, though backers often include major players in the automotive market among distributors, retailers and even parts suppliers.
Automaker experiments continue
All OEMs and most large dealers also have their own websites, and some of these are fairly innovative. Vauxhall, for example, made a splash several years back by offering all models online for special Internet prices, though it is questionnable whether consumers could actually negotiate better prices by bargaining face-to-face with dealers. The Internet-led retailing revolution that was forecast in the late 1990s for Europe is taking a bit longer than many anticipated. On the other hand, it is possible to actually buy a car over the Internet in Europe, whereas this possibility remains a pipedream in the US.
It is interesting to note that the apparent leaders of the “buy online” movement – GM and Ford – are the same two companies that have pushed the hardest to embrace new ways of doing business in the US.
Japan: Internet and e-commerce initiatives gathering pace
While the Japanese lag behind the US in the number of families with home personal computers, some consumers are catching on to the savings that can be had by sourcing new cars via the Internet. Most non-OEM Internet automotive referral sites are quite small, as in Europe, and represent a tiny fraction of the total market, though interest in them continues to grow.
Conclusion
The Internet has already become a deeply integrated part of the automotive industry across the Triad, and will become even more important as time goes on. Auto dealer “disintermediation” will remain the exception rather than the rule in all three markets, and the Internet will further accelerate the value capture capabilities of consumers by improving pricing and inventory transparencies. The benefits to OEMs will include perhaps ephemeral opportunities at CRM and more substantial opportunities to increase demand prediction accuracy, understand emerging trends and perhaps even sell a car or two online.
This article has been taken from a new report published by ABOUT Automotive, and has been sponsored by PricewaterhouseCoopers and AUTOFACTS. Further details about this report can be found here.
