By on September 8, 2011

Frank Greve’s “Taking Readers For a Ride” article told us a little bit about the priorities in he auto PR business. If you write for a buff-book, sugar will be blown up your anal orifice. If you are a blogger – tough noogies. That stance is utterly misguided and so past millennium, says someone who knows best. That someone is Scott Painter. Never heard of him? I’m sure you heard of TrueCar. Scott Painter is TrueCar’s founder. TrueCar and competitor Edmunds know the car business better than the manufacturers: Truecar and Edmunds predict monthly sales with razor-sharp accuracy, their analyses of transaction pricing and incentives provide unprecedented (and often unwelcome) transparency.  Investor’s Business Daily had an interview with Painter. And what picture did he paint?

“Today, 98% of people who bought a car in the U.S. last month went online first. That is the reality and also the industry’s frustration.”

The industry gets frustrated, because the Internet provides strategic information to the common carbuyer, information which even the carmakers did not use to have.

“You and I could walk into the same dealership on the same day and buy an identical car from the same salesman and pay a totally different price. The sale price on an identical car can vary as much as 40%. The system today does not work and that is why the American consumer has completely lost faith in the auto industry at every level. We don’t trust car salesmen.”

A lot has been said and written about carmakers in trouble. The carnage amongst car dealers was mostly ignored, a little bit like Cambodia after Vietnam.

“The auto industry has been through its worst four-year stretch in its entire 110-year history. It nearly killed two of the three largest U.S. car companies and resulted in closure of nearly 15% of the industry’s retail dealerships. The industry went from selling about 16 million new cars four years ago to below 10 million last year. That’s a third of demand gone. How do 38,000 new-car dealers sell cars in a market where there is lower demand? They have to lower prices. So the profitability of those that are surviving is so perilously close to nonexistent that the business of building and selling cars is a loser.”

Painter does not have advice for dealers. But he has advice for customers: Use the power of the Internet to find the most desperate dealer and the best deal.

Auto manufacturers will need to decide themselves where to blow their sweetener. To buff books which are a shadow of their former greatness, and which show visible symptoms of consumption – in the medical sense. Or to websites that often get more viewers in a day than the buff books sell magazines in a month – allegedly. The auto industry in general is well aware of this. Certain cro-magnon PR flacks could talk to their colleagues in marketing to get the latest dope.

Case in point: Painter just raised $200 million for TrueCar. Like that. Without making a lot of noise. At the same time, Saab could not get a $157 million bridge loan, despite a highly publicized and noisy search. If a website is deemed a better investment than a storied car company, then this is worth at least a thought or two.

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33 Comments on “98% Choose Their Car On The Internet...”


  • avatar
    V572625694

    The more the level of knowledge between the buyer and seller is equalized, the more “perfectly” (in the Econ 101 sense) the market works. Here’s hoping it doesn’t lead us to a cell-phone-type market, where 3 or 4 or 5 huge companies control everything, stifle innovations, and effectively collude on prices.

    You could make a counter-argument about the music or newspaper business, which were eviscerated by iTunes/Napster and craigslist respectively. But recording music (outside of classical stuff) and publishing help-wanted ads are not capital-intensive businesses, once the Internet made the markets accessible at low cost. Automobiles and cell phone networks will always require large investments.

  • avatar
    thesal

    I think it’s time for dealers to disappear (new car dealers). With internet being the key place for research, it might as well become the key place to buy.

    Manufacturers can set a national price, everyone makes the final transaction online. A corporate facility can be located in a “Car Mall” where prospective buyers can drop $20 or so for a 15min test drive.

    A nice simple method. No one goes bargaining because the prices are set and no one feels cheated. For those that miss those items, there will always be the used car market.

    • 0 avatar
      Silvy_nonsense

      As long as there are politicians taking campaign donations from business people who sell new cars for a living, this will never happen. Don’t underestimate the power of lobbyists to maintain the status quo, no matter how antiquated, inefficient and against the best interests of consumers.

  • avatar
    stryker1

    Makes total sense. Was just shopping for a new car. I was using TrueCar’s price tool from dealer show rooms. Friggin awesome.

  • avatar
    Hildy Johnson

    I wonder whether this number (98%) was obtained in some online survey? Then it might be significantly skewed. I don’t doubt the real number is high, but 98% seems a bit too high.

    • 0 avatar
      chuckrs

      The classic instance of this was a survey that predicted Herbert Hoover would beat FDR in the 1932 election. In the depths of the depression, they telephoned people – when telephones were luxuries few could afford. Those who did have a phone didn’t want that Bolshevik FDR as President.

  • avatar
    qest

    Says the guy who wants people to buy into his IPO.

    Anyway, go into the grocery store and ask the manager for $0.03 off a $0.30 banana. You will get the deal and then you can brag to your friends that you paid less than anyone! That’s just like getting $3,000 off a $30,000 car. Think you can’t get 10% off just about anywhere? Think letting the manufacturers sell cars will change this? Think again!

    You can even get that deal on an Apple iPad 2 that they can’t even keep in stock!!!

    • 0 avatar
      stryker1

      “That’s just like getting $3,000 off a $30,000 car.”
      Except that in one case you’re saving $0.03, and in the other you’re saving $3,000. in absolute terms, its a huge difference.

      • 0 avatar

        Yup, as my old boss loved to say, “You can’t spend percentages.”

      • 0 avatar
        Silvy_nonsense

        Congratulations, you just spent 8 cents worth of your time negotiating a 3 cent savings, assuming you make a modest $10 per hour and it took you 30 seconds to track down the manager and make the deal. You’re losing 5 cents on every transaction, but I’m sure you must make it up in volume.

        It’s -not- just like getting $3,000 off a $30,000 dollar car, not even close. Even if you spend eight hours at the dealership, your very modest $10 per hour spent dealing with dealership baloney represents a very good use of your time if you save $3,000.

  • avatar

    I used TrueCar’s AAA branded site when buying an SUV for my wife last year, but it became even more powerful when combined with the knowledge gained from a manufacturer specific website.

    When I leased my Z4 in May the useful data I found online came from a manufacturer specific forum.

    Fanboys aren’t just useful for keeping a car going, they can also help you get into a new ride as cheaply as possible.

  • avatar
    NulloModo

    There is a difference between someone going online to do research before a purchase and someone using the internet as their primary decision making tool.

    About 77% of US homes have internet access. For those that don’t have home access it’s likely that someone in the household has access through work or school, and those with no access through work or at home are likely not in the economic position to buy a new car anyway. I do a quick online search before trying out a new restaurant, so it’s not out of the question to assume that a large portion of car buyers are at least doing a quick google search before setting out to buy.

    There are a ton of levels of research though. I have customers come in with Edmunds or TrueCar printouts, KBB sheets for their trade, quotes from other dealers, the whole nine yards. Others come in with just figure for their trade in, just a supposed invoice for the car they are buying, or just a printout from ford.com of what the available incentives are. Finally, there are some who research the cars online, but don’t do any price research at all.

    I also have plenty of customers who submit internet leads for a specific vehicle, and then switch to something completely different once they arrive. You can read third party opinions and reviews all day long, but nothing replaces the experience of sitting in the driver’s seat and actually driving the car you are interested in purchasing. People move up and down size classes, between 4, 6, and 8 cylinder engines, see an option they just have to have that they didn’t know about, decide they don’t like a color when they see it in person or love another one, etc, all the time.

    Has the availability of information on the internet changed the business? Sure. Are people ever going to buy a car like they buy a computer from Dell? No.

    • 0 avatar
      jj99

      Yea. Ignore the near last place ranking of Explorer in Consumer Reports. Also ignore the last place ranking of Explorer in Motor Trend. And, ignore the most recent evaluation of Explorer in Motor Trend. Great advice.

      • 0 avatar
        NulloModo

        I never said ignore the reviews, just treat them as what they are – opinions. MotorTrend has made it clear that their staff is not a fan of the new Explorer. Bully for them, they don’t have to buy one. Most of the other reviews have been very positive about the vehicle, and as the sales figures have shown, people who actually see them and drive them like them enough to buy them.

        If Angus Mackenzie wants to make my payments for me I’ll buy whatever he tells me to. Until that happens the smart move when contemplating a $30,000+ purchase is to read the reviews, do the research, and then set aside a couple days to actually look at and drive the vehicles in person to see how my perception matches up with or goes against what the self-proclaimed experts think.

      • 0 avatar
        SherbornSean

        If only the Explorer had more high tensile strength steel like the M5, R8, CL63 or all new platform Camry.

      • 0 avatar
        NulloModo

        Sam –

        The Explorer does make major use of high strength steel. Here’s a quote:

        With another diagram, in blue, yellow and red, Holland shows the smorgasbord of materials he’s using. He saved 17 pounds by making the Explorer’s hood with aluminum instead of steel and 10 pounds by crafting third-row-seat frames from magnesium. He cut 23 pounds by building the radiator frame from one piece of composite plastic instead of 11 chunks of steel.

        Holland had to select from steel that came in different varieties, depending on which elements — manganese, nickel or chromium — suppliers mixed in.

        For the front bumper, he chose steel laced with boron, which changes steel’s atomic structure so that a piece 15 percent thinner can be as much as four times stronger. Holland used so-called high-strength steel for 60 percent of the Explorer body. The industry average is 15 percent, says Jeff Makarewicz, Toyota’s vice president of materials engineering in North America.

        “We’d like to understand more about how Ford is doing this,” he says.

        Full article:

        http://www.bloomberg.com/news/2011-02-07/mulally-makes-ford-leader-in-lightness-after-threat-to-terminate-explorer.html

  • avatar
    jj99

    The internet is a great tool, but it is filled with tank traps. For example, many sites publish a so called fair market value price ( like edmunds.com ) that can be a bad deal.

    Better is to start with the invoice, then knock off all incentives and rebates as in edmunds.com. Then, knock off another 2% for the kickback, then start with that price. If someone takes it, you know you are too high because some other special dealer incentive you know nothing about, then move the price lower. Be careful since edmunds.com may not have all the incentives.

    Using this technique, I have scored Toyota, Honda, and Acura vehicles for thousands below what edmunds.com says is a fair market price.

    Another technique is to get good with search and look for specials on the vehicle you want across the entire country. If you find a great deal in some other state, that tells you your local dealer can usually offer the same, so negotiate hard. I saw a deal on a Camry LE in Oregon a while back with an outrageous low price. After a call, I determined the deal was real. I kept banging on the local dealers until one finally cracked and gave me the deal. Many dealers told me how that was a money losing price. Don’t fall for that.

    • 0 avatar

      Edmunds gives the average–meaning some people do significantly better, since many do significantly worse.

      TrueCar shows a curve, and their suggested price is at least better than the average.

      I do agree that Painter’s statements are coming from someone who is pitching his business.

    • 0 avatar
      highdesertcat

      Each dealership is different. Some need to make more on each sale to stay in business than others do. If you see a lot of salesmen standing around playing pocket pool when you drive up, you can count on spending a lot more.

      After doing your due diligence in research and deciding what vehicle you want, ask the salesmanager what he needs to sell the vehicle for, if he has it in stock. Most of the time they’ll give you a realistic price, either bare-bones or all-in, depending on what you specify in the bottom line price.

      If he does not have it in stock, all bets are off because there are swaps, trades, comps and other gratuities that dealers want, to get what you want from another dealer who has it in stock.

      Salesmen size you up when you walk in, and they’re better at it than you are. It is their sole purpose in life to part you with as much of your money as they can. Know what you want, know what you want to pay, and be prepared to walk away from it.

      Don’t worry, they’ll call you. They’ve got to sell to make money and they can’t sell if the potentials aren’t buying.

  • avatar
    ComfortablyNumb

    I want to hear Buickman’s take on this. Ed, you should get that guy to write an op-ed piece for TTAC.

  • avatar
    Motorhead10

    This just popped in my InBox from my friends at LeaseTrader.com

    I’ll edit to the interesting bits

    MORE LEASETRADER.COM DRIVERS GET CARS WITHOUT TEST DRIVING THEM FIRST

    Low Commitment & Online Shopping Technology Raise Level of Comfort

    MIAMI – (September 8, 2011) – LeaseTrader.com, the most recognized name in car leasing, says about 6.5 percent of all lease takeovers today happen blindly, compared with less than 3 percent in 2007.

    Prior to 2007 the majority of blind lease takeovers on LeaseTrader.com happened with foreign vehicles such as the BMW 3 Series and Mercedes C230. Today, however, domestic vehicle leases have closed a significant amount of the performance gap and people are more comfortable with committing to a Ford, Lincoln or GM vehicle without ever sitting inside or stepping on the gas peddle (interesting spelling – MH10).

    Percentage of blind takeovers since Sept. 2010

    Vehicle% Increase
    Toyota Rav-4+4.2%
    Lexus IS 250+4.0%
    Volkswagen Jetta+3.5%
    Lincoln MKX+3.4%
    Ford Edge+3.1%
    Chevy Equinox+2.8%
    Cadillac CTS+2.7%

  • avatar
    Zackman

    I’ll give you my experiences, FWIW:

    In 2002, my wife wanted a new car – some sort of SUV for camping and carrying the dog. I waved off an Escape due to recall issues, the 4 cyl not being powerful enough and the 6 cyl being a gas-hog. She decided on a CR-V. The most the dealer would give us off the price was $250.00! I got an internet price and from the same dealer, $500.00 was knocked off the price! I didn’t like either deal, but decided to let my wife choose her vehicle. We still have it and it had better last 20 years, too!

    As for my 2004 Impala, my company had a supplier-discount deal with GM. No negotiating, a set price with all rebates/incentives. That turned out to be a good deal. That car had better last a long time, too!

  • avatar
    Britspeak

    Not to be too much of an ass, but the headline ’98% Choose Their Car On The Internet’ is not even close to the actual quote: ‘Today, 98% of people who bought a car in the U.S. last month went online first.’

    Going online first is not the same as ‘chosing their car on the Internet.’ Or am I completely missing something?

    • 0 avatar
      Philosophil

      Editors do that with headlines all the time, just to pull the reader in.

      To be fair, however, it may depend on what is meant. I definitely researched cars on the internet and didn’t make my choice based solely on that research (but on test drives and such as well), but once I had narrowed my choices down I did actually find the vehicle I ended up buying through the internet as the best deal I had found for that model, year, type and so on. So in a sense, I actually chose my vehicle on the internet (after all the other research, test-driving and so on was done) and then drove 190km to buy it.

  • avatar
    George B

    FWIW, even my computer illiterate parents ask for help with invoice pricing via the internet. I think the 98% number is high, but virtually all car buyers know 1) it’s possible to negotiate the price of a car and 2) the most useful car buying information is on the internet.

    I wish car pricing was more transparent like buying gasoline. Big signs on the street tell me exactly what gasoline will cost before I drive into the station.

  • avatar
    healthy skeptic

    I buy cars used, and unless I end up later in life with serious money to burn, I’ll probably continue to buy them used. For that, the Internet reigns supreme. Of course I’ll go check out the car in person and comparison shop before I buy, but if a used car isn’t on the Internet, I’ll never find it.

    • 0 avatar
      jj99

      I always bought used. And, I focused on Ford iron since it was available for change. Then, I just ran them into the ground with a once a year or two oil change. Why change the oil to make the engine last longer when a Ford goes to total trash at 110K miles. Now, used cars are far too expensive, even Fords, and Ford new prices are at Toyota and Honda levels.

      Now, your best bet is to buy Toyota or Honda new, base models only. This strategy gives you top resale value as long as you take perfect care of the vehicle. No dings or scratches.

  • avatar
    Sinistermisterman

    When shopping for my new car back in February, I did spend a lot of time surfing individual dealers websites, the manufacturers website, craigslist and also truedelta to get an idea of what the price should be. Having seen certain prices online I then visited the actual dealerships, and in several situations I was told by the salesman that,
    “Oh, that’s just the online price, it means nothing. The actual price is X dollars.”
    This just irritated the hell out of me, and in every case I walked out of the dealership. I got the feeling that dealers were just sticking a cheap number on their online adverts just to get you to come in through the front door.
    When I did finally buy my Slobalt, the price the dealership quoted online was exactly that which was on the sticker in the window of the car. A little haggling later and it was mine.

  • avatar
    carve

    So, I always look up incentives and invoice price, but what else can you do online? How do you find the most desperate dealer? Usually when I do that “request a quote” thing I get a highball figure.

    • 0 avatar
      jj99

      This is part of the game. Just don’t respond. After a few days, someone will start sending you eMails, or call. At that point, you tell them that their price was so out of control that you ignored them. They will start to negotiate with you, and you start dropping a price you claim is one you really have from another dealer. Use the price as calculated in my post above. Also, make sure you are talking with the sales manager. Forget the bottom line people. They are just low paid sheeple who can only do a deal at a price that is not a deal for you.

  • avatar
    Dave M.

    After doing my extensive (and I mean extensive….I take 6-9 months to car shop) research, whether I visit a dealer or go through their internet sales person….the first thing out of my mouth is “You’ve got one chance to get this right. What is your price for X?”.

    I’ve been successful….


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