The Truth About Cars » Online http://www.thetruthaboutcars.com The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Sat, 19 Jul 2014 05:27:35 +0000 en-US hourly 1 http://wordpress.org/?v=3.9.1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars editors@ttac.com editors@ttac.com (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » Online http://www.thetruthaboutcars.com/wp-content/themes/ttac-theme/images/logo.gif http://www.thetruthaboutcars.com Blind Spot: America’s New Motor City http://www.thetruthaboutcars.com/2012/05/blind-spot-americas-new-motor-city/ http://www.thetruthaboutcars.com/2012/05/blind-spot-americas-new-motor-city/#comments Mon, 21 May 2012 20:40:16 +0000 http://www.thetruthaboutcars.com/?p=445389

Throughout the history of the automobile in America, one city has been synonymous with the industry and culture of cars. Booming with America’s great period of industrialization, Detroit became the Motor City, the hometown of an industry that created a blue-collar middle class and a culture based on personal mobility. But as America has entered the post-industrial age, as the focus of our economy has shifted from production to consumption, Detroit has been left behind. Long used to defining consumer tastes, Detroit was caught unawares by the changes wrought by globalization and the rise of information technology. And as America’s traditional auto industry struggles to redefine itself in the new economy, another Motor City is rising to meet the challenges of a new age.

Though not often recognized as such, Los Angeles has long been America’s “other” car capital. Developing during the rise of the automobile, Los Angeles has become a place where automobile ownership is not just a necessity, but a fundamental aspect of the culture. And as a result of its headlong embrace of the automobile, Southern California has contributed some of the most important elements of automotive culture. From the drive-through fast food joints that now dot America’s landscape to Harley Earl’s design revolution, from hot rod culture to smog control, it is impossible to imagine modern American life without L.A.’s unique automotive achievements.

Industrial-age Detroit was surely grateful for Southern California’s innovative attempts to reshape society around the cars it produced. But as long as the automakers dominated the wealth produced by America’s love affair with the automobile, Los Angeles was seen as little more than Detroit’s best customer. Though an important ally in promoting automotive culture, Los Angeles’s value to the industry was little more than offshoot of its major industry: entertainment. But as global competitors entered the US market, Southern California’s car-crazed culture became one of the first to embrace the imports. And as Detroit’s near-monopoly began to erode, the balance of power shifted: from this point on, consumers would drive automotive tastes with increasing independence.

With this shift, Los Angeles began its ascent in the automotive world. While Detroit lay mired in the industrial age, Southern California developed a taste for the new global menu of automotive options, and simultaneously embraced the new revolution in information technology. Its status as a taste-maker grew, and its focus on consumer opinion, fashion and communication put it in close touch with the values that were reshaping America’s economy. Now, with the information and consumer-economy revolutions largely realized, Southern California is becoming the new center of gravity for America’s auto business.

In fitting with the values of this new world, L.A.’s automotive juggernauts neither produce nor themselves sell automobiles. Instead of factories and dealerships, they have invested in server farms and data models. Rather than controlling information to maximize profits in support of an industrial supply chain, they create and share information in service of the consumer and market efficiency. And through this revolution, the two titans of Southern California’s “automotive industry,” Edmunds and Truecar, have become some of the biggest players in the business of buying and selling cars.

Edmunds.com got its start just as Los Angeles was coming into its own as the capitol of American automotive consumption, and well before the information revolution began to take hold. In 1966, it began publishing booklets which consolidated automotive specifications as a tool to help buyers make informed decisions. Over the years, it has evolved this service from print to CD-ROM, to web page and mobile app. And with new technology, it has dramatically expanded its services, offering everything from news, reviews, and specifications to industry analysis and forecasting, from a live consumer-advice hotline to dealer reviews and its “True Market Value” pricing tool. Never losing focus on its original insight, that consumers need help navigating the crowded new car market, Edmunds has embraced every new technology to expand on its mission and become the most established gatekeeper to the burgeoning world of online auto research and sales.

Entering Edmunds’ brightly-colored offices in Santa Monica, it becomes instantly clear that the company looks to Silicon Valley rather than Detroit. With its whiteboard walls, open cubicles, espresso machines and video game room, the ambience is clearly inspired by Google rather than GM. And like Google and Facebook, Edmunds is finding that its consumer service is just the beginning of its opportunities. So massive is the traffic that Edmunds’ car buying website generates, it has developed its own value as a model for the larger market. As the patterns of research at Edmunds.com shift, the company can track changes in interest in specific cars and brands with an ingenious in-house application, giving it insights into the market that no automaker  can ignore. By serving consumers with the latest technology, Edmunds can not only generate huge revenue from advertising and sales leads, but create valuable intelligence for the industry as well.

Though Edmunds’ business model may now embrace the industry as well as consumers, it hasn’t lost sight of its original mission. Indeed, as it has assumed leadership in the burgeoning auto consumer services industry, it has embraced its role as an advocate for automotive consumers in every venue. Leading this charge is former CEO and current Vice Chairman, Jeremy Anwyl, an intense, often-iconoclastic dynamo who has become the closest thing the automotive business has to a public intellectual. Rising to prominence through his regular commentary and industry analysis, Anwyl has become a regular figure at Washington D.C. hearings on everything from fuel economy regulations to distracted driving. Over a brief lunch, he jumped with ease from topics as diverse as EV tax credits and NHTSA incident reporting to sales forecasting and media criticism, fusing a generalist’s fascination with every aspect of the automotive business and culture with an unshakeable focus on serving consumers. While Detroit’s executives often seem inward-looking and overly focused on their traditional industry patterns, Anwyl demonstrates the importance of an automotive culture that engages every arena in which automobiles play a role. His ability to serve as the auto consumer’s advocate-in-chief, not only serves Edmunds’ mission and image well, it helps cement the consumer power that launched his company to prominence.

But Edmunds’ rise, from booklet printer to market-making, policy-influencing juggernaut, has not gone unnoticed. Numerous companies have tried to match its success and compete for its influence, but few have given it any real trouble. The simple fact is that Edmunds has been working at its mission so long, and has been so in tune with cultural and technological shifts, that any rival would have to make enormous investments in order to match its suite of services and aura of leadership. And yet, in just a few short years, one company has managed to break through Edmunds’ near-monopoly, and join it as the second Southern Californian juggernaut of automotive consumer services. That company is TrueCar.

The short roots of TrueCar’s stunning rise to prominence lead back to Edmunds. Formed by a core of Edmunds employees, TrueCar grew out of just one element of Edmunds’ sweeping empire: the “True Market Value” pricing tool. While the larger site spread its resources across an entire ecosystem of consumer information and advocacy, TrueCar’s mission was laser-focused on creating the best real-time pricing tool on the web. By investing in every possible source of data on new car sales, and by developing a slick, intuitive interface focused solely on delivering localized market price transparency, TrueCar has been able to claw out a niche in one of the most lucrative automotive consumer services. And though Edmunds downplays comparisons with TrueCar, it’s clear that the upstart firm has established itself as a major player.

TrueCar’s more focused culture is evident in its almost zen-like offices high atop Santa Monica’s historic clock tower. In sharp contrast to Edmunds’ primary colors, copious espresso machines and young employees blowing off steam at the company pinball machine, TrueCar’s headquarters are smaller, less self-conscious, and a more obviously-focused workplace. Not that TrueCar couldn’t have a vast Google-like complex if it wanted: just last year, in the depths of of the economic downturn, the company brought in a $200 million round of investment. But, as CEO Scott Painter explains, TrueCar’s spends its millions largely on acquiring and analyzing pricing data. Where Edmunds seeks to offer a complete research and shopping experience, Painter refuses to break focus on pricing until total market transparency is achieved.

But where Edmunds’ broader focus has allowed it to assume the mantle of consumer advocate in a generally non-confrontational manner, TrueCar’s narrower but deeper approach to serving consumers has ruffled feathers among dealers and manufacturers. For an industry long used to consumers overwhelmed by the vast variety of brands, models and trim levels, and for dealers who have long relied on asymmetrical information to pad their profits, TrueCar’s crusade for pricing transparency has tipped the balance of power so far towards consumers as to be seen as a threat.

Towards the end of 2011, TrueCar, falling victim to its own success, came into conflict with dealer groups, manufacturer “dealer marketing allowance” schemes, and state regulators tasked with protecting local franchise laws. In the wake of that confrontation, TrueCar has had to make some specific changes in how it operates its business, but the industry’s reaction showed that TrueCar’s mission to deliver real pricing transparency was changing the way automotive retail works. And as Detroit has proved over the last 40 years, businesses who cling to a comfortable past in the face of inexorable historic forces get left behind.

Though Edmunds and TrueCar eye each other warily, and though there is certainly some overlap in their business models, they aren’t really competitors. Together, they form the vanguard of a movement to use information to empower consumers, and I would argue that a consumer that wants to make the most of this new movement would use Edmunds to help decide what kind of automobile might suit them best, and use TrueCar to help price and negotiate for it once that decision has been made.

Competition between the two will make both better, which in turn will arm consumers with ever-greater power in the marketplace. In this way, the two behemoths of online car buying services will continue to strip power from the automakers, force them to pay closer attention to consumers, and drive the innovations that will allow producers to more efficiently serve an increasingly-informed market. And as this dynamic plays out, the producers and marketers of Detroit and elsewhere will have no choice but to recognize the rise of America’s new Motor City in sunny Southern California.

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Buick Encore 75 Percent Revealed Thanks To Infuriating Internet Publicity Campaign http://www.thetruthaboutcars.com/2012/01/buick-encore-75-percent-revealed-thanks-to-infuriating-internet-publicity-campaign/ http://www.thetruthaboutcars.com/2012/01/buick-encore-75-percent-revealed-thanks-to-infuriating-internet-publicity-campaign/#comments Wed, 04 Jan 2012 17:26:16 +0000 http://www.thetruthaboutcars.com/?p=424200

It wasn’t our intention to inundate you with Buick stories, but sometimes the improbable occurs. Buick has been slowly revealing their new Encore crossover via their Facebook page, and we’ve now been treated to 3 out of 4 photos – enough to discern what the vehicle really looks like (pretty close to what Ed’s photo revealed).

Based on the Sonic platform, the diminutive Encore frankly looks goofy. Where this figures into Buick’s North American product lineup is anyone’s guess. It’s too small to have any appeal as a premium vehicle in America (would a rapper or reality TV star flaunt that thing? Absolutely not). An educated guess would deduce that the Encore was developed with China in mind, and American sales are a bit of an afterthought.

Regional implications aside, the Encore’s reveal campaign follows the annoying trend of car makers slowly revealing their products online via a set of teaser photos. Blogs love them because the “slow burn” allows them to post a stream of photos which help capitalize on the click-based advertising revenue model, and car makers get a “long tail” of publicity for their product. Sometimes the campaigns are agonizingly long (see: Toyota FT-86) to the point where cynicism-induced burnout occurs, other times they are shorter, like with the Encore. Not that a Buick mini-CUV could muster up the enthusiasm needed to sustain a multi-year launch anyways.

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TrueCar Versus Honda: Online Car Buying Challenges Hit Home http://www.thetruthaboutcars.com/2011/12/truecar-versus-honda-online-car-buying-challenges-hit-home/ http://www.thetruthaboutcars.com/2011/12/truecar-versus-honda-online-car-buying-challenges-hit-home/#comments Wed, 21 Dec 2011 17:45:59 +0000 http://www.thetruthaboutcars.com/?p=422978

The rise of the internet has had myriad effects on everyday life, not the least of which has been its profound impact on consumer behavior. With ever more data being made available online, and with the rise of independent alternative media outlets like TTAC, car buyers in particular are fundamentally changing their relationship to the car buying process. Dealers have been noting for some time that the internet has created better-informed buyers who, armed with more information, are demanding the car they want at the best possible price, wreaking havoc on traditional car dealer tactics like upselling and opaque pricing policies.

But as the eternal dance between supply and demand shifts in favor of consumers, some dealers and OEMs are having a tough time adjusting to the new reality. At the same time, the need to make money off of online consumer education has created some tension for the new breed of consumer-oriented websites. This conflict has now broken out into the open, as the auto transaction data firm TrueCar has found itself locked in a battle with American Honda over the downward pricing pressure created by more widely accessible transaction data. And the outcome of this conflict could have profound impacts on the ever-changing face of the new car market.

Early last week, TrueCar CEO Scott Painter took to the TrueCar blog with an “Open Letter To The Automotive Industry,” in which he argued

Our world is changing. Unprecedented access to information and a massive shift in consumer behavior has resulted in a challenging new automotive retail landscape. It has also enabled a consumer appetite for data transparency. To hide from evolving consumer behavior is to deny change. At TrueCar, we embrace this opportunity. We also believe that transparency is the centerpiece of trusting relationships. Some in the industry disagree.

And indeed, from personal experience I feel comfortable saying that TrueCar does provide consumers with some highly valuable information by tracking vehicle transactions from several data sources and publishing the range of transaction prices on a local level. This clearly helps consumers navigate the often opaque and confusing world of dealer-level pricing, and facilitates a more efficient interaction between supply and demand. And if that’s all TrueCar did, it would be impossible to argue with the valuable service it provides.

But in order to fund its business model, TrueCar cannot simply give away data and hope everything pans out for the best. In order to generate profits, TrueCar works with “dealer partners,” allowing them to present a lower “haggle-free” price for the model being researched at no upfront cost. If the consumer buys that car, TrueCar gets a $299 commission from the dealer; if not, the dealer pays nothing. Dealers can tailor these “guaranteed lowest prices” based on TrueCar’s data, and they seem to generally beat non-”guaranteed” prices in the TrueCar “price curve” display by only a few hundred dollars. But by offering this service to its dealer partners, TrueCar has opened itself to conflict with OEMs, as this fiscally-necessary service muddies TrueCar’s role as a pure consumer service. Which is where the conflict with Honda comes in.

In his “Open Letter,” Painter mentions no OEM by name, and TrueCar’s EVP for Dealer Development Stewart Easterby tells TTAC

 We’re not trying to pick a fight… we very much value Honda/Acura. We have strong OEM relationships through our recent acquisition of Automotive Lease Guide, and we have lots of people on staff who have work for OEMs, so we generally have strong relationships with the industry.

But in an Automotive News [sub] piece published on the same day as Painter’s “Open Letter,” the TrueCar CEO claimed that American Honda was warning dealers away from advertising below-invoice “guaranteed lowest” prices. After talking to American Honda, AN updated its piece, noting that it had

incorrectly reported that Honda singled out TrueCar.com when the automaker warned dealers that they would put their local marketing payments from Honda at risk if they offered prices below invoice on Internet shopping sites

In fact, what had happened was that American Honda had simply warned its dealers that any advertisement of below-invoice prices could jeopardize the marketing assistance money Honda sends dealerships. American Honda’s Chris Martin clarified the automaker’s position in an emailed statement to TTAC, noting

Dealers who wish to receive marketing funds are expected to adhere to certain guidelines that govern dealer participation in its Honda Dealer Marketing Allowance (DMA) Program and its Acura Carline Marketing Allowance (CMA) Program.  Among the many advertising guidelines to which dealers must adhere to in order to receive DMA/CMA Funds, Honda dealers are restricted from advertising new Honda vehicles at a price below dealer invoice plus destination and handling charges and Acura dealers are restricted from advertising new Acura vehicles at a price below MSRP plus destination and handling charges.  Such guidelines do not limit a dealer’s discretion to advertise a new vehicle at any price if the dealer is not seeking DMA/CMA Funds.  Furthermore, the dealer is free to charge customers any price it chooses, in its absolute discretion, for a vehicle.

Martin goes on to identify the central bone of contention:

The development of third party websites used for advertising is not any different than advertising pricing in a traditional newspaper or on TV.

And here, American Honda has something of a point. Whereas TrueCar’s price curve is a pure reporting tool, simply reflecting otherwise available data, it’s not entirely unfair for Honda to characterize TrueCar’s service to dealer partners as an advertising service. In practice, the only real difference between this service and any other form of advertising is that TrueCar only gets paid if a car gets sold at the “guaranteed lowest” price offered by one of its dealer partners. If you accept that reality, Honda has some very valid reasons for threatening to withhold dealer marketing assistance, as Martin’s statement explains

The function of these [DMA] guidelines is three-fold. First, it encourages dealers to use the advertising money provided by American Honda for interbrand advertising.  That is, rather than providing funds to dealers so that they can engage in discount advertising against other Honda and Acura dealers (which does American Honda and consumers no good), American Honda wants dealers to use the funds to promote the advantages of Honda and Acura vehicles when compared with competing brands. Second, discount advertising is detrimental to the Honda and Acura brand images.  American Honda has no wish to pay for ads that portray its products as “cheap” or “low-end” vehicles.  This may be appropriate for other manufacturers; it is not appropriate for the Honda and Acura brands.

So far, so reasonable. TrueCar’s service may be more palatable than the local, low-rent “Check Out Our CRAAAAZY Prices!” ads you see on TV, but in practice there’s little meaningful difference. Besides, the choice belongs to dealers: either accept Honda’s money with the inevitable strings attached, or throw in your lot with the new lower-price, but potentially higher-volume TrueCar (or CRAAAAZY Prices!) strategies. But with its third rationale for its policies, Honda strays from this reasonable territory, and betrays a distinct bias against TrueCar, arguing

Third, American Honda believes that much discount advertising is bait-and-switch advertising, which is not beneficial to the consumer and reflects badly on the manufacturer that condones it.  Dealers that advertise vehicles for extremely low prices (as some do on the TrueCar site) may engage in either direct bait-and-switch tactics or using the automobile’s brand name to sell expensive accessories, service contracts and the like.

Memo to Honda: these practices are as old as the auto industry itself. Suggesting that these tactics will never be used at dealers who toe Honda’s DMA line is just as disingenuous as the implication that TrueCar’s dealer partners are more likely to use them. If anything, TrueCar’s major sin is that it makes below-invoice advertising easier for the OEM to monitor and therefore squelch than in the pre-internet days, when consistently maintaining these DMA standards would have required a survey of every local publication and TV/radio broadcaster (not to mention direct-mail marketing), a task that no automaker was or is equipped to do.

But Honda’s apparent antipathy towards TrueCar is just the tip of a growing resentment towards the site. In a speech cited in the AN piece published last Monday, AutoNation CEO Mike Jackson expressed the angst that appears to be spreading across the auto retailing industry, especially in light of its recent deal with Yahoo [sub].

The good deal that they’re pitching to the consumer is lower than average. So to the extent that everyone goes with the TrueCar price, it moves the average down. It’s a death spiral, and the question is whether they are powerful enough to unleash that dynamic in the U.S. marketplace.

But Jackson’s implication, that TrueCar can essentially manipulate the market in favor of consumers, simply doesn’t hold up to scrutiny. On an abstract level, you can’t repeal the law the law of supply and demand. As Painter puts it

They’re trying to say Hondas are worth more than invoice, but if everybody’s paying less than invoice, that’s not true

More practically, however, TrueCar’s own data seems to refute the industry’s fears. Specifically, Easterby tells TTAC

TrueCar represents two to three percent of new car sales… we’re flattered that people think we’re influencing the market, but at that share, we clearly aren’t. The 21st C consumer demands transparency in all products and services, that’s what the web has done. TrueCar reflects the market, just as Zillow reflects the market for real estate, rather than determines it.

Even more importantly, Painter insists

Our goal at TrueCar is to foster healthier relationships between manufacturers, dealers and consumers through data transparency. To deliver on this promise, we require a high standard from our 5,800 dealer partners – an upfront competitive price and a commitment to a great customer experience. A discoverable upfront price is the cost of getting noticed. Contrary to popular concerns this does not create a “race to the bottom.” The lowest price only secures the sale 19.2% of the time within the TrueCar network. The sale is still won by location, selection and good old-fashioned customer service. [Emphasis added]

So where does this all leave us? Clearly Honda has the right to withhold DMA money from dealers violating its reasonable conditions on that money. By the same token, dealers have the choice of pursuing higher volumes with less traditional advertising by choosing the TrueCar strategy, or continuing to follow the time-honored tradition of collaborating with the manufacturer. And here, TrueCar’s price curve, which it says is not populated by dealer partner data but from independent, anonymized sources, becomes the killer app: it’s so good (reflecting a claimed 90% of all new car transactions), it can’t help but draw ever more buyers, who will then be exposed to its dealer partner “advertisements.”

Ultimately, it’s difficult not to conclude that TrueCar (and sites like it) won’t continue to draw ever more dealers away from the old DMA agreements, especially as online research becomes more important to the car-buying process and as traditional advertising dollars flow from TV, radio and print towards the internet. And if dealers and brands are sufficiently hurt by downward pressure on pricing, the alternative is always there. This is how competition works, and because TrueCar has more fundamentally aligned itself with consumers and the power of the market, it’s tough seeing them not coming out ahead in this struggle. And if they do, car buying could be changed forever. Again.

 

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Quote Of The Day: “Negative Reviews Are Good For Business” Edition http://www.thetruthaboutcars.com/2011/11/quote-of-the-day-negative-reviews-are-good-for-business-edition/ http://www.thetruthaboutcars.com/2011/11/quote-of-the-day-negative-reviews-are-good-for-business-edition/#comments Thu, 03 Nov 2011 16:58:49 +0000 http://www.thetruthaboutcars.com/?p=416744

Like most corporate trends, the rush to social media is often little more than an opportunity for new consultants to sell common sense packaged in the buzzwords du jour. And though it’s easy to just laugh off the process as just another fad, it’s important to remember that common sense is in relatively short supply these days… if the only way to get it across is to punctuate it with words like “engagement” and “voice share,” so be it. And because social media is forcing companies to come to grips with every possible kind of feedback, the trend is actually helping validate the hard-hitting editorial approach that TTAC has long embraced. At Motor Trader’s social media conference, Richard Anson, CEO of the consumer review site Reevoo, explains the simple truth:

Social content will help drive sales so trust and transparency are vital; we all trust our peers more than any vendor or brand. Negative reviews are good for business. Retailing is all about transparency so perfection is not credible. Customers expect and want negative reviews and they give dealers a great opportunity to engage.

Hear, hear!

This is a lesson that the auto industry often struggles with, especially with in-house social media efforts like The Ford Story (now social.ford.com). But even within the larger automotive media scene, there’s a lack of appreciation for the constructive powers of negative reviews. Due to a long and pointless tradition in the automotive media of trying to objectively evaluate all vehicles on a single rating or “star system,” there’s a sense that negativity in a review implies that a car is not worth considering. In reality, if someone is going to own and live with a car, aren’t they going to be as interested in its flaws as its charms? Consumers aren’t stupid, and if they feel like they’re getting a whitewash from any one review outlet, they’ll look elsewhere. And thanks to the internet and “social media,” they’ve got lots of options.

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Consumer Alert: Beware Online Car-Selling Scams http://www.thetruthaboutcars.com/2011/08/consumer-alert-beware-online-car-selling-scams/ http://www.thetruthaboutcars.com/2011/08/consumer-alert-beware-online-car-selling-scams/#comments Tue, 16 Aug 2011 15:04:10 +0000 http://www.thetruthaboutcars.com/?p=407379

The International Crime Complaint Center (IC3) warns that

Online vehicle shoppers are being victimized by fraudulent vehicle sales and false claims of vehicle protection (VPP) programs… Criminals also attempt to make their scams appear valid by misusing the names of reputable companies and programs. These criminals have no association with these companies and their schemes give buyers instructions which fail to adhere to the rules and restrictions of any legitimate program. For example, the eBay Motors Vehicle Protection Plan (VPP) is a reputable protection program whose name is commonly misused by these criminals. However, the VPP is not applicable to transactions that originate outside of eBay Motors, and it prohibits wire transfer payments. Nevertheless, criminals often promise eBay Motors VPP protections for non-eBay Motors purchases, and instruct victims to pay via Western Union or MoneyGram.

No wonder online new car sales have been struggling. Hit the jump for IC3′s list of warning signs.

According to the center’s release, buyers should beware

  • Sellers who want to move the transaction from one platform to another (for example, Craigslist to eBay Motors).
  • Sellers who claim that a buyer protection program offered by a major Internet company covers an auto transaction conducted outside that company’s site.
  • Sellers who push for speedy completion of the transaction and request payments via quick wire transfer payment systems.
  • Sellers who refuse to meet in person, or refuse to allow the buyer to physically inspect the vehicle before the purchase.
  • Transactions where the seller and vehicle are in different locations. Criminals often claim to have been transferred for work reasons, deployed by the military, or moved because of a family circumstance, and could not take the vehicle with them.
  • Vehicles advertised at well below their market value. Remember, if it looks too good to be true, it probably is.

The LA Times reports that scammers recently used and Edmunds.com lookalike page to defraud online car buyers. Keep a watchful eye on all online auto sellers, and be sure to report any attempts of fraud to local law enforcement, the IC3 and, if you want to take justice into your own hands, write up your experience for TTAC. To defeat scammers, we all need to pull together.

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Will Online New Car Sales Ever Take Off? Should They? http://www.thetruthaboutcars.com/2011/07/will-online-car-sales-ever-take-off-should-they/ http://www.thetruthaboutcars.com/2011/07/will-online-car-sales-ever-take-off-should-they/#comments Fri, 22 Jul 2011 00:30:31 +0000 http://www.thetruthaboutcars.com/?p=403816

The internet has been a boon for car buyers in a million ways, but for new car marketers it’s been a decidedly mixed bag. GM’s California-only experiment selling new cars over eBay was quickly abandoned, after generating more embarrassment than sales. Now, another high-ish profile online new car marketing gag has flopped, as Autoweek reports that Groupon’s car debut is going nowhere:

Only four consumers agreed to pay $200 for a $500 discount voucher on a new-vehicle purchase at LaFontaine Buick-GMC-Cadillac in Highland, Mich. Groupon and LaFontaine had set 10 as the minimum required for the vouchers to be issued.

For companies like Tesla, who hope to do without traditional franchised dealers altogether (Chrysler may harbor similar desires), the internet is next great frontier in new car sales… but the eBay and Groupon failures are troubling signs for that dream.

According to Donna Harris of Automotive News [sub], there were a few specific problems with the Groupon offer:

  • Negotiated prices. Most of the products promoted through Groupon, of Chicago, have fixed prices of less than $100. When Groupon says the price of a restaurant meal is half off, consumers can verify that against the menu price.
  • [Robert Milner, General Sales Manager at LaFontaine Buick-GMC-Cadillac, which made the Groupon offer] says consumers were skeptical, thinking the dealership would boost the price to offset the $500 discount. On the Groupon Web site, he told people to negotiate their best deal, then bring the voucher for a down payment.

    He also told them that if they decided not to buy a car, they could use the $500 on other products and services the dealership sells. Later, Groupon, which has been eager to move into high-ticket items, broke with its usual rules and offered to refund the cost of the voucher if a consumer didn’t use it by year end.

  • Skimpy discounts. Consumers expecting a Groupon-like half-off deal may have dismissed $500 off on a $30,000 car as not enough.
  • Not an impulse purchase. Many Groupon discounts are offered on impulse buys, such as a massage or flowers. Cars don’t fit that mold.
  • Neil Stern, senior partner with retail consulting firm McMillan Doolittle in Chicago, points out that instant offers work better on frequently purchased items.

    For Groupon retailers to break even on the deep discounts, “You need 20 percent of your customers to come back,” Stern says. “You lose money on the Groupon offer so you have to get return customers.”

    And someone who buys a car isn’t going to come back next week or next month to buy another one.

Her solution? Save the Groupons for no-haggle dealerships, so buyers know they’re getting $500 off… but then, offering discounts at a so-called “one-price” dealership kind of runs contrary to the whole point of the no-haggle, one-price, “no-dicker sticker.”

But really, it’s the size of the discount more than the lack of trust that’s the issue. People will buy anything online if the deal is good enough, and $300 off a new car priced in the tens of thousands of dollars doesn’t get you anywhere. Similarly, had GM actually auctioned cars on eBay with low reserves to clear inventory, it might not have made as much money as a “Red Tag Sale” or “Trucktoberfest,” but it would have moved every car and received a lot of attention in the process.

On the other hand, haven’t this industry worked hard to get away from that kind of thinking? Ever since the credit crunch, the US market has been moving towards higher transaction prices, lower discounts and tighter inventories, and online sales don’t really foster that kind of market. Just look at China, where even a year ago, Bertel was reporting that online car sales were booming. Why are online sales taking off there and not here?

[SAIC's site] has the usual 3-D images, car data etc. to drive buyers to dealers. However, it shows which dealers give the highest discounts, something very taboo amongst manufacturer-sponsored sites.

Geely is going one further. Customers who order a car on-line can receive a 30 percent discount if they are the lucky winner. Such a practice would cause howling protests and lawsuits elsewhere.

That’s right, deals. If you’ve got screaming deals on something you see as a pure commodity, the internet will always be happy to move your volume. If, on the other hand, you sell complex, expensive, branded consumer goods like new cars, you have to just price right and focus your efforts on getting people into your dealerships.

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