Will Online New Car Sales Ever Take Off? Should They?

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.