The United States soon will lose its status as the auto industry's chief laboratory for Internet marketing to consumers. In the United States, auto dealers fear they will lose business if automakers set up Web sites to sell vehicles directly to customers. Dealers also worry that prices would decline as canny consumers shop for the best deal.
As it happens, they are right. The Internet will create a more efficient market, and efficient markets mean lower prices. In the short run, U.S. dealers probably will manage to discourage automakers from doing so. American dealers enjoy considerable clout with state legislatures, and they aren't afraid to use it.
Overseas, it's another story. As writer Michelle Krebs indicates this month in her story on GM BuyPower, consumers in Taiwan are flocking to General Motors' Web site to buy new vehicles online. Inevitably, automakers will offer similar services in other emerging markets. It makes perfect sense in places such as China or India, where automakers have not yet built extensive networks of dealerships. As incomes rise, households in emerging markets will buy computers and gain access to the Internet. And this will happen at about the same time that these households start buying new cars.
It's a win-win situation for consumers and automakers. Consumers get lower prices, and automakers cut distribution costs. The sums involved are not trivial. In Taiwan, GM offers 10 percent discounts to customers who buy vehicles over the Internet. Meanwhile, GM estimates it has cut distribution and marketing costs by $1,000 per vehicle.
In the United States, a gaggle of buying services is promoting Internet car sales, with mixed results. Some companies offer to negotiate prices directly with customers, then obtain the vehicles from dealerships. Others simply refer consumers to participating dealers, who then negotiate the sale. In both cases, dealers control the supply of vehicles. In effect, the buying services are acting as middlemen, thus adding another layer to the sales process. This is not the way to trim fat from the distribution system.
There's no need to shed tears for the American consumer, however. Enterprising shoppers have access to vast amounts of online price data, which come in handy when they purchase vehicles at the dealership. Moreover, American consumers can obtain financing and insurance over the Web. But if you want to see how the Internet will change the public's car-buying habits, forget about the United States. Keep your eye on Taiwan.