Automotive online buying services have lost subscribers as dealers looked more to their own Web sites and to manufacturer sites for traffic.
But CarsDirect.com of Culver City, Calif., says it is adding dealer subscriptions on a daily basis.
CEO Bob Brisco tells Staff Reporter Donna Harris what has helped his company, which is not public, survive the industry shakeout and what opportunities there are for growth.
Many of the online buying services have lost dealer subscriptions, which are still their primary source of income. You have a subscription-based referral service in addition to the direct service. Have you seen any change in the level of subscriptions?
We average five new dealers a day.
How many dealers are involved in the direct service?
There is some overlap of dealers involved in the subscription service, but we have a total of 3,000.
Which business is bigger: the direct or the referral service?
It's about 50-50.
Where are these new dealers coming from? Other online buying services? Are we taking them from other people?
In some cases, yes, and in some cases, no.
Some are dealers who have not used a third-party buying service or are adding a service.
I think it's like traditional media. Dealers spend marketing money in lots of different places. In traditional media, they find their favorites.
Dealers find the buying services that bring them better close rates and use them as their core foundation.
What is your close ratio like?
We focus on our close ratio. According to J.D. Power and Associates, it is 20 percent.
A few of the manufacturers' Web sites are at that level, but most of the independents are lower.
I am seeing the market mature. We are seeing dealers still shift dollars from traditional media to the Internet.
Aside from subscription growth, what evidence do you have that dealers are investing more in the Internet?
The staff of dealers' Internet departments is greater than it was a year ago. This is a change that has been taking place over the last year or two.
The departments are almost 100 percent focused on new-vehicle sales, and they have only begun to contemplate used-vehicle sales.
How and why has the Internet sales force changed?
I think the nature of the department is changing and the people in the department are changing from two years ago.
Those people were viewed as experimental. You wouldn't have your best salespeople in the Internet department.
But the Internet department is turning out to be such a productive source of new business for dealers.
Not only are they spending more money (on staffing the department), but they are putting some of their best people in that department.
How are dealers paying their Internet sales force, on a percentage of gross?
I do not have specifics.
Dealers tend to pay lower commissions but (because of unit volume) came out the same or above traditional compensation plans.
How is the Internet sales force trained?
They are going to more training, learning how to handle Internet customers.
I think the training is different. For example, having salespeople quote a price over the phone used to be much less prevalent in the industry.
Now it is in the sales training. If you don't give a price over the phone, the other guy is. They have to know how to serve the Internet customer.
How does the productivity of the Internet sales force compare with the productivity of the conventional sales force?
An Internet salesperson averages about 15 to 18 vehicles per month, whereas a traditional showroom salesman averages about 10 to 12 vehicles a month.
We've also seen compensation in the Internet department change. There's been a shift from the traditional compensation of percentage of gross profit to some combination of unit count and CSI score.
But isn't the Internet just another advertising medium?
It is another advertising medium, but it has interactive characteristics that make it different.
There is a need for multimedia campaigns to reach everybody in a city. In San Francisco, for example, you can't advertise in one newspaper or one radio show.
You have to have a multimedia campaign over a period of time.
The Internet is a very concentrated way to reach people. It is an efficient way to reach a concentrated number of people.
Now, more than 60 percent of people use the Internet to do their research before buying a car. It's done on five or six different sites.
The other advertising channels are broadcast models. If you offer 0 percent financing, you broadcast to everyone. But with the Internet model, people are inviting the message in.
We are probably 10 times more efficient than traditional media.
We know what vehicle comparisons people make, and we can know whether incentives are working immediately.
How do you turn that into an advantage?
We solicit feedback from 100 percent of our customers about the dealer and figure out what the dealer should be doing to reach (what we have determined to be) best practices.
We share that with the dealers. We also use consumer research to see what we can improve on our own Web site.
How have you improved your Web site?
We put more research tools (for automotive shoppers) on the site and much deeper research tools. So now customers can compare which cars have which safety features. The site is more valuable to the consumers and to the dealers.
The big push we have had is pricing. We are the only Internet site that offers an up-front guaranteed price on our direct service.
What's changed about that is the level of activity on incentives and rebates from the manufacturers. They change at a more rapid rate.
We are the only site that gets as specific as we do - by ZIP code, make and model, and what incentives are available today on a real-time basis.
A few sites do that nationally, but no one is calibrating pricing on a local level.
We are in the direct business, so we know (what the local incentives are).
We are able to refine our data. It's really causing our traffic to surge.
Are you profitable yet?
We are a private company and will not say whether or not we are profitable.
But we have more than $100 million in cash reserves, and that number is not changing. That tells you something.
Do you think the dust has settled in the dot-com shakeout?
I think the Internet business has stabilized.
There are a couple of leaders in various segments of the market.
For example, Kelley (kbb.com) and Edmunds (edmunds.com) are leaders in offering consumer research tools.
There is a trend to offer one-stop shopping. People (third-party services) are building up their sites.
We have a direct buying service, a new-car referral service, a used-car referral service, private party advertising for used cars, OEM advertising and research tools.
We also have a company that develops content and IT services for manufacturers and other Web sites.
Will there be any more dot-com fallout?
There may be some consolidation in the next couple years.
Some mergers could take place, but I don't expect anything to alter the landscape very much.
The reason is that collectively these automotive markets are big enough to support a fair number of profitable players.
Where is there room for growth?
More people are shopping for used cars online.
It's probably because everybody got digital cameras for Christmas and they can put those pictures online.
The software they have to produce digital images is much simpler. Pictures help sell used cars.