The Internet was expected to dramatically change the way we buy and sell new cars by offering consumers better information and the opportunity to be in control of the process, and, by extension, giving dealers a more effective, targeted channel for finding buyers. But what's emerged instead is quite different.
It's a system based on withholding the main thing consumers want—a bottom-line price quote—and turning the request for that quote into a commodity for sale.
Certainly consumers have access to robust, anonymous, almost-perfect product information online. According to the 2007 Dealer eBusiness Performance Study: The New Buying Influences by the Cobalt Group, Yahoo, and R.L. Polk & Co., 83% of consumers use the Web for research before visiting a dealership. And J.D. Power and Associates says 89% of those online car shoppers use a search engine during their buying process.
But, in most cases, to get a price quote—or, more accurately, the promise of a price quote—they're forced to submit their contact information to third-party (lead-generation) websites, which turn around and sell it to multiple dealers in the form of a lead.
The No. 1 frustration people generally have when shopping at a dealership is the pressure they feel from the salesperson. Lead generation magnifies that problem in every case because the very thing that customers are looking to avoid, or to at least gain an advantage over—the salesperson—not only still has the advantage but also has their personal contact information and can pursue them at home. The salesperson has now been invited to chase consumers in larger numbers.
In this case, then, neither the consumer nor the dealer makes out. In the auto-retailing space, the truth is that the only winners, consistently, are the automotive lead-generation websites.
How is it that the dealer loses? Lead generation is flawed for dealers because it's the opposite of targeted. Given that nearly all car shoppers are using the Web to gain access to product information, the mere fact that someone asks for a price is no longer a leading indicator of who's actually in the market to purchase a car soon.
What's more, the lead-generation business is predicated on driving the highest quantity of leads to dealerships without regard to whether those leads become sales. The lead generator must sell more leads to more dealers to make money—but that's also what's devaluing the leads and driving down prices (and profits).
Scott Painter is founder and CEO of Zag (www.zag.com ), which operates an online no-haggle car-buying platform that connects ready buyers with certified dealers.