Can dealerships make money selling cars online?
It is one of the questions I get asked the most at Internet-related conferences. I find it surprising how many dealers still think Internet sales either are not as profitable as the so-called traditional sale, or worse, they lose money.
The reality is there are many dealers who are making a lot of money from their Internet departments. The real question is not “Can we make money?” but “How can we make money?”
To get some answers, I talked to three Internet managers from this year’s Ward's e-Dealer 100: Ashley Antonio from Paragon Honda in Queens, NY; Rick Kellogg with Bill Fox Chevrolet in Rochester Hills, MI (outside Detroit); and Sidney Haider with Galpin Motors in North Hills, CA. (The conversation is part of a Ward's podcast that can be heard in its entirety by clicking wardsdealer.com/podcasts/edealer100 )
According to Kellogg, it was common six or seven years ago, while Internet automotive retail was in the early stages, to think of Internet customers as being “mooches.”
“That has changed a lot,” he says. “But luckily for me, most of my competition still isn’t paying attention to the Internet.”
Antonio says the management at Paragon Honda was guilty of thinking the same way.
“We would think, ‘Oh no!’ High grief and low grosses – we don’t want to deal with that. But that obviously was a myth,” she says.
Now Paragon will make anywhere from $5,000 to $8,000 per sale. Antonio says her highest grosses come from deals generated by third-party sites.
Paragon set up a customer relationship center (CRC) with BZ Results to handle the leads. Once a lead comes in, the CRC tries to get the prospect on the phone immediately to set up a test drive. Pricing is provided right away, but there is an important distinction, Antonio says.
“We’ll provide a price. Usually it is a certain percentage over the invoice price. But we never provide a payment price because you never know what position the customer is in,” she says.
At that point, the sales staff takes over. It is important to get everyone involved with sales to buy into the dealership’s Internet pricing strategy, Antonio says. “Make it part of your culture,” she says.
Also important is that the sales people actually work the deals.
“And that includes up-selling accessories,” says Antonio. “It comes down to your staff being true sales people and not settling for the low-hanging fruit.”
Located in the Detroit market, Kellogg says much of pricing is fixed for Bill Fox Chevrolet due to employee pricing programs. So most of his customers know what they want before they even contact the dealership. In fact, in most cases, the deal is done before the customer comes to the dealership.
Because of that, the back-end grosses, especially in areas of finance and insurance, are not as high as they could be.
“It is a little harder to increase the back-end with that scenario,” Kellogg says. “The F&I manager doesn’t have a lot of bullets left by the time the customer comes into the store.”
Still, there is money to be made on the front end of the deal. It takes some creative advertising on our website, says Kellogg. Every vehicle has the manufacturer suggested retail price and the invoice price listed online.
“I’d rather the customer get that information from us than sites like Edmunds.com, which usually get it wrong,” he says.
Kellogg plasters his website with specials, and usually those specials advertise the base model in a stick shift.
More often than not, the customer decides to upgrade, which leads to higher grosses.
“You have to work the deal smart, but you still have to be honest,” Kellogg says. “You have to be cognizant that you may not be the only dealer talking to the customer.”
According to Haider, many of Galpin’s competitors still operate with the philosophy that the Internet customer is shopping only price. Galpin moved away from that strategy several years ago and has opted to sell the dealership experience and treat customers right.
“If you deal with them professionally, customers will let you make a profit,” he says.
Still, Galpin does not let the customer control the sales process. Once that lead comes in, the Internet staff tries to get the prospect on the phone right away.
“We don’t let the customer determine or tell us what the sales process is,” he says. “It is our job to guide the customer.”
Galpin, one of the world’s best-selling dealer groups, stocks as many as 4,000 vehicles in inventory to provide customers a choice.
“A true salesperson today is a consultant providing choices,” Haider says. “Choice selling always improves the grosses. We get extremely high grosses on vehicles we have that our competition doesn’t.”