Automotive News, in its March 22^nd issue, reported that expenses lowered dealer profit margins on new vehicle sales by 2.8% to $1,488 per unit last year.  With increased competition in the marketplace, dealers have funneled even more money into advertising in an effort to gain consumers’ attention.  Last year it cost about $495 in traditional advertising to sell one car. Today that number has climbed by 15.3% to $585. This is great news for ad agencies and the mediums that sell advertising space, but not so great news for dealers. 

The Competitive Edge

The silver lining in the cloud is – you guessed it – Internet sales. Dealers with solid Internet strategies are still doing phenomenally well, despite the cutthroat market.  With Internet leads, the cost per vehicle sold still hovers around $200.  Even the argument that Internet sales yield lower grosses than non-Internet sales doesn’t faze the best Internet dealers.  Galpin Motors, for one, is doing more Internet business than ever and has a clearly defined strategy in place to keep profit margins high on its Internet sales.  (See “Maximize Your Internet Gross,” reprinted in this issue of the Dealix Dealer Newsletter and also published in the January ‘04 issue of Dealer Marketing Magazine.) 

All in all, 15%-30% of these proactive Internet dealers’ sales are as a result of Internet leads. And they’re using this channel in a way that keeps profit margins up.  At Forrester Research’s 2004 Automotive Workshop, Gary Marcotte, vice president of new vehicle and e-commerce operations at AutoNation, said that dealer group generates about 25% of its sales from the Internet, at a cost that is significantly lower than traditional customer acquisition costs.

Another of the leading dealer groups, Group 1 Automotive, announced similar results.  E-commerce director Greg Besson recently conducted a national e-business workshop that included the best of Group 1’s Internet dealers from around the country.  Raising the bar on its Internet sales, the theme at the workshop was to increase  the percentage of Group 1’s overall sales from the Internet to 20% by the end of 2004.  Besson stated that he was confident that by the end of Q1 ‘04, the Internet would account for 14%-15% of all sales.

Hendrick Automotive is another leading dealer group that has its eye on the ball.  Hendrick’s e-commerce director, Mathew Belk, can be credited with setting an industry benchmark that 20% of all sales should be generated from Internet leads this year. Working with the three leading aggregators - Dealix, Autobytel, and AutoUSA, Belk sees no reason why other dealerships can’t hit this goal. 

Another high caliber dealer group, Wolfe Automotive, is extremely focused on the Internet channel.  Mark Vickery, Wolfe’s Internet director, says his dealer group gets leads that are generated from both its own site and third party lead aggregators.  Wolfe’s has been an amazing success story: over the past year, Wolfe has gone from 30 Internet sales per month to 300. 

Don Graff, director of e-commerce for Flemington Car and Truck Company attributes 24% of his dealerships' overall sales to the Internet.

Individual dealerships are keeping pace with the big dealer groups by employing aggressive Internet strategies and fighting the current assault on profit margins.  Courtesy Chevrolet in Phoenix, Arizona has increased its Internet sales to over 40% of all retail sales, propelling it to become the number two Chevrolet dealership in the US.  
 

For dealers looking to reduce advertising expenditures while keeping unit sales up, capturing consumers who are in the market for a car at the first place they go – the Internet – is the key.  The tide has turned in the way dealers sell cars.  Those dealers that have a strong Internet strategy in place are in the best position to keep sales up and expenses under control.