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November 8, 1997

Net-Savvy Shoppers Driving Off With Bargains
By MATT RICHTEL Bio
 SAN FRANCISCO — If you only could have seen the dealer's face when Sean Meighan walked off the Dodge lot.


Illustration: Christine M. Thompson / CyberTimes
The sticker price on the 1998 Caravan read $34,000. Meighan countered with a seemingly audacious $25,000, but he came armed — he had downloaded the dealer's cost on the van from the Internet, including a list and price of all his desired features. Plus, he had already solicited a $25,000 quote via e-mail from a competitor an hour away.

"The dealer walked away with this ream of paper," Meighan said, referring to the downloaded documentation. "He was kind of muttering to himself."

Memo to dealers: get used to it. While the phenomenon still is in its infancy, car consumers increasingly are wielding a wealth of information found on the Internet to subvert the hassle of car buying and improve their own bottom line. They also are enlisting help from free online services that not only negotiate prices ahead of time with dealers, but, in one case, pit dealers against one another to find the lowest price.

This story is not all bad news for dealers, though. In fact, a growing number of them contend that for those dealers who know how to use it, the Internet can be a boon. They say that the medium can lead to lower costs because it is an inexpensive way to market and because it cuts the time needed to close a deal.

Manufacturers too are pushing their dealers online, and even are offering dealers free Web pages. Toyota Motor Sales U.S.A. Inc. reportedly is instructing dealers on Web marketing. General Motors offers dealers free home pages, and this week launched "GM BuyPower," which lets customers get price quotes from local dealers. Chrysler is testing a similar price-quote feature in Maryland and California.

"I wouldn't call it an overwhelming consumer move yet, but down the road, a substantial amount of business will be initiated over the Internet, even if it is ultimately consummated in the dealership," said Steven A. Porok, executive director of sales and marketing operations at the Chrysler Corp.

Porok said that, at most, 5 percent of car buyers are using the Web to get information. However, several recent studies affirm that the number is growing steadily. The National Automobile Dealers Association found that dealers with Web sites sell 5 cars a month on average over the Internet — double the number a year ago. JD Powers & Associates, meanwhile, reports that this year 1.5 million new vehicle buyers will use an online shopping service to help find a car.

Ultimately, some observers say the Internet may help change the car buying experience, which, thanks to the element of haggling and uncertainty, has been like few other retail experiences. "Car customers are saying they're tired of the old process, and they're mad as hell and not going to take it any more," said Peter Ellis, founder of an Internet car buying service called Auto-By-Tel. "They're mad about negotiation, mad about deceptive practices, mad about the time it takes to buy a car."

He added that the Internet has begun to force dealers to treat customers better or risk losing business. "The Internet has started to Saturnize the rest of the car dealers," he said.

This is a story with a lot of money at stake, and the traditional method of car buying in the balance. As such, it has a number of subplots, as Meighan's quest for a new car illustrates.

The manager at Sun Microsystems knew that he wanted a van, but he hadn't settled on the make or model. He first visited Edmund's online site. It is among a handful of sites, including Kelley Blue Book and AutoVantage Car Buying, that provide information about new and used cars. The sites, to varying degrees, describe available features, cost to dealers, incentives and rebates, and even offer links to services that provide financing online.

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When Meighan ultimately settled on a Dodge Caravan, Edmund's then gave him an option to get a price quote on the car from a local dealer. Meighan accepted by clicking on an icon, and Edmund's sent his request to Auto-By-Tel, which is the largest of the online auto buying services.

Started in 1995 by Ellis, a former car salesman, Auto-By-Tel, based in Irvine, Ca., says it makes 75,000 referrals a month to 2,300 dealers nationwide. The service is free to consumers. Dealers, on the other hand, pay between $6,000 and $36,000 a year to list their cars. Ellis argues the fee is nominal for car dealers, who he says otherwise spend $250 to $300 on marketing for every car they sell through traditional means.

Some dealers clearly are sold on the concept, as evidenced by the number of participants. Others, though, question its cost effectiveness, and are striking out alone or are affiliating with Auto-By-Tel's competition.

Auto-By-Tel faces stiffening competition from AutoVantage, owned by CUC International Inc., and CarPoint, which is owned by Microsoft. The services claim to have different advantages and they don't always have the nicest things to say about one another. This is, after all, the car selling business.

AutoVantage, based in Stamford, Conn., reports that it works with 1,000 dealerships nationwide and refers 30,000 customers each month. The service also is free to consumers, but it charges dealers $6,000 to $9,000 a year. Ken Esterow, a vice president of AutoVantage, said one study found that the service saves consumers 8 percent of the sticker price.

Another service, AutoWeb, based in Santa Clara, Calif., will arrange to have a car delivered to a customer's home or office for a test drive. The company boasts a network of more than 1,000 dealers in 38 states and Canada and claims to have 15,000,000 visits and 60,000 purchase requests a month.

CarPoint also is free to consumers. It charges dealers $12,000 to $14,000 a year to list used cars and $14,400 to $19,200 to list new cars. Also, when CarPoint refers a customer to a dealer, it requires the dealer to quote its "bottom line." CarPoint says it is strict in this policy, and has a "three strikes you're out" clause for dealers that do not comply.

"What we're trying to do is trying to take the haggling out of car buying and streamline the process," said Esterow, echoing a view from his competitors. "Today's consumer is much more informed and knowledgeable."

In Meighan's case, he not only knew the dealer price from the Internet, but he also learned the features he wanted, and he knew the Dodge factory nomenclature for them. For instance, he knew that CYR stood for deluxe seating package, and he learned what the upgrade costs.

Stuart Draper, a salesman at South San Francisco's Serramonte Auto Plaza, where Meighan was referred by Auto-By-Tel, said the situation is not unusual. "Every time you call a customer from the Internet, it's a challenge," said Draper. "They get so much information from the Net and they have much more technical questions — what's the curb weight, the towing capacity? You need to be able to answer every question."

Meighan's sophistication didn't surprise Serramonte. It has been among the early adopters of the Internet among dealers. In fact, it has devoted a portion of its fleet staff to deal specifically with online car buyers. It has sold up to 60 cars a month from online referrals, according to Bob Giarrusso, director of fleet and Internet sales. Giarrusso said that while the dealer does not earn as much on commissions, it does a big volume on the Internet and with less time involved in each sale.

Knowing that Meighan probably had done his homework, Serramonte also didn't bother to give him a sky-high price. He planned to settle on a price of a little higher than $25,000 for his van. The dealership unilaterally offered him a lower price — about $200 lower than he expected to pay. "I was prepared to give them $700 over invoice," Meighan said. "They offered me $500."

He still had to pick out the color, though. So Meighan went to a Dodge dealer closer to his home — a dealer that clearly had far fewer dealings with the Internet. This was the dealer that offered the same van for $34,000, and then seemed dumfounded by information Meighan had downloaded. "The dealer was like, 'how did Serramonte get on the Net,' " Meighan said. "They weren't aware of the Internet much at all."

According to the NADA, 50 percent of dealers have sites and 70 percent will have them up in the next six months. However, this doesn't mean that dealers are using them effectively. Geoffrey Barker, co-CEO of The Cobalt Group Inc., which builds Web pages for thousands of car dealerships, said many of the dealers have no idea how to capitalize on the technology. "The ones who are good put their URL in the newspaper or on their business cards," Barker said. "But most of them don't even have e-mail."

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Matt Richtel at mrichtel@nytimes.com welcomes your comments and suggestions.


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