The motor industry will quite
happily spend hundreds of thousands of pounds refurbishing car
salesrooms but is more reluctant to invest online. This disparity
in outlay, Girish Gupta reports, has resulted in a poor web
presence, particularly when it comes to finance
marketing.
Go deeper with GlobalData
“Fantastic showroom. Do you mind me
asking how much this cost?”
“Just under £750,000 refurbished,”
the dealer replies.
“And how much did you spend on your
website?”
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By GlobalData“Well… the service manager’s
brother did it.”
This is the type of conversation
David White has heard all too often. A traditional showroom dealer
for much of his career, he became something of an evangelist for
online car retail 12 years ago, after successfully converting an
email query – a novelty at the time – into a sale.
Now he runs web design and advisory
firm motorcommerce.co.uk, based on the belief the UK auto industry
is still far behind the curve when it comes to an online presence.
Online finance marketing is particularly weak.
“Dealers’ customers are looking on
the web, so you have got to be there too – if you aren’t, you don’t
get a bite of the cherry,” says White, who claims his anecdote
about the amateurish websites used by professional car dealers is
typical of the industry.
Lagging behind
Car purchase enquiries through the
online channel have demonstrably increased over the last few years
– online car sales company Broadspeed Limited, for example, has
seen enquiries rise from roughly 1,000 a month in 2005 to just
under 20,000 a month in September 2010.
But web-based finance selling seems
to be struggling to catch up. The last few years have seen several
online brokerages emerge, such as contracthireandleasing.com, but
sites that sell finance alongside cars are still a rarity.
Internet-dedicated motor retailer
Autoquake thinks transparency is a major obstacle.
“There is an established way to
sell car finance offline in a dealership, which is relatively
non-transparent to the user and allows you to get relatively high
margins and high penetration,” says Autoquake vice-president and
co-founder Fredrik Skantze.
“When you do it on the internet,
you have to do it differently – it’s much more transparent and
people shop around,” Skantze continues. “You do have a big
advantage if you are a dealer, however, because you have the car –
if you can arrange a good finance deal, it’s much more convenient
for the customer to get both in the same place.
“We sell more and more finance
every year. I think we’re very good at selling cars; I think we’re
okay at selling finance. The process you apply online is very
different and that’s something we’re learning.”
Autoquake’s current finance
penetration is about 30% of a 1,000 car-per-month total, a figure
which Skantze hopes to increase to 40-45% in the coming years.
Nevertheless, this is still some way from the level of finance
penetration enjoyed in showrooms and forecourts, where traditional
dealers typically see up to 75% of car sales financed.
Online only
Even though they are exclusively
selling finance rather than cars as well, the online finance
brokerages agree that the process of selling finance online is very
different to the traditional process.
Car Loan 4U launched in 2006 and
has seen roughly a 30% rise in lending every year since, financing
£35m worth of vehicles in 2010.
Director James Wilkinson says: “I
think companies in the past have thought that going online is
similar to working as a traditional broker but have soon found out
it is vastly different. We have the advantage that it is all we
have ever known.”
He added starting the business just
a year before the credit crunch had made it easier for Car Loan 4U
to adapt to the new market.
“I think the way our business model
has evolved to cope is another key factor and makes us extremely
unique. We pride ourselves on customer service and conversion and
it seems to be paying dividends,” Wilkinson says.
He believed that the traditional
brokerage scene was “saturated” in 2006, and so made the leap
online.
“We saw it working the other way
around: letting customers have the opportunity to find the finance
before they find the car,” he says.
Professor Peter Cooke, of
Buckingham University’s Centre for Automotive Management, disagrees
on the potential for the online sales channel to sell both car
finance, and cars in general.
“The point of using the web is to
attract customers. It’s rare, however, that you can actually sell
to a customer online. In terms of used cars especially, people
certainly want to kick the tyres and sit in the vehicle,” he
says.
“People are learning to do their
research. They are also learning to use the comparison websites. In
many ways, this is not good from a dealership point of view because
these sites are going to come to a consumer with all sorts of fancy
finance deals which have rates better than the dealer could
provide. Needless to say, the dealer will lose margin on that.”
Getting in on the
auction
This view, however, is not shared
by many who consider themselves experts in selling goods online.
The behemoth of online selling is eBay, which was founded in 1995
before many car dealers had even heard of the
internet.
The online auctioneer realised the
potential for profit in the motor industry and launched eBay Motors
in 2003, after noting that users were already using the existing
model to buy and sell vehicles.
However, the usually innovative
company has stopped short of offering its own car finance scheme,
even though it is about to launch a partnership with its
advertising arm for financiers and insurance companies.
The new Motoring Services Partner
Centre currently presents a basic set of links to insurance
companies. There is no finance presence yet, although the company
says it is prepared for financiers to get in on the act.
Head of eBay Motors Europe Andrew
Hooks says: “At the moment there are quite a few insurance
providers on there but the long-term goal is to expand that beyond
insurance and vehicle checks into other services such as
finance.”
However, this caution in entering
the market is not due to its apparent volatile nature, says
Hooks.
“Our concern first and foremost is
ensuring our buyers and sellers have the best possible experience
of the site. As a result, as a company we have been historically a
little more reluctant to go forth into online advertising of
third-party products. The fact that we’re only entering the market
for this stuff now is more a reflection of that cautious approach
as opposed to any reflection of the market conditions.”
When, not if
Manufacturer-owned finance
providers have a particularly tough challenge in determining the
best strategy to pursue across their dealer networks, as there is
such disparity among dealers in terms of online finance sales
presence.
Volkswagen Financial Services head
of marketing Spencer Burnell says: “Retailers have mixed views –
some are advanced in their online finance offer, while some are
developing. There is still some resistance as they want complete
control of the customer interaction face to face.
“The small business user market
seems to be leading the way however, with retailers competing for
space with brokers to sell cars through contract hire offers. Many
retailers are selling a proportion of their volume nationwide in
this way.”
Volkswagen’s own research shows
that
77% of all car buyers use the web to research a new car purchase
before any other media and, on average, spend 17 hours online
before purchasing a car.
“The question that needs answering
is how quickly customer behaviours are changing from discussing and
buying at the retailer to wanting to do it themselves online, and
how quickly this will leave the current POS finance model exposed
to reduced penetration and income for the network. It looks like a
case of when, not if,” adds Burnell.
“We are studying this situation as
a matter of priority and will help guide the network and work with
them to turn this threat into the opportunity to increase the
finance penetration and income that we believe it represents.”
Simon Empson, managing director at
Broadspeed Limited, is sceptical, feeling that the transparency
issue will be an obstacle for captives.
“The manufacturers want to win the
maximum amount of finance business for themselves and they actively
don’t want to do that business online,” he says. “In my opinion,
they want the finance business on their terms, not subject to the
open market.
“Given that motor manufacturers
have spent the last ten years acting like King Canute against the
tide of the internet, it is remarkable that any new vehicle or
finance sales are booked or reserved online – in the end, only the
manufacturer or their franchised retailer can actually write out an
invoice or produce a finance deal.”
Logical
progression
While car finance seems the logical
progression for many car retailers to perfect, the initial hurdle
remains actually getting online, claims David White.
“The resistance among the old
school in the car industry is staggering. There are a lot of
smaller car dealers who still haven’t adopted the web; I firmly
believe that they will not be here soon as they will not be getting
enquiries. The days of a £200 advert in the local paper are
completely dead. You’ve got to have a web presence.”
White adds: “There are huge
opportunities for web-based car finance because people have got
used to buying cars online. This is the next stage I see for the
car finance industry and it’s quite exciting. The people we see
doing this are doing well, selling more cars.
“It’s fairly black and white. If
you’ve got one website that has an option to go through that
process and one that hasn’t, the one with that option is going to
stand a better chance of success.”
Even those finance providers who
have achieved good results over the past few years admit that they
are “scraping the surface”, as Wilkinson of Car Loans 4U
comments.
Much is to be learned, and rather than worrying about
price-comparison sites and
the ease of access to competition that the internet brings,
retailers with an eye online should be thinking of ways to show
how
they can add value beyond the offering of cheap rates.
