Posted By Clod on March 29, 2011
But for the $186 billion automaker, this rearrangement of a company marketing and sales cornerstone not only is a radical move but also has been a major — and sometimes painful — learning exercise. The initiative, which goes well beyond the online efforts of any other American automobile manufacturer (no other automaker allows you to search dealer inventory or does extensive vehicle comparisons that include price), sent shock waves through GM’s network of 8,100 U.S. dealers. Sure, it would provide a source of customer leads, but some dealers didn’t want any old joker with a PC to know what they had (or didn’t have) in stock.
And they didn’t like the idea of giving consumers the knowledge to help shave dollars off already slim margins. (Dealer profits on new cars are down to an average of $300 before discount, and new-car sales sometimes are a loss leader for selling financing and servicing.) Some dealers even saw it as a way to use computers to put small-inventory dealers out of business. Just 60 percent of the dealers in GM’s four BuyPower states signed up for the program.
Some analysts feel that GM is kidding itself if it thinks that shoppers will come to GM BuyPower to comparison shop. Says Oleg Khaykin, a manager in the Boston Consulting Group’s Chicago office: “It’s kind of naive.”
GM BuyPower provides the perfect illustration of how the Internet is upending sales channels and frustrating mature industrial corporations in the process. Auto-By-Tel, AutoVantage, CarPont, and other independent auto agents made a lot of friends, because they made it easy for consumers to electronically comparison shop and buy a vehicle — including a GM car. Independents point customers to contracted dealers who typically pay a fee for geographic exclusivity. In the case of Autoweb.com, which has been in operation since 1994, dealers pay $29 for each lead generated by the online service. The new marketmakers were in a position to write their own rules, and they showed the sort of entrepreneurial initiative that one doesn’t associate with the Big Three automakers.
The independents also created a new level of competition. Not only do they represent competing manufacturers and take a slice of the profit for themselves, but they also offer something for which consumers have long clamored. In survey after survey, haggling with salespeople over the cost of a vehicle ranks right above a root canal on the personal enjoyment scale. Now, alternatives are as close at hand as the family PC.
In the opinion of Frank Infelise, associate partner at Andersen Consulting’s strategic services group, “You have to give GM kudos for what they’ve done. But the big question is, what happens next? In addition to enabling customers to buy cars online, they could be using the Internet to reduce costs in back-end processes, such as inventory stocking costs and consumer and dealer incentives to move cars.”
Moreover, the Net had put GM and the other automakers in a humbling, sticky position. Not only must they play catch-up, but their dealers must prove to increasingly sophisticated consumers that they are, well, honest. Why? The Internet had suddenly made it easy for car shoppers to do their homework, to log onto the Kelley Blue Book site, for example, and learn the current dealer invoice for a particular model. They could then stride into a showroom with a printout and start negotiating up from the price the dealer paid for the vehicle, instead of trying to haggle down from the manufacturer’s suggested retail price. And shoppers could, in just minutes, obtain cost comparisons for vehicles from a host of manufacturers, or learn up-to-the-microsecond details about such vaguely known hallmarks of dealer profit structure as manufacturers’ holdbacks.
Intentional or not, GM BuyPower is likely to help GM in the industry’s long-standing dream of consolidation. It’s generally recognized that the nation’s nearly 23,000-member network of auto dealerships is bloated and cost-inefficient for their manufacturers. With the U.S. auto market stagnant at 15 million cars a year, there are simply too many dealers chasing too few buyers. Some analysts estimate that when the number gets down in the 9,000- to 12,000-dealer range, manufacturers will be in a position to trim what they spend on distribution, which now represents about 15 percent of all costs.
Already, the industry is consolidating through the efforts of such superdealers as H. Wayne Huizenga, the Blockbuster Entertainment founder who in the past 18 months has amassed 300 new-vehicle dealerships in his Fort Lauderdale, Fla.-based Republic Industries, which is the nation’s largest automotive retailer. The Internet strategy will intensify the consolidation movement. “I don’t know if GM is doing this consciously or not, but the effect will be that marginal dealerships will go out of business,” says Khaykin. “If they’re hanging on by a thread, it cuts the thread.”