In every market touched by the Internet, traditional business models have had to adapt or die. Especially where sellers had been able to make big markups based on information asymmetry and control of local distribution. They were astounded when Internet-savvy consumers came in with their own data on quality, costs and prices. And they agonized when new online competitors from faraway places emerged to challenge their local market dominance.
Market middlemen who cling to old ways are headed for the dustbin of business history. Just consider a few examples:
- Online travel sites lifted the curtain on the mysterious world of booking airline seats and hotel rooms. Travel agents who add real value for customers are soaring, but those who just book flights have crashed and burned.
- Optometrists used to make big bucks marking-up contact lenses to their patients. But those markups disappeared in the blink of an eye once consumers could buy their lenses online. Optometrists who saw this coming focused on their services and helped patients find the best deals on lenses.
- Ticket brokers who believe they alone should control secondary markets for sports and concert seats are finding themselves on sidelines as ticket holders turn to the Internet to sell seats they can’t use.
- Real estate agents are finding fewer homeowners are still willing to pay a $30,000 commission to sell a $500,000 home, especially when Internet-savvy buyers do most of their own legwork using online real estate sites.
Now, the Internet is happening to auto dealers too.
As we emerge from this long, awful recession, there’s a lot of pent-up demand for new cars. America’s car industry sold nearly 13 million vehicles last year, up 10 percent over 2010. The number of auto dealers actually rose in the first half of 2011 — for the first time in many years.
70 percent of consumers use the Internet to help them buy a car.
But are more dealers really what’s going to help American consumers buy more cars? According to a 2011 study, 70 percent of consumers use the Internet to help them buy a car. Websites like Kbb.com and Edmunds.com provide loads of data on car costs, retail prices, quality, and features.
Some dealers are catering to Internet buyers, by posting their own websites, buying qualified leads from lenders like Capital One, or providing guaranteed discounts through websites like TrueCar.com.
But a lot of car salesmen hate dealing with informed buyers and competing based on price. They want to stick with the old ways, where consumers were in the dark as they entered the dealer showroom. You know the drill — a salesman begins the price negotiation with manufacturer’s suggested retail price, and ends with the buyer wondering whether he paid anything close to a market-based price.
Well, the Internet genie isn’t going back in the bottle. And the Internet generation won’t go back to the old days of ignorance. Like it or not, tomorrow’s car buyers will be armed with information about dealer invoice cost and what others paid for the same car. And these buyers will use social networks to learn how other consumers feel about a dealership’s service department.
Therein lies the good news for dealers: most car buyers make their decision based on factors other than simply price. These buyers also care about dealership location, service facilities, and reputation.
The challenge for the best dealers is how to get the word out about their outstanding service and stellar reputation, since that’s the way to attract qualified and well-informed consumers who will become long-term service customers and repeat buyers.
It’s time for America’s auto dealers to decide how they want to drive on the information superhighway: grab the steering wheel and press the accelerator … or just crawl into the back seat and be taken for a ride.