The Subprime Auto Report

On Tuesday the Cobalt Group and Yahoo put together an online webinar where they reviewed their 2007 Dealer eBusiness Performance Study.

The webinar lasted about one hour. Today I’m going to give you my notes from the hour long presentation. Tomorrow I’m going to start a discussion on what I see as the implications of the study for special finance managers and internet managers.

Disclaimer: I do not work for the Cobalt Group, Yahoo or Polk. I am not making any representations on their behalf. This post is just my take on their presentation. You can access the deck of slides from the webinar here.

Here Are My Notes from the Presentation:

There were two presenters: Kevin Root, Vice President of Applications and Services from the Cobalt Group and David Schwartz, the Local Category Director from Yahoo.

The 2007 study, according to Kevin, picks up where their 2005 study left off (I posted an overview of that study here: The 2005 Dealer eBusiness Performance Study).

Kevin began by highlighting the following talking points:

• Brand and dealership loyalty are diminishing - Customers have more choices and are using internet based tools to help them make their decisions.
• There are three filters that are emerging within the purchase funnel. In other words, customers run their decisions about purchasing a car through these filters. The filters are: The Pre-selection filter, The Engagement Filter and The Purchase Filter.
• The information for this study was pulled from two groups. These studies involved 550 vehicle shoppers and purchasers (all who visited dealers) and 1000 online vehicle shoppers that actually submitted leads. Also studied were 1 million leads from 1,140 dealerships representing 35 brands. They also mystery shopped 2100 dealerships representing 20 brands. Finally, they visited 20 of the top performing dealerships to pull best practices from them.

David Schwartz took over to talk about the Pre-selection filter. The point was made that almost all customers are internet shoppers first.

• 88% did research online before visiting the dealership
• 79% used a search engine to search first

He then spoke about the fact that customers are primarily using the dealership website to shop for cars. The dynamic is changing from the days when customer’s buying experiences were primarily offline. At that time, customers would call their local dealership and ask if a certain car was available (regardless of whether the car actually was there, they were often told it was in order to get them to come in). Now, twice as many go to a dealer based on their online experience.

However, the online experience does not replace the offline experience. Consumers, according to David, are still physically shopping about six dealerships, but they only visit one dealership per brand. Why is this? Negotiating price, as it is done online, can be done at home. Making a decision about brand, takes place at the dealership, where consumers only have to visit one store per brand. They drive the car and decide if they like that brand over the others they have driven.

Geographically, customers will drive more than 20 miles from home to purchase a car. The point, Schwartz says, is that online advertising increases the reach of dealers outside of their traditional Designated Market Area (in particular, pay per performance advertising).

How do consumers find and choose which dealership to visit? Neighborhood drive by’s and family and friends are the first two reasons. The next three sources are search engines, dealership websites and OEM websites. Search engine results are the primary online customer resource for awareness and selection.

Within the online experience of shoppers, their motivations for going online include, learning about makes and models, getting a feel for the dealership, finding buyer reviews on dealerships, locating neighborhood dealers, looking for special offers, exploring dealership inventory, and getting dealer addresses and driving directions. Websites that consumers are visiting in order to find this information include: search engines, dealer sites, OEM websites, 3rd party content sites and as a newly emerging source, social networking sites.

Of the consumers that did shop online, almost two-thirds submitted requests for price quotes. 67% submitted price quotes on dealership websites.

At this point, Kevin Root took over again to talk about the second filter, the Engagement Filter.

There are a lot of lost opportunities, the study found, because dealers are not handling the leads well. Of the one million leads that were analyzed for this study:

• 55% ended up converting into a purchase at a dealership
• only 10% purchased the car at the intended dealership (That’s up from 8% in the last report)
• only 23% of leads purchased the same brand that they said they were interested in when they submitted the lead

Here are the reasons performance on leads is subpar:

• only 68% of leads are responded to (30% of the leads are never responded to!)
• average response time is 5.4 hours. However, consumers defect after waiting 4 hours
• with respect to brand defection, 23% switched due to poor response time and poor handling of leads
• only 25% of consumers felt their questions were being answered
• 19% of dealers attempted to sell their brand to consumers with a good value presentation

Keven makes the point that more leads than ever are being sent to dealerships but that quality of response has flattened out. David Schwartz interjected to make the point that dealers are not committing additional resources to take up the increased lead flow in 2008. More leads are running through internet departments but the quality of response is decreasing, with the exception of the best performing dealers.

Kevin began to talk about the final part of the funnel: the Purchase Filter

According to the Cobalt report, dealer reputation is the newest influence on purchase behavior. Dealership reviews, like the rating guide that Yahoo includes in their geographic search result pages, are shaping how customers process their buying decisions. I’m not sure how they measured this, but their point is that shoppers who use the web would probably select the Lake City Toyota dealers over the Seattle store in the example below, due to their higher ratings.

According to the customers that they spoke with, 73% would be somewhat likely or very likely to use a review site to help them make a decision. Also, 58% of consumers would be somewhat likely or very likely to place their own comments on a review site like Yahoo’s. Here’s an example of some reviews for the dealer above:

Among those customers that visited a dealership review site, 21% changed dealer selection based on reviews, 23% changed brand selection based on reviews, 43% selected a dealer based on reviews, and 45% confirmed dealership selection based on reviews.

Kevin then showed a pie chart that showed that about 15% of consumers are posting comments on review sites, 86% are leaving postive comments.

David, spoke about a Brand Advocate Study, focusing on the impact of social media on consumer decisions. They were suprised, according to Rook, to see that positive comments outweighed negative. He felt that consumers that left comments had done a lot of research so were more confident in their decisions and feel more positive about their choices.

Kevin summarized the study with the following points:

• A dealership’s online presence is as important as their offline presence
• Shoppers make their buying decisions based on the quality of the dealers response. Consumers want transparency in that communication and want their questions answered
• Online review sites are being relied upon by consumers more than ever when they make their decisions. Dealers should invest in staff in order to grow their review base to use as an effective marketing tool.

Kevin then wrapped up the seminar and opened up the floor for questions.

First Question, regarding online review sites: “How do you recommend handling negative reviews from consumers? For example, customers who are ready to give a dealer a negative CSI score.”

David responded by saying that negative reviews can be used as a learning experience for dealers. Also these reviews are happening in real time, it gives dealers an opportunity to address the complaint and get the consumer to amend their review or recind it altogether. Basically negative reviews are an opportunity rather than a threat.

Second Question, also regarding dealer reviews: “How do we integrate dealer review information on dealer websites?”

Kevin highlighted the difference between reviews and testimonials, reviews being more real-time and objective due to the spontaneous nature of the interaction with the consumer. I think he was saying that the dealerships and the OEMs are still figuring out how to use reviews on their sites.

Third Question, regarding dealer review sites: “Do more reviews on rating sites make a difference?”

Basically, David said that yes, more reviews make a difference.

The moderator then said that someone had asked if dealers should ask consumers to leave positive reviews on rating sites. She said that yes they should do so.

The last question, frankly, I couldn’t understand because the moderator’s voice didn’t carry well. The answer, given by David, was that the leads used in the study did not include duplicates. He also stated that the only information they could provide was the time of the lead and the time of purchase, not anything more granular like APR information or if the consumers were offered pre-approvals in the lead communication (I’m confused by this one too).

That wrapped up the webinar.

In the next post, I’ll talk about what take-aways I feel are important to consider regarding the data that was accumulated by Cobalt in this report.

Have a great day.

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