Some Quick History

When automobile sales took off in the early 20th century, Henry Ford typified how factory orders were handled when demand overrode supply: "You can have any color you want — as long as it's black" he said.

Fast forward through the war years, baby boom, oil crisis, and the import raid, to recent auto sales. The factory inventory model varied widely until the last 20 years or so. In the 80's, factory or "book" orders became almost a thing of the past. Plain vanilla imports, "packages" with options bundled, made it more expeditious for the factories to produce cars and meet the seemingly ever increasing demand as quickly as possible.

Labor contracts compelled factories to keep the work force producing cars instead of idling crews they were obligated to pay during slower times. Consequently, dealers were asked to buy more and more vehicles as factories needed to pay bills. Margins dropped and many dealers would take "losers" to unload inventory.

The showroom staff no longer had time for the individual shopper's specific needs. Instead the staff had to focus on generating offers on existing stock, swapping, and otherwise moving the metal.

In my opinion those days may be over, perhaps for a long time, perhaps forever. The GM and Chrysler bankruptcies are now completed, and therefore some of the aforementioned economic pressures to bloat inventories are likely behind us as well, at least for now. Toyota just recalled 3.8 million vehicles. Ford recalled 4.5 million to replace a switch. Are mass production issues at the heart of large recalls? More brands are in market than ever before and we can expect this trend to continue. The ultimate result: consumer choice in the market will rise again.

Have It Your Way

In some other areas of commerce we've seen the pendulum swing back. Burger King cut into McDonald's share with a campaign that was built around making your burger your way. It was a similar supply trend opportunity that arose in the fast food space. "Craft" beers such as Sam Adams and imports dug into the advantage of the Big Three of beer, Bud, Miller, & Coors, when the same individualization dynamic of an otherwise straight cookie cutter product entered that space. Shopping trends, particularly in this emerging online world, have significantly shifted back toward a more specific product model. It always does.

Requiem for Saturn "A different kind of company"

How ironic that Saturn, shuttering soon, may have been ahead of its time and what might have been. Look at the premise Saturn was originally built on when conceived back in 1982:

• Small, inexpensive, fuel efficient cars
• UAW partnership
• Cutting edge factory design & materials
• Simple inventory model
• "No haggle" pricing
• Saturn sold EV-1 electric car in 1996

Crazy as it sounds, had they remained true to these first initiatives, Saturn might look like the prototype for factories with an Internet automotive sales model. I read back to those early days' ideas and thought, "Makes sense to me!"

GM eBay Deal

I was VERY interested in the execution of the much ballyhooed GM - eBay alliance to sell new car inventory. Tested and over. Thanks for the try, but it was like trying to thread a pass through a bunch of defenders, with no time left on the clock.

When eBay conceived of its "Local Market" product a few years back, I was involved in some of the discussions. I expressed my concerns. Initially, dealers successfully came to eBay's existing auction platform to sell pre-owned and a few new model launch vehicles. Now eBay was approaching dealers directly to list inventory. Expectations were high. However, eBay was ill-equipped to deal with all the mechanics of data feeds, pricing and listing procedures that would now fall on its shoulders. At the time, eBay , still had little automotive experience beyond basic dealer auctions.

GM's eBay shot was ultimately not much more than an inventory listing with a "Buy it Now" button and a "Make an Offer" button. Where was the financing coming from? What compelled a new car audience to shop there? Where were the user opinions and reviews? Was there anything unique? No. Even the essential eBay "feedback" mechanism, which is a cornerstone of the eBay model, was missing. This was due to a decision to reset all the dealer feedback to zero before the program started. Pristine feedback has always been an important indicator of success and a key consideration factor for shoppers when purchasing $20 t-shirts and knick knacks, but for car dealers — it was absolutely essential. Who is going to lay down $30K sight unseen with some bozo they have never heard of? eBay car shoppers had no insight into the dealership's practices, its history or reputation. We understand today how online reputation management is of the utmost importance and none was there. The low ball offers came in and very, very few sales were gained.

What Goes Around, Comes Around

"Virtual Showroom" "New Car Listings" "On-line Showroom"

Take a cursory glance around. There are literally THOUSANDS of vehicle configurations available to the public today. Between trim levels, option packages, engines, AWD/FWD/RWD, hybrids, clean diesel, and electrics again on the horizon, a Ford Fusion can be configured in hundreds of ways, a VW Jetta over 1,000 ways! What local dealer can even remotely begin to stock inventory to satisfy the selections available?

We KNOW that configuration shopping is done online and predominantly on sites like Edmunds.com. The overwhelming information, data and independent opinion available for all customer choices reside on third-party sites like Edmunds. To engage the new car shopper who wants to "build" and find his new car we need the "book". And the new "book" is online. Customers can configure and find the specific, or closest to, new car they are looking for in online inventories with the best build data available. Customers have expressed to Edmunds that information about where a specific car is located is imperative — even more so in a market that no longer has the supply dynamics that existed in past years. Depleted inventories and the abundance of choices have finally added urgency to the new car world again.

Days' Supply

Just as the automotive world began to unravel last year, certain segments were analyzed as having as much as 220 days' supply of new vehicles, normal being around 65 days' worth. Today's post-"clunker" average supply is down, around 30 days' worth, with Asian brands at 22 days'. These levels are at ALL TIME LOWS. People WILL search online for the car they want before going to a showroom that much more.

Even in pre-"clunker" times, inventory was always in the top five pages visited on dealer Web sites and consistently listed in the top five reasons people look online for cars. Don't confuse used car listings with new car listings. In used, it's all about the car. In new, it's about the car, the dealer and the deal. We've found that the consumer engagement dynamic for new car shoppers is radically different than on the used car side. Dealership closings and consolidations have made customers even more likely to travel beyond the local market to find what they are looking for. Remember, today, a customer CAN see for a thousand miles.

List or Don't List - Price or Don't Price

Early on, Web site companies recommended NOT displaying new car inventory online. Truth be told, the back-end systems to do so made costs prohibitive. Used car inventories could always be rendered through Autotrader, Cars.com, and the like, where the mechanics were less of an issue. Most new car management teams DID NOT want to land a customer on a car and price before the showroom, nor did they want to be exposed for not having what the customer wanted. This was the old school and it reigned supreme with most top GMs. They'd say, "Get me the customer, I'll get the car". They'd train salespeople, "Negotiate toward what we have, not what they want." That mentality just does not translate into this environment nor does it work for the savvy Internet shopper today. The alternative of not listing inventory is not an alternative. If you don't quote a price to an Internet customer, he'll assume you're the highest and/or just move on to the nearest Internet-friendly store.

The Future Is Now

I personalize everything in online marketing. The first thing I bought online was $25 worth of printer ink, next it was thousands of dollars in home appliance purchases. Most recently, it was a new Jeep Grand Cherokee for my wife. The model for a PURE transactional online experience for the auto shopper is getting closer, right? When I suggested that to a top Edmunds.com executive, after Edmunds was cited as best positioned for the future of U.S. online car sales, he corrected the theory and suggested that Edmunds would be a "facilitator" of auto sales at the dealer level, not a transactor. Maybe the GM - eBay trial proves him right on target.

The landscape has changed and will continue to evolve. Auto malls, like Driver's Village in Upstate NY, housing 24 new car brands and over 400 pre-owned cars, have begun to take shape here in North America, Brazil and in Eastern Europe. The sales facilitation starts online and is completed at the dealership. Having all the pieces of the puzzle together for properly marketing your new vehicles online takes time. Get started!

Edmunds has launched its New Car Inventory Listings program where customers can contact you directly on your new inventory. Early results have shown engagement rates as much as five times higher than the standard Dealer Locator. Closing rates are also substantially better and even a bit quicker.

Visit the Dealer Resource Center on Edmunds for more information. Or to get started immediately, you can download our Inventory Authorization form and fax it back to us at 310-309-6400.

Good Selling!

John Giamalvo, Director, Strategic Marketing
DealerInsight@edmunds.com