It is everywhere. Visit a car website – and banners follow you, get an email with anything car related mentioned – and ads will be on the side of the screen. They are even on TV – Vehix, TrueCar, Autotrader. Hundreds of websites - dealersecrets.com, whypaysticker.com, carbargainsweekly.com, prettymuchanythingrelatedtocars.org. Anything to make you go to their website, pick a car, any car, and give them your email address. In exchange – you are going to get that super-secret deal that suckers don’t know about, and you will get that extra hard-to-get car for nothing. The truth? You know it, if it is too good to be true – it isn’t. So why do they do it, and what is in it for them? Money of course, and you are going to pay, either directly, through dealer, or at the least – by loss of privacy.
Let’s see how they do it, and how they differ from each other.
The oldest business model is a third party lead provider. Any website that is not run by a dealer or the manufacturer that offers you a free quote – will sell your information to any number of dealers and manufacturers, charging them average of $20 per lead.
Let’s play with some statistics and numbers: the closing ratio for Internet Sales varies from 3% to 15%, depending on a dealer and a method of measuring. Let’s say the nation average is 6%. This means that out of 100 Internet inquiries that a dealer gets – he will sell 6 vehicles. The going rate for third party lead is $20, so to sell 6 cars – a dealer will spend $2,000, or $333 per vehicle. Now what kind of pricing a shopper will expect going to a whypaysticker.com? I am going to guess that he is not expecting to pay $2,000 dealer mark-up, and more likely – he/she is going for that super-secret below invoice insider deal. So who is going to pay the $333? Anybody? The answer is simple – we do. You and I. The cost has to be added to the price of the car or service, and passed along to the buyer, there is no other way to get it.
There is one more aspect to third party leads: you don’t know what you do or don’t get. Let’s say, you are interested in a new Cadillac, you submitted a quote request through a random website, and you sit patiently by your computer waiting for useful pricing information. But your local dealer decided not to buy leads from that provider anymore, and so did two other dealers in the area. At the same time Audi dealer in your town decided to expand his business and started to buy all luxury car leads from this provider. So as a result – you don’t get what you asked for, and you get bombarded with emails and calls about something you have no interest in.
Another way some websites are trying to make money is to charge dealers by territory. One example would be Edmunds.com. Their salespeople sell territories to dealers, and for one monthly fee a dealer will get all leads from designated territory, and he will be advertised by Edmunds as a “Premium dealer”. You can still ask for to be contacted by a specific dealer closer to you, but again, no response will come, because your dealer did not pay a monthly fee, and the dealer that does contact you might be up to a 100 miles away.
One website became popular lately, and it deserves special attention – Truecar.com. The website claims to know how much others paid for a specific vehicle, and they tell you what would be a decent deal, and what would be a great deal on a car. Validity of their information aside, their business model is more important. This website is a part of company called ZAG, which includes a lot of other sites, and most “closed networks”, which I will discuss later. Their charge structure changes all the time, but it is more or less a monthly fee to a dealer. What is more troubling is that they require full access to a dealer’s data management system as a condition for getting their leads. Their reasoning is that they need to know if someone who used their site bought a vehicle from a specific dealer. Reality is that they have access to information about ALL clients of that dealer. Let’s me explain what it means again: if you bought a car from a dealer near you – a third party company will have your name, address, phone, email, VIN of your car, financial information – even if you did not use the website. Many dealers decided not to use ZAG for this reason only.
Now we came to the subject of closed networks. A closed network is any website that is open to a limited number of users, either by association or by subscription. Examples are: Costco, USAA, Consumer Reports, American Express, Geico and dozen of others. Majority of them are part of ZAG network (with all privacy issues I mentioned above), and pretty much the only one that stands alone is Costco.
So here is how ZAG works: a dealer is required to set a selling price of every model relative to dealer invoice, for example, $500 above invoice. When a dealer does that – he can also see how competitive his price is relative to other dealers in the area. When you request a quote from that dealer – ZAG automatically will give you that price regardless of whether a dealer even has this car or a specific configuration in stock. Also a dealer sets a price differential for a closed network – up to $300. This means that if we set a price for a model as $500 above invoice – a closed network member, such as USAA, will get a price $300 lower than a Truecar visitor.
The last one stands independently – Costco. This is a mix between territory model and a “closed network”, even though I don’t know anyone that doesn’t have a Costco membership or can get access to one quickly. They charge dealers per month regardless of number of inquiries, but they will take only one dealer per region. Just like ZAG they require dealers to pre-set pricing, but dealers don’t have to give pricing via email or phone, all they have to do per Costco agreement is to contact a member, schedule an appointment and to show the pricing sheet in person.
So, as you can see, all these services have one thing in common: they are trying to maximize profit by using you as a product they sell to dealers. When they claim that a certain dealer is “preferred”, “chosen”, “premium” – all this means is that this dealer has agreed to pay. These websites are not liable for anything – there is small print and disclaimers everywhere. If they promise something, and the dealer does not deliver – there will be no consequences to service or dealer.
Now what? Do you have to forget about the Internet and visit dealers in person, spending hours, playing games? Absolutely not. First, you can contact them directly – either through the manufacturer or the dealer’s website. This way you can be sure they you will get a response, and there will be no middleman. Second, nothing can beat a personal connection. When we – car sales professionals – shop for a car that is not on our lot, first thing we check is do we know anyone that works there? If we don’t – can we get introduced through a referral? A referral guarantees you that you will get personal attention, great service and a fair price. Here is how we rate our own clients: repeat clients are first priority, and referrals are second. Someone that send a random inquiry through a random site and put a wrong phone numbers will be on the bottom. Like poker players – we play the big cards. The probability of a sale to a repeat/referral is in high double digits (like 80%), while Internet inquiries are below 10%. Which pair would you play?
Another aspect is the mindset. Do you want to create a long-lasting, mutually beneficial relationship between you and the dealer, or do you want to “beat” him, “win”, prove something? Remember, you get more bees with honey, but if you push – you create an equal force of resistance. You will buy one car every 3 years, they sell cars every day.
In conclusion, do your research, find someone you trust to deal with, and enjoy the ride!