Friend or Foe?

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Some argue third party lead brokers could disrupt dealers by developing direct relations with their customers. Others say they are a valuable and necessary part of the auto retail ecosystem. Canadian auto dealer explores the topic.

Third-party consumer sites are often called “disruptors,” and there’s no doubt they have definitely — and sometimes defiantly — changed the auto landscape. But rather than view them as competitors, many dealers are using them to complement their businesses.

Encompassing new or used vehicles, or both, they include such companies as Unhaggle, Canadian Black Book, Canada Drives, CarGurus, AutoTrader, and Kijiji, among others, reaching out to consumers and then selling those leads.

“The customer journey has moved online,” says Andrew Tai, CEO of Unhaggle. “We found that dealers need better ways to engage (customers) beyond the traditional channels, such as print or radio. Most dealers just spend on Google AdWords or online display ads, and we find that these have limited effectiveness.”

Unhaggle advertises that it helps buyers find cars “without the hassle of negotiating with car dealers,” which may come across as negative. But Tai defends it and says his company presents dealers in a positive light. “We’re recognizing that most customers don’t like negotiating, and we want to provide tools and data that make it easier for both sides,” he says, referencing a JD Power survey that found one in three shoppers believed dealers made over $3,000 in front-end price.

“The customer comes in with a better understanding of what a fair deal is. The decisions around warranty, in-stock or demo, or others, will still happen in the dealership, but we help set expectations so when customers walk into a dealership, they’re not trying to get $10,000 off a $30,000 vehicle. That’s the frustrating part for a lot of dealers and we think that transparency is a good thing,” says Tai.

Customers ARE the priority

Many dealers view these leads as simply another way that customers come to them. “The priority is the customer,” says Alex Baum, dealer principal for Cochrane Toyota in Alberta. “Whatever channel they choose to come to us by, we want to honour and respect that. It’s a small percentage of our business, but it is part of our business.”

While customers used to visit several dealerships prior to making a decision, online research has narrowed it considerably. “They now say it’s down to 1.2 dealership visits per purchase,” says Baum. “When most guests come to the dealership, they’ve already made a selection. If (dealers) were doing all things perfectly there’d be no room for anybody else, but the industry’s so complex, there is an opportunity for those that see gaps in our offerings. It’s like the insurance business. Some of us use a broker to seek out and present to us the best three solutions, and this isn’t a lot different.”

But while purchased leads may bring buyers to the dealer’s digital doorstep, they’re only as good as the dealer’s follow-up procedures, says Cole Reiken, vice-president of digital strategy and product management for Canadian Black Book.

“A lot of the time you hear that the quality of a lead could be suspect,” he says. “I think it really comes down to how well the individual executes the leads. You could get a lead, but not follow up for three days, and one thing we know about leads is that the sooner you follow up, the more likely you are going to get them into the dealership.”

Some stores use round-robin software for lead distribution, Reiken says. “As a lead comes in it goes to ‘Person 1,’ but if that salesperson is tied up with a customer, that lead will sit and it could be a while before they get back to it. Management must be responsible for the operational processes, and how the leads come in and are managed at the dealership level.”

Canadian Black Book primarily provides vehicle evaluations, and Reiken says most dealers properly explain any discrepancy between the online assessment and in-person reality. “Maybe customers didn’t factor in the stain in the back seat, or that the oil hasn’t been changed, and dealers usually do a fairly good job of explaining what makes up the difference,” he says.

“They do a good job of providing transparency. I think those days of ‘they got me on the used car to get the new car’ are gone. There’s so much information out there that dealers are more open than they ever have been before, and consumers have embraced that. Our data is just reflective of what’s happening in the industry, and dealers shouldn’t fear this.”

Some dealers have even expanded their business with third-party leads. Jim Williamson, dealer principal and general manager of Williamson Chrysler in Uxbridge, Ont., got into the subprime business primarily with leads from Canada Drives. “Two years ago, we weren’t in the subprime business, but part of our strategy was to make this commitment to purchasing leads so we could enter into it,” he says. “The market is now made up of about 25 per cent subprime or damaged credit. We couldn’t reach the subprime otherwise.”

The leads come in pre-qualified but not approved, and there’s still a lot of legwork involved, says Williamson. “You still need to work with the banks, and it’s a tedious process,” he says. “The leads are expensive, and the
ROI isn’t massive, but it still supplements your sales each month. The cost can overrun you if you don’t pay attention to it, but that’s like anything in business. And I’m not worried about (third parties). These guys don’t have their own dealerships to put their leads through. If they don’t sell us something viable,
they’re out of business.”

Cody Green, founder and CEO of Canada Drives, considers his company as more of a partner. “We don’t see ourselves at conflict with dealerships, but more so an extension of their internal efforts,” he says. “For some of our dealerships we simply pass them a customer who has applied on our website, but for many of our dealer partners, we take the process a step further and also become that first phone contact for the customer.”

Reach new customers

The primary advantage is reaching customers you might not see otherwise, says Mike Trotman, president and CEO of Trotman Auto Group in Surrey, B.C. Like Williamson, he also embraced subprime. “We saw an opportunity with the exponential growth of the market,” he says. “It’s a nuanced market and can’t necessarily be put in the same funnel with all of your leads.” One store started with a single subprime salesperson, and now has a team of six.

Trotman says he’s the dealer with the car, the online firm is the technology company delivering the leads, and behind the scenes, there’s a lot of shared intelligence and he’s happy to work with them. “I’ve seen a lot in the industry and there’s always fearmongering about the elimination of the dealer. I’ve never looked at any of it as threats. I put it all back on us and say, ‘It’s up to us to innovate, to find and drive value to the client.’ If we do it successfully, then all these other things, the technology that’s removing the pain points from clients, we don’t have to worry about any of that. We can use it to help ourselves continue to innovate and advance. They’re opportunities. They’re loosely-organized partners toward our end goal.”

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Canadian auto dealer