Toward a Digital Auto Marketplace

Will the big public groups dominate online retail, as I predicted last week, and drive private dealers from the field?

This trend seems to have recovered, after some false starts, with the availability of fresh talent like Shift, Drive, and Roadster.  Shift has $253 million in funding, notably including Lithia.  AutoNation has recently invested $50 million in Vroom, valuing the online startup above $700 million.

How can smaller groups compete in this high-stakes contest?  One way, as I wrote here, would be to consolidate themselves online.

To defend themselves online, private dealers will migrate into the most capable of the platform sites. The winning platforms will not be mere lead providers.

I know something about platform marketing, having organized the Provider Exchange Network around cross-side network effects.  The more menu systems we added on the dealer side, the more success we had with F&I providers on the other side.

The difference between a selling platform and a mere lead provider lies in the site’s ability to deliver a completed deal.  That is:

  1. Show the true price online.
  2. Sell protection products.
  3. Provide a firm offer for the trade-in.
  4. Offer hard-pull credit approval and deal structuring.
  5. Allow the customer to save multiple deals and self-close.
  6. Sign the contracts online.
  7. Provide for home delivery.

Home delivery is not just a nice touch.  It demonstrates the capability to truly complete the deal online, with no tasks left over.  It is the acid test for online retail, even though most customers will opt to finish the deal in person.  The tasks are described here, and the workflow is here.

This capability is not so far-fetched as it was when I started writing about it, some years ago.  Delivering it on a multi-dealer site, however, poses special challenges.  The only eCommerce capable sites I can think of are run by monolithic used-car dealers Shift, Vroom, Carvana, and CarMax, or single points using digital storefronts from Roadster, Drive, and TagRail.

So, I am back to writing about the future.  In the fullness of time, someone will figure out how to do eCommerce for:

  • New cars
  • Multiple new-car stores in a group
  • Multiple unrelated new-car stores

When I started writing about the platform concept, I naturally assumed that Autotrader, et al., would be there.  Now that I have spent some time exploring Autotrader, Cars.com, Car Gurus, Edmunds, GoGo, Carfax, TrueCar, Autobytel, Kelley, and Deliver My Ride, I can tell you this is still uncharted territory.

Everybody promises eCommerce, of course, but most stumble at the first gate.  This challenge, price transparency, was supposed to be TrueCar’s edge.  In fairness, the platform model poses some special challenges:

Price Transparency – This one needs no explanation.  Despite glimmers of hope from the Rikess Group, online pricing is mostly confined to used cars.  A new car marketplace would have to disclose, on the search results page, prices from competing dealers.

Protection Products – Same story here, as regards pricing.  Also, if you want to do it right, you need to copy the dealer’s menu system setup, and ping those providers for pricing.  In fact, each step of the online process needs an interface with its “system buddy” in the dealership.

Trade Valuation – There are plenty of tools, but participating dealers must agree to honor the platform’s valuation.  This is easier if the platform happens to be Kelley.

Credit Approval – Each dealer will have their own stable of finance sources.  It’s best simply to bounce the application off the dealer’s Route One or Dealertrack credit system, and then return the results to the platform.  This data needs to be in synch with the dealership anyway.

Deal Structuring – I complain all the time about weak payment calculators on consumer sites.  The special challenge here is that data must be shared with each dealer’s desking system, and the calculations must match.

The rest of the process is pretty much unchanged from single-dealer: saving and transmitting the deal, signing (standardized) forms with DocuSign, and scheduling the delivery.

I recognize this is but the broadest broad-brush outline.  My purpose here is not to explicate the design, but to illustrate how progress toward the digital marketplace is impeded by these special challenges.

We may need to cooperate with a direct rival due to interdependent business models or mutual challenges from outside our industry.

How will these challenges be resolved?  Will competing dealers learn to cooperate, for the sake of their online survival, or will the palm go to a single online victor – like AutoNation, or Amazon?  The quote above is from Professor Rogers’ definition of “coopetition.”

Smaller groups cannot afford to invest $50 or $100 million, as AutoNation and Lithia have done.  Look a little farther down the league table, though, and it’s not hard to find four or five dealer groups which, combined, match the scale and revenue of a public group.

Joint ventures are not unheard of in our industry, especially when it comes to eCommerce.  My own brainchild (and eCommerce platform) PEN, like CVR before it, is a joint venture between archrivals CDK and Reynolds.  Route One is a creation of the Detroit three captives, plus Toyota.  Honda and GM are working together on electric cars, while BMW and Daimler collaborate on mobility services.

Combining four or five dealer groups simplifies the problem, relative to a fully open marketplace.  It reduces the number of systems, lenders, and product providers that need to be integrated.  The ideal venture partners would already have a high degree of standardization within each group, and similar choices of software among them.

Such a project might proceed “depth first” by developing core functionality in one partner, and then folding in the others, or laterally by function, or by merging the existing eCommerce capabilities of the partners.  What to aim for as “minimum viable,” and how best to expand it, depends on a number of factors.

Meanwhile, the commodity lead business is under pressure.  Damage reports and reviews do not offer adequate differentiation, whereas investments in eCommerce could yield significant new opportunity.  The Cars.com situation marks the beginning of the shakeout, consolidation, and – just maybe – the digital marketplace.

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