A little more than a year ago, a colleague and I were at happy hour talking about a variety of things related to our professions in the auto industry. In our conversation he had brought up a potentially dangerous situation that was nowhere on my radar and that I did not put much thought into, until a couple of months ago when the controversy, as he had predicted, exploded onto the scene and sparked an all-out war in our little bubble of the world.

What he explained to me was how the company Zag, which I remember coming onto the scene in 2007 around the time I had chosen to leave my post at HomeNet to start AutoConversion, was using vehicle transaction data stored inside dealership DMSes, which it was authorized to obtain, to exploit dealership costs on vehicles to list on its shopper site TrueCar.com, thus driving down the so-called market price of vehicles.

At the time I did not fully comprehend Zag’s business model, nor was I that interested in it, but the nature of the situation now and how it pertains to the exploitation of data is of interest to me, as is how this situation with TrueCar.com is affecting auto dealerships and our industry.

Last month I did a post about how dealers can use blogging to protect themselves from the TrueCar dilemma and although this post was more of a playful piece to stand up for inbound marketing, I wanted to follow up on the subject with different ideas and angles on this important matter.

The Price-only Buyer: A 12% Market Share

Back in 2007, Polk released the Dealer eBusiness Performance Study with Yahoo that drew several conclusions, one of which determined there was about a 12% market share of price-only buyers. What the study concluded was that although all auto shoppers are conscientious about the price of vehicles, only about 12% make their purchase decision based on price alone.

Ultimately the study suggested that while dealerships could base their sales and marketing strategy around vehicle price, there is more market share around other criteria such as location, brand, and probably most important, the customer experience.

About 12% make their purchase decision based on price alone. -Polk-Yahoo Study (2007)

At the time my message to dealers was that they had two choices. Choice “a” was to be a price-only dealer and choice “b” was to be about value. For dealers that want to be a price-only dealer then blogging would not be useful to their marketing strategy but for dealers that represent value then blogging would be a necessary tool.

Dealership Value Proposition

The value that an auto dealership brings to the table for auto shoppers is important and as the Polk-Yahoo study suggested, nearly 90% of car buyers want that value. What is that value?

For starters, a franchise dealership represents trust and integrity. Because it is attached to the OEM brand, the dealership has a responsibility to the marketplace, the community, and it’s employees. This perceived value is essential to the buying process because people want assurances with their purchase that franchise dealers are more able to give than independent ones.

A Simulated TrueCar Buying Experience

Building on this, let’s take a gander down purchase lane for a minute. When people enter your dealership they are typically greeted warmly, offered snacks and beverages, and taken on a personal guided tour of the showroom to look at vehicles. They get questions answered, go on test drives, and consulted about their finance options. After the purchase when the vehicle is delivered they get a crash course on how to use the vehicle and are sent off (in most cases) with confidence and joy about their purchase.

Customers understand that these amenities are rolled into the cost of their purchase, and they are ok with that. Just because they try to negotiate the price down doesn’t make them a price-only buyer. As the dealer, I don’t think you need to be shy about the enhanced value your dealership provides.

TrueCar.com shoppers however are coming in at a disadvantage. Whether they know it or not, they are basing their decision on price alone and your dealership has every right to give them what they pay for. I am not suggesting you treat TrueCar.com buyers like garbage, but I am suggesting you have a transparent process specially designed for people coming in from the TrueCar path.

Imagine the customer comes in with his TrueCar.com guaranteed purchase certificate. He shows it to upon arrival and you courteously walk him over to the cashier where people check out for parts and services, and let them attendant know that this person just purchase a vehicle from them at TrueCar.com and that he is here to pick up his new ride.

The attendant can arrange to have the vehicle brought to the delivery area while the customer signs all the necessary paperwork and when complete can drive off with is new ride. No fluff, no warm fuzzies, no ill feelings. Just his new car.

At some point the customer might have some questions or be interested in receiving some sort of assistance, at which point you can politely explain that you are sorry but TrueCar.com purchases do not come with such amenities and that they will have to direct inquiries to the OEM or back to TrueCar.com itself.

Now I realize this is a hypothetical dramatization of how this will ultimately play down, but I am hoping to make a point that there are ways for the dealership to remain in the game with TrueCar.com but play by its own rules in a way that is justified based on the TrueCar.com business model and the customer’s interests.

Of course the challenge with this is that you risk creating disgruntled customers that want their cake and eat it too. To counter this you will need to set proper expectations during the sales process which I doubt is something you can accomplish through TrueCar.com so it might require a dedicated landing page on your website that speaks to TrueCar shoppers. But again, we are speaking in hypothetical terms here.

Turn off the data

Another option you have as a dealer if you are not interested in playing the game with TrueCar.com but are interested in Zag referrals is to turn off the data that Zag/TrueCar is extracting from your DMS to obtain your transaction costs. As the rightful owner of the data in your DMS you have the right and ability to limit what information is available to each different party inside your DMS.

By shutting of the data in your DMS such as invoice price, shop costs, etc. you limit TrueCar’s ability to exploit your margins. This of course takes you out of the game somewhat, but does that really matter? Are you really concerned about the small handful of cars you might sell from TrueCar.com that cut so deep into your margins you can’t stand it?

Play by your own rules

I realize this is a difficult situation for many dealers and that TrueCar has left a bad taste in the mouths of a lot of people, but I don’t see dealers being powerless about the situation either. Your business is not going to be hurt by pulling out of the game TrueCar.com invented and there are certainly ways to go along with the game without losing your foot. You just have to be willing to try something new and different.

By doing so, you might even find that it isn’t so bad flipping cars through the cashier based on price alone like a high-volume consumer retail store. Not everyone wants this but some do and if you play your cards right then you can protect your gross by reducing the conveniences and amenities that are increasing your costs. If you have the product to offer these buyers, go for it.