Online Initiaves Pay Off in a Down Market

While some dealers have had a Web presence for years, CarSmart in Kansas City, Mo., didn’t have one until April 2009. Co-Owner Ted Heater, Jr. said, “We were in business for 11 years and didn’t have … any kind of Internet presence … Business was always so good by our direct mail, TV and radio campaigns, nobody would have had time to do a Web site. Now, [with] a 40 to 50 percent decrease in business, well, I have a lot of time now.”

Before the market went haywire, CarSmart was selling over 110 vehicles a month. In March 2009, the dealership retailed 56 units. The dealership’s Internet efforts launched the first week of April, and the store is already seeing sales rise. It retailed 67 units in April, and as of the third week of May, the store was on track to sell 75 that month. Even better, said Heater, “April's gross was up an average of $430 per car,” adding that he was expecting another “good bump” in gross for May.

In late 2008, the venture to take CarSmart online began. As business curtailed in ‘08, Heater asked himself, “How come we’re not on the Internet?” He’d been hearing and reading about how lucrative the Internet had been for other dealers, so he took the plunge—first by working to create a Web site. As the saying goes, hindsight is 20/20. “I wish I would have known five or six years ago [about] the kind of response the Internet would have got us. I would have started a lot earlier,” he mused before adding, “Then again, we were selling a lot of cars.”

3-Pronged Internet Approach
Simplicity was the keyword when creating a site for CarSmart, and Heater said his customers praise the site ( for its ease of navigation. When working with his technology partner, TK Carsites, to construct the site, Heater said they tried to keep it from looking too busy. “I looked at a lot of different sites, and they weren’t just car sites.” He wanted the CarSmart site to mirror the dealership’s method of selling cars – quick and easy – and that meant keeping clutter off the site.

He feels that online customers want the same experience as his lot ups, which is a straightforward experience that focuses on meeting the customer’s needs. The dealership runs a three-step system: 1) get a credit application, 2) pull the credit bureau and 3) see a manager to complete the deal. Heater said, “We don’t play the games … We don’t work deals on a four-square. We land [customers] on the right [type of] car and give them choices … Everything’s upfront.” The CarSmart home page certainly reflects the in-store processes, as it predominantly displays several quick links, like the “30 Sec Credit App” and “Quick Quote” links.

The second prong of the CarSmart Internet push was to list inventory on two of the most popular third-party sites— and Through the first 18 days in May, CarSmart sold five cars to and leads. Relatively speaking, five sales made up nine percent of the dealership’s total sales in March ’09. Add the “bump” in gross to those five vehicles, and the venture on these third-party sites was certainly well worth it.

While some dealers may think CarSmart is behind the times online, the dealership is quickly catching up to and even passing some dealers. In mid-May, the dealership was preparing for the third prong of its Internet strategy—social networking. Heater commissioned his college-aged, tech-savvy cousin to tackle this project, and she created Facebook, Twitter, MySpace and YouTube profiles for the dealership. To garner followers, Heater’s going to create an invitation for customers to follow them and he said he may “throw in something advantageous,” like an oil change, for customers who follow the dealership.

Additional Advertising
While CarSmart is new to the Internet, it’s been around the advertising block a time or two. Heater currently has spots running on five radio stations – three urban, one country and one classic rock – and two second-tier television networks (like the CW). The dealership runs between 45 and 65 radio spots and 10 to 20 TV spots per day. He also does at least one, sometimes two, on-location radio spots each week.

In addition to CarSmart’s TV and radio campaigns, Heater sends out direct mailers to the dealership’s customer base, which includes about 12,000 people, at least twice a month. Since the bulk of the dealership’s business is subprime, one message the mailers often incorporate is “trade and upgrade.” It’s designed to target past customers who have improved their credit since their last purchase and are ready to upgrade. A similar, more recent mailer advertised an “Even Steven” sale. The message was, “Keep your payment ‘Even Steven,’ and get a bigger car or a car with more options.”

While these advertising campaigns still work today, Heater concluded he needed to look elsewhere to drive traffic because the dealership already had high frequency on radio and TV and regularly sent direct mailers. He said, “We can’t buy any more TV [or] … radio spots. There’s no one else that we can send direct mail to that we haven’t barraged … [the Internet provides a] completely different element of people who shop online.” If CarSmart didn’t move online those customers would likely never know about them.
After the site was live, the dealership’s commercials were updated to include the URL to the new Web site, and Heater quickly learned that helped capture more leads from his radio and TV spots. Many people who heard the commercials funneled through the Web site as leads.

For now, most of the Web site’s leads are tracked back to TV and radio advertisements because search engine optimization for the site isn’t complete yet. Soon, though, his pages will start ranking high in organic search results, and customers searching online will easily find his site. Then, he’ll begin to capture the online demographic that hasn’t heard or seen his other advertisements.

The Other Internet Game
Inventory, as Heater quickly discovered, is another ballgame online, and that discovery was two-fold. First, he realized listing vehicles online is very different than lining up cars on the lot, and second, purchasing inventory online was causing him more grief than necessary.

Before CarSmart was online, Heater said, “Our big selling point was program cars with factory warranty remaining. We pounded that in our advertising, ‘No headaches, no worries.’” While the program cars sold on the lot, they weren’t getting any attention online. “One of the things I’ve found in the short time that we’ve been on and, if you put program cars on there, I don’t care how cheap they are … nobody’s going to look at them.”

Competition on these sites is high, and Heater found that “unique” cars are the ticket on third-party sites. He said, “We found a niche … with Hummers … and we’ve had a lot of response because we competitively priced them.” He added that the Cadillac CTS garners a lot of attention online. To stock this type of inventory at affordable prices,   vehicles that have more miles on them compared to the program cars he once specialized in, but that doesn’t keep the customers away. Some of the Cadillacs he’s sold were north of 60,000 miles but had extras like navigation, leather interiors and sunroofs.

When it came to purchasing this eye-catching inventory, purchasing via online auctions proved more of a time-consuming problem for Heater then a timesaving solution. At one point he was purchasing about 75 percent of the dealership’s inventory through three major online auctions, but as of late May, it’s back to “hopping on a plane … getting up early, walking cars, marking my lists, figuring out exactly what we need to buy, what’s been [selling well].”

He wants to “actually look at” the cars he’s thinking about purchasing due to issues with inaccurate condition reports on vehicles he’s purchased online. He said when he goes to the physical auctions, there’s no question about the condition of the vehicle. “It just seems like … lately we’ve gotten more bad than good [when purchasing online],” added Heater. “My perception of something that’s nice [doesn’t always] mirror somebody else’s that’s writing the condition reports on some of the vehicles.”

While the process of going to physical auctions seems more time-consuming, he said buying cars that turn out to be in worse condition than represented has caused him a lot of “headache and heartache.” Fixing such issues is “almost a full-time job when you’re buying 80 to 90 cars a month.” He estimated he’ll only have to spend a few nights away from home a month if he goes to auctions with a large supply of vehicles.

In addition to buying more unique vehicles and from traditional auctions, Heater is also focusing on his days’ supply of inventory. “We used to average a 23-day turn on inventory, and we’re trying to get back to that. We’re probably pretty close to it now … between 30 and 33.”

Keeping a lower inventory level allows him to be able to adjust to market changes more quickly. He joked, “Right now, probably the best way to figure out [what vehicles to stock based on finance companies’ guidelines] is to get a dartboard.” In actuality, he does set some guidelines of his own when buying. “If it works for NADA, typically it will work for everything else. Now, that hasn’t held true the last three or four months with the fluctuations in the market … What we’ve done the last 45 days is use Black Book to buy Chase and GMAC financing-specific vehicles for our customers, but still keep them in correspondence with NADA just in case.”

Vol. 6 Issue 7