Why has the online auto business struggled?
Customers quickly discovered that online car buying wasn’t what it was cracked up to be. They mainly ended up using the online quote to shop and negotiate offline. What dealers experienced was that price-oriented new car shoppers were demanding quotes. But the conversion rates on leads turned out to be really low–5 to 15 percent–sometimes lower. The economics of how (the online car sites) set themselves up turned out to be a cost per lead of about $25 to $30. If you have a 10 percent close rate, then the cost per sale was about $200 to $300 for those leads. And dealers paid for those leads, regardless of whether they got the sale. Why hasn’t the Web been an attractive way for them to advertise? At a conventional dealership the average advertising cost per sale is about $300 to $400, for all media. So the Internet was not an economically attractive proposition compared to traditional media. So the online car business peaked out fairly quickly. So online car sales turned out to be like
