Hey again, CoverHound readers. It’s Megan from CarWoo!. I wrote on this blog a few weeks ago describing what CarWoo! is and does (it’s basically a CoverHound for new car buying), so today I thought I’d give you a little insight into why we believe CarWoo! is changing the car buying industry. The new car buying process has been long due for a drastic change. If you’ve yet to buy a new car, or if you’re thinking of buying a new car soon, you should really check out what we’re doing to make the process more transparent and more fun for everyone.

How New Car Buying Used to Work

Like I mentioned in my last post, the Internet has caused major disruptions in almost every trade. The auto industry is no exception. Twenty years ago, car buyers had to drive from dealership to dealership just to find out the MSRP’s of the cars they were interested in. They then had to continue their journey, comparing dealers’ offers and quoting them against each other to get the lowest price.

But dealers had many reasons to distrust buyers as well. A buyer could claim that he’d gotten an offer for $X from the dealership down the road, but dealers had no real way to verify the veracity of the offer. Or, a buyer who wasn’t ready to buy a car for 6 or more months may pose as a very interested buyer just for research purposes. The dealer could spend hours with this person and lose potential commission on other extremely interested buyers.

How the Internet Seemed to Change Things

As Internet research became more popular, many websites came about that offered to bring dealers to interested buyer -– a method that seemed to be a solution for both sides. Buyers just had to fill out their basic info – name, email, phone number, etc, and quotes would come right to them. However, in many ways, this system isn’t so different from the original model of buyers blindly shopping around, and here’s why:

  • When buyers are sold as a lead, the dealers who end up contacting them pay around $15 - $20 a pop for their name and phone number info from the middleman.
  • Since they paid for you (and hundreds of other leads, most of whom probably won’t end up buying from them), dealers try as hard as they can to get their money’s worth by selling you a car.
  • Dealers also know that there are at least 2 – 4 other car dealers in the game who are also offering you prices over the phone and email.
  • Therefore, it’s in each dealer’s best interest to offer you a price that they may not be able to fulfill, just to get you in the door. Once a buyer is in the door with a test drive and a credit check under his or her belt, it’s much easier to slap on a few extra fees.

Practices such as these are a big reason why car buyers continue to distrust car dealers, even though many lead generation sites argue that the Internet has improved the car buying model. And since lead forms are free for buyers and all offers happen over private emails, dealers still have to deal with issues of wasting time on uninterested buyers and being manipulated by shady consumers.

In many ways, the lead gen system is like the classic Prisoner’s Dilemma game. Dealers know that if another car dealer cheats the system, he’s going to win, even if it means lying about a price to get a customer in the short term. Therefore, dealers who are blind to one another’s offers are incentivized to cheat the system, even though, in a perfectly transparent system everyone would be better off with honesty.

The Secret of Lead Generation

The biggest secret of lead generation is that it does not make the car buying process easier for the consumer, because the system encourages dishonesty among dealers. Which is where CarWoo! comes in as a game changer. We provide dealers and consumers with transparency and dealers with the confidence that the customers they’re dealing with are very interested buyers (you don’t shell out $50 for kicks and giggles, after all.) We also provide training tools for car dealers to stress the importance of engagement and honesty with car buyers. At CarWoo!, we truly believe that a transparent marketplace is the ultimate marketplace.

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