Online Used Car Market Challenging Newspaper Classifieds

The US online used car market will jump from less than 3 percent in 1999 to almost 40 percent in 2004, according to research by International Data Corp. (IDC). However, IDC warns brick-and-mortar car dealers could put up a roadblock in the market’s development.

“For the online used car-buying market to reach its full potential, online used car firms will need to work hard to provide an integrated system and a full range of vehicle-related services, including financing, insurance, and trade-in services,” said Jonathan Gaw, research manager for IDC’s eAuto program. “Because traditional car dealers make their largest profits from finance and insurance services, they may withhold inventory if online auto dealers threaten this part of their business.”

If the online used car market can steer around this obstacle, IDC believes its revenues will accelerate from less than $10 billion in 1999 to more than $164 billion in 2004.

“Used cars tend to be high-consideration products for consumers, and the Internet helps to bring clarity to the process and transparency to the market, which would lend greater efficiency to both buyers and sellers,” Gaw said.

More than one-third (34 percent) of used vehicle buyers log on the Internet to help them during the shopping process, according to the J.D. Power and Associates 2000 Used Autoshopper.com Study. This is an 8 percentage point increase over 1999 study results, when only 26 percent of used-vehicle buyers turned to the Internet.

New vehicle shoppers continue to lead used vehicle shoppers in Internet usage, 54 percent versus 34 percent, respectively. The J.D. Power study is based on responses from more than 6,000 consumers who recently purchased a 1995 to 2000 model-year used vehicle.

“Although new vehicle buyers are still more likely to use the Internet to shop, the Internet may ultimately have a greater impact on the used-vehicle market,” said Chris Denove, partner at J.D. Power and Associates and director of the study. “This is because most used vehicle buyers who go online are looking for specific vehicles for sale, and new vehicle buyers who go online research facts and figures such as vehicle pricing or vehicle specifications. As a result, used-vehicle Internet shoppers are more likely to use online services to facilitate the actual sales process.”

The study finds that traditional newspapers are already feeling the pinch of the Internet. During the past year, the number of people finding their used vehicle through classified ads decreased, while the number of people finding their vehicle online nearly doubled.

“Currently, four percent of all late-model used vehicle buyers find their vehicle through the Internet. While this number may seem small, the percentage is growing fast and is likely to surpass newspaper classifieds within four years,” Denove said

. According to the J.D. Power study, AutoTrader.com is the leading Web site for shoppers seeking a used vehicle online — 21 percent of used vehicle buyers who located their vehicle online used this site. For used vehicle pricing and specifications, Kelley Blue Book (kbb.com) is the most frequently visited Web site — more than half of all used vehicle Internet shoppers have visited kbb.com.

The J.D. Power study also found that used vehicle buyers who used the Internet to help them shop are more independent than those who don’t use it. Internet buyers are more likely to purchase through private parties; arrange their own financing independent of a dealer; and already have an exact vehicle or narrow set of vehicles in mind at the beginning of the shopping process.

Internet buyers are less likely to rely on the advice of friends and family to help them decide what make and model to purchase. The study also identifies a small but distinct segment of the population that is open to purchasing their vehicle direct from an Internet seller, such as iMotors.com, or even from an online auction such as those offered through eBay.com.

“The survey results show that the Internet will never become the dominant source of used vehicle sales,” Denove said. “Instead, the Internets primary role will be to serve as a matchmaker to put buyers together with sellers who otherwise may never find each other. However, there may still be a place for direct Internet used-vehicle sellers, as long as the company is geared toward being a niche player. The probable emergence of companies providing third-party vehicle certification and inspection should serve to make more consumers comfortable with online buying in the future.”

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