Monday, Jun. 18, 2007, 08:00 PM UPDATED 11:59 AMBy Nick Zulovich
SANTA MONICA, Calif. — Due to the popularity of the Internet, Scott Painter, chief executive officer of Zag, predicts that at least one-third of today's dealers will be out of business in five to 10 years.
According to Painter, the key to continued success at the dealer level is providing consumers a "superior experience."
Zag was established in 2005 to take advantage of the growing popularity of the Internet in the vehicle research and buying process.
The company serves as a technology platform that teams up with affinity groups and a national dealer network to provide prices and auto information to consumers, including credit applications and more. Through its affinity partners, such as USAA and Capital One, Zag launches Web sites that cater to selling vehicles to members.
"There are 43,000 franchised dealers in the U.S.," Painter pointed out. "There is clearly an overpopulation given that the car is essentially a commodity in that every dealer is selling the exact same product. In this type of environment, price matters, and only the most efficient and attractive to the consumer will survive.
"The pricing transparency and immediacy of the Internet will only hasten this change," he continued. "I think that successful dealers will be far more focused on providing a superior experience to consumers and a great price.
"There will always be a strong place for third-party services, as they provide objectivity and a standardized experience. Zag serves a national audience of 50 million affinity members with a network of about 2,000 dealers," Painter said.
Zag's technology platform and dealer network work together to provide the most efficient auto-buying experience possible, he claimed.
"We have acquired a number of businesses that remove risk from our end and get us greater volume sooner. We have remarkable investors in Capital One, Global Retail Partners and Anthem Ventures," Painter pointed out.
The company's network consists of franchised dealers that sell new and used vehicles.
Explaining how the process works, Painter said, "We do not allow our dealers to price above the market ‘average' for a make and model, based on what other dealers actually sold that same make and model for over the last 30 days. This is clearly the benefit of enhanced information and access to raw sales data.
"Additionally, these dealers are competing based on the premise of a great price, so we work with all of our dealers, regardless of brand, to be as competitive as possible based on all of the market information that we can gather," he added. "Again, all prices are up-front and contracted by each and every individual dealer. This is one feature that makes our technology solution difficult to replicate."
Meanwhile, on the consumer side, Painter said the company's affinity partners are focused on best serving the needs of customers.
"Affinity groups obviously have members that fall along the entire spectrum, and each group has an individual (or customized) solution," he explained. "We promote and present the tailored solution offered by each partner. Capital One and USAA are exceptional at serving the broadest possible base of their membership with a full range of offerings."
According to Painter, more than 80 percent of new-vehicle shoppers go online to begin their purchase process.
"We see this trend in that we are able to engage nearly all members of these affinity groups using a combination of online and telephone-based solutions. The Internet, however, is an extremely scaleable way of offering a more comprehensive level of customer service. Our biggest growth over the next 12 months will come from the addition of new marketing partners (affinity groups) and the expansion of our market coverage," Painter pointed out.
He went on to note that Zag offers auto-buying programs in 53 percent of the U.S. by geography and brand.
"We cover closer to 83 percent as measured by volume," Painter said. "We do offer new and used vehicles on all of our sites. We expect to get our geographical coverage over 70 percent in 2007 and strive to serve more than 90 percent of potential customers."
A Few Affinity Groups and Partners
—Automotive Invitational Services: An auto-buying program operator that serves more than 6 million of 12 AAA clubs
—Capital One: Through the company's partnership with Zag, DriveOne.com was launched to serve the growing population of online shoppers and researchers. The site caters to the entire credit spectrum.
—CU Auto Sales: A credit union auto-buying program that serves more than 800,000 members in California. CU Auto Sales was purchased through Zag's subsidiary Autoland.
—Kelley Blue Book: Zag inked a deal with Kelley Blue Book to license its new-car pricing, configuration data and more.
For more on the company, visit .