CarWoo Promises Car Buyers Hassle-Free Quotes Online, Raises $4.2 Million

The Internet was supposed to make car shopping easier, Tommy McClung is explaining. Back in the 1990s, sites like Vehix.com, Cars.com, and Autotrader.com promised a future where you wouldn’t have to haggle with a salesman, and where you didn’t have to drive from dealer to dealer just to see who could offer the best price or who had the model and color you wanted in stock.

Well, it didn’t quite work out that way. The major car shopping sites, McClung argued to me yesterday, have turned into little more than lead-generation engines for car dealers, where shoppers are enticed into handing over their personal information and are promptly buried in spam and phone calls from pushy salespeople. “The industry has started to realize that they have created a disservice to customers,” McClung says. And it’s not like dealers are profiting either: McClung says they’re lucky if five out of 100 leads results in sale. At $20 to $40 per lead, that’s an expensive form of marketing.

Tommy McClungNaturally, McClung has a solution. It’s called CarWoo, and it goes national today after no-publicity launches earlier this year in California and Florida. It’s a website where you can go online, select the make, model, year, and color of the car you’re looking for, and, for $19, get two to three price quotes from local dealers vetted by CarWoo. For slightly more money, $49, you can get three to five quotes. You stay anonymous throughout the process, and the dealers can see each others’ bids, so they’re incentivized to lower their asking price. The quotes come along with all the information you need to make a decision, and once you accept an offer, the price is final.

McClung says CarWoo is great for consumers because it finally makes buying a car online faster, easier, and cheaper than doing it in person (the average CarWoo user ends up paying $3,000 below the sticker price, the company claims). And he says dealers like it because they don’t have to pay for the leads—CarWoo makes all its money on the up-front fees from car shoppers.

Erik Landerholm“What the $19 plan and the $49 plan do for the dealer is eliminate the tire-kickers, the people who aren’t ready to buy yet,” says McClung, who’s CEO of CarWoo. “As soon as the consumer pays the $49, they’ve got some skin in the game, and 85 percent of our customers buy a car within two weeks.”

The prospect of free bidding opportunities has attracted 3,200 dealers nationwide to the Burlingame, CA-based startup’s network. And the idea of a system that would leave no room for dealers’ occasionally sleazy antics has attracted thousands of beta users, as well as a stellar list of Silicon Valley investors.

CarWoo got its first seed funding from Y Combinator, the Mountain View, CA-based startup incubator where McClung and his co-founder Erik Landerholm, the company’s chief technology officer, were part of the Summer 2009 class. This January, they pulled in $1.8 million in seed funding from Comcast Interactive Capital, Blumberg Capital, Accelerator Ventures, angels Paul Buchheit and Joshua Schachter, and super angels Aydin Senkut and Dave McClure. And the 10-employee startup announced today that it has closed a Series A funding round amounting to $4.2 million. Interwest Partners took the lead, with Comcast, Blumberg, and Accelerator rejoining, and new angels Raymond Tonsing and Dillon McDonald, the former COO of Jumpstart Automotive, also chipping in. The company has now raised about $6.3 million altogether, McClung says.

CarWoo’s whole system is Web-based. Consumers log into their private accounts to make car selections and review offers, and dealers log into their own accounts to see what queries have come in, post bids, and review questions from potential buyers.

In contrast to most Y Combinator companies, which have working products on the Web before they even graduate from the program, CarWoo took more than a year to officially launch its service. That’s because it took a long time to build the needed network of dealers, McClung says. And that’s an effort that would have failed entirely if attempted only a few years earlier, he says.

“If you were to ask a dealer to log into a website even five years ago, they would have laughed at you—we still run into plenty of dealers who are on IE6 or lower,” he says, referring to Internet Explorer 6, a version of Microsoft’s Web browser released in 2001. “So you are looking at an industry that’s slower. But the dealers that are surviving today—and last year saw the lowest number of new cars sold in the last 26 years—are looking for new and innovative ways to grow their sales. We think that’s one of the biggest things we have going for us, that we have hit the market at the right time.”

CarWoo screen shotCarWoo’s dealers don’t compete solely on price, McClung says. Details like how fast dealers reply to inquiries can also affect a customer’s decision. “If you have three, four, or five dealers to choose from, simple things like which one of these guys is the most responsive are a huge deal. If he comes back within minutes, he’s catering to my needs. If another lets two days go by, that says something. The progressive dealers who stay on top of technology and have good customer service are the ones who are selling cars, and over 50 percent of the time the lowest price is not what wins.”

CarWoo’s dealer network is strongest in the San Francisco Bay Area, McClung says. But with 3,200 dealers signed up to review queries, there are multiple dealers in every major metropolitan area. If an inquiry doesn’t bring in at least two bids at the $19 level and three at the $49 level, somebody at CarWoo gets on the phone to actively recruit dealers.

CarWoo got accepted to Y Combinator because founder Paul Graham “likes to invest in companies that make inefficient markets more efficient,” McClung says. While car buying has always been a competitive market where consumers typically compare offers from three to five dealers, it hasn’t been a consolidated one, where everyone has all the same information. “There’s never been a place where everybody could go to see where the pricing ends up,” says McClung. Now that customers can get firm quotes without the prospect of spam, and dealers can see how low they need to bid to entice customers, everybody should win, he says—and perhaps the car market will be rationalized again for the first time.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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