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

10/13/10Follow @wroush

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 Chief Correspondent and Editor At Large at Xconomy. You can subscribe to his Google Group or e-mail him at wroush@xconomy.com. Follow @wroush

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  • Edgar

    I must say that this does seem to relieve the overall time require to purchase a car, but it does not help the consumer get the best deal.

    This just charges the consumer for finding out the lowest price dealers are WILLING to go to. This does not mean the best prices…

    “CarWoo user ends up paying $3,000 below the sticker price,…” – this is a horrible figure, as it has no context to the vehicles being purchased. Without getting too involved with the miriad of techniques that dealerships use to sticker price their vehicles (not even talking about marketing yet), this figure is a complete joke!

    The only reason this was considered a success by YC is because it will make money for everyone involved, except for the consumer. In this type of bidding, the consumer will never get the best possible deal.

    -Edgar

    p.s. much thanks for your commercial advertisements that play music on their own and won’t shut up.

  • Michael

    Wouldn’t it make more sense for consumers if the dealers could NOT see each other’s bids? When you know what your competitors are bidding, you never need to low-ball.

  • David L

    Game theorists might disagree about the best way to structure the auction from the consumer’s standpoint, but simply having a direct auction format should put significant downward pressure on price. In addition, the dealer isn’t paying a sales commission, so there is a bigger margin from which they can make price concessions. Efficiencies all around.

    I wonder about test drives though. I think few people are willing to buy a car without seeing it in person and driving it. Does CarWoo facilitate that?

  • http://www.xconomy.com/author/wroush/ Wade Roush

    @Edgar, @Michael, @David: Those are all great issues you raise. I’ll see if I can get the CarWoo guys to come on here and respond.

  • http://carwoo.com Michael Young

    Hey guys, this is Michael, I’m one of the co-founders of CarWoo!

    Thanks for all your comments.

    @edgar:

    I would disagree that consumers don’t get the best possible deals with CarWoo! By getting a multitude of dealers to compete, they have the highest chance of getting the lowest price, and the data backs this up. While it’s true that the $3000 figure has no context, the fact that CarWoo! buyers consistently save more–$450 more on average–than they do with *any* other car-buying service (USAA, Costco, etc.) carries a lot more weight and justifies the relatively small fee buyers pay to use CarWoo!

    Part of the reason that CarWoo! buyers save more is that we don’t charge dealers, whereas USAA/Costco charge them upwards of $300 per transaction. That fee then gets passed on to their buyers.

    So, to reiterate, since we don’t charge dealers and we get dealers to compete in a completely transparent environment, buyers actually end up saving more than they could any other way.

    Regarding the validity of the prices: when a dealer signs up with CarWoo! they agree to honor all the prices they give to our buyers, so any price buyers see on the site is the actual price they’ll pay at the dealership, no bait and switching. To make sure that this actually happens, we’ve built a reputation system where buyers can rate each of the dealerships they work with. If a dealer does anything misleading or underhanded, they’ll get negative marks, hurting their chances of winning business from future CarWoo! customers. If a dealer consistently gets negative marks, we’ll just ban them from CarWoo!

    And this isn’t just hot air, we’ve done thousands of deals at this point and we’ve only had a handful of cases where there was a misunderstanding. The reputation system really does work to keep everyone honest, and we’ve been very proactive at banning the handful of dealers that aren’t upstanding businesspeople.

    @michael:

    David is right, the auction-style format and the lack of a dealer fee simply puts downward pressure on price. Plus, since buyers can counter-offer easily through CarWoo! they also control how much pressure the dealers feel to give them a lower price.

    What’s interesting, though, is that a lot of the time buyers don’t care as much about price as fit (the right options, color, etc.) and a good relationship with the dealer. We find that the dealers who engage the most quickly and the most courteously with CarWoo! buyers end up winning the most deals, even if they don’t offer the best prices.

    Re: test drives, we don’t do anything to facilitate that yet. What we’ve found, though, is that a lot of people have already test-driven a car by the time they use CarWoo! (whether that’s through a friend or at a dealership). There is also a large portion that don’t test drive before they buy. Everyone’s different.

    Please feel free to email me directly at michael@carwoo.com if anyone has any further questions. I’ll also check back here tomorrow for any further comments.

    Thanks again for everyone’s feedback!

  • David

    Michael,
    What about people who want to lease? Are lease deals also offered through CarWoo? And can dealers sell add-ons like maintenance contracts and extended warranties?

  • http://www.aluuha.com SEOaluuha

    Wouldn’t it make more sense for consumers if the dealers could NOT see each other’s bids? When you know what your competitors are bidding, you never need to low-ball.

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  • Chris

    SEO, you’re missing the point. The whole reason a model like this works is it removes low balling. Dealers use low balling tactics to get customers in the doors, and then switch up some element of the car deal to make it profitable.

    By having the bidding process open and transparent it’s absolutely the best way to get to the bottom line.

    If this model gets critical mass it could be a game changer.

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  • Mike

    I used http://www.truecar.com to save thousands off the sticker price on Mustang and they didn’t charge me a dime

  • John

    Here’s why CarWoo doesn’t work as advertised…first, for disclosure, I am a central California dealer.

    Carwoo does a few things wrong, but chief among them is that the interface does not require a VIN that can be decoded. No dealer should be able to offer a car they don’t have…especially for brands like Kia, because more often than not a dealer will NOT be able to acquire the vehicle thru a dealer trade. Also, since there is no decoding of the VIN, a buyer wil not see the Monroni sticker copy that any dealer can access, so a dealer is free to state that the sticker is whtever they say it is, and usually they inflate it by a thousand dollars or more so it looks like you’re saving a higher percentage than you really are.

    THEN, in the offer, dealers are allowed to post “offers” that sometimes include rebates that most people will not qualify for. Most manufacturers offer oddball rebates that maybe 2 people out of 10000 qualify for, but dealers put them in the offer to draw people in, and then when that buyer doesn’t qualify for more than 500 out of 2-3000 of possible rebates, well…”tough luck, but since you’re here already…”

    ..please don’t lie, carwoo folks. As a dealer I’ve complained since the start that what appears to the buyer just ain’t so. It’s simply more of the carnival bait and switch that everyone hates so much. I make my offers based on TRUE MSRP sticker, and without any rebates added in, and generally they’re about invoice plus or minus 100 bucks. If people think they can do better than that then good luck, but it rarely happens. If it does, then they generally get schlocked in finance and wind up paying thousands more than they figured…but hey “I got my car for 300 UNDER invoice!!!!” …and then bought 3000 dollars of unnecessary warranty.

    …my point is this. CarWoo does nothing to actually save you money…you still have to do your homework, figure out the actual price YOU are willing to pay, and then find out if anyone is willing to do that. Don’t let CarWoo make you think they get you the best deal…they don’t it’s a gimmick. Anything CarWoo claims to do, you can do better, and for free. Their model, as it stands, is simply a platform for dishonest dealers to cheat, and for honest dealers to waste their time on.

    …oh, and any CarWoo rep who wants to argue, feel free…I’ll go head to head right here as a dealer…

  • Bill Z

    In re: to John, the car dealer, posting. This is internet freedom at its best. I am a 52 year old male who has purchased many new cars. In 2007/08 in under a year’s time my wife and I purchased 3 new cars. Now 3 years later we are preparing to purchase 4 new cars (twins turned 16). I don’t believe I ever allowed myself to be taken by a dealer. I’m sure some will disagree. A buyer like me is a salesman’s worst nightmare. I will walk from a deal seconds from signing if the dealer makes so much as a dollars change in the agreed upon price. If they cannot perform the sales process without an “error” then I don’t want to depend on their after-sales service either. John’s post could not have been more helpful. It is exactly as I would have put it but I could not back it up with his insiders knowledge. I will probably still give carwoo a shot as I will use the dealers bids against each other and as ammo when on the road shopping. I have not in the past and will not in the future be tricked by BS rebates and offers that don’t apply to me. If per chance I do get my best deal and make a purchase thru carwoo then all the better. If not well I will simple let them know I was able to get a better deal outside of their pool of dealers and put in a request for my “no questions asked” refund. I can see carwoo being a handy tool but you would be a fool to think that all the work you could do to make you a more informed buyer is going to done by anyone but you. No matter how you go about trying to get the best deal it till comes down to “Buyer Beware”

  • JSmith

    I am an internet sales manager at a dealer. I can tell you that Carwoo is a giant waste of time for anyone considering the free sign up. I have had 40 different leads and each one has resulted in either the buyer being in Nigeria or those that are 12 states away. Never once, even being the best number out of all the competitors, resulted in a sold unit. It is a waste of time for me and a waste of time for everyone else.

    As far as the buyer beware crap; the consumer needs to open their eyes. You have many dealers out there right now, that are not going to screw you over and drive you deep into debt with bait and switch tactics. This is why the first rule you should have when it comes to buying a new vehicle, is to pick the dealer. Dont go from dealer to dealer; you are setting yourself up. Use Yelp and Dealer rater or even Google Places to decide which is the lesser of two evils. If you dont want a pushy sales person, then ask for the new guy. It is their job to try and sell you a vehicle. Most sales people will be far happier and just giving you the price you want, if they can, to move on to the next sales opportunity. Research before you head into the store; use edumunds, truecar and other sites to full understand what you want as well as the special rebates and financing.

    Additionally, do not think that if your looking for a base car with Navigation that you are going to find it or base model cars with AWD. Another example is base model cars in all the color schemes. They are not out there. Do not be upset when no one has your vehicle in stock and they ask for you to factory order it. All too many times do I see clients refuse to order vehicles, but then 9 months later with multiple leads going old all over to look for the car do they finally decide to order. PEOPLE we could have saved you 11 months of your time!

    As a client once said to me “You can waste money, but you can always get more. You cannot, however get more time”.

    Be straight forward and if you want a 6,000 dollar discount on a vehicle and we can only move a total of 3,000 this is not the dealer being unreasonable; it is you trying to buy a car that is not in your budget.

    How many times have you been in the dealership for days at a time and wasted hours trying to buy a car. Its this simple: 90% of deals are reasonable enough to have accomplished in 20 minutes. You could buy a new vehicle in an hour tops and definitely not at MSRP. The more reasonable you are; the more reasonable we are. Sales people do not want to help mean people. A “sales person worst nightmare”: is someone who literally wastes their time and wants to argue over .20 cents. No one cares about the .20 cents; you can rip up all the buyers orders you want. I have literally seen Dealers fire their clients over things like this. If you are that unreasonable, they wont want your business.

    If you are buying a car, sell yourself as an honest person to an honest person. In this dealership, there are 5 people that you can buy a car from who are honest people and will help you get a great deal. There are also two who will not. They are older and generally extremely pushy. They will try all the bait and switches in the world.

    Internet Teams are not like this; generally they are newer sales people with a technology guru type attitude. This is who you want to buy from if you do not like pushy people. It is that simple.

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