Tred Brings Cars To Test Drive, But Dealers Still Close the Deal

6/19/13Follow @bromano

Buying a new car is a high-value transaction, one that is often time-consuming and stressful. Tred, a Seattle startup, is trying to ease at least part of the process by delivering cars for consumers to test drive from their homes.

Unlike electric car maker Tesla, which is fighting car dealer associations in several states to sell directly to consumers, Tred isn’t aiming to upend the long-established relationship between the auto manufacturers and their dealer networks. Indeed, the company has a dealer-backed venture capital group as its lead investor and has taken lots of input from car sellers in designing the service.

Through stints last year in TechStars Seattle and General Assembly in New York, founder and CEO Grant Feek has tried to calibrate the Tred business model to both earn car shoppers’ trust and provide value to the auto dealers, who are letting go of the test drive—a major part of their sales process.

The company is starting in the Seattle area with six employees, 14 auto brands, and a significant group of local dealers.

Feek says Tred’s business is designed to remove any incentive to push a specific purchase—or a purchase at all—on consumers, who pay the company $19 per car per test drive.

Tred’s other—and likely bigger—revenue source is the dealers themselves, which pay Tred an undisclosed amount per test drive. Feek says Tred receives that dealer fee regardless of what happens next.

“The most important thing is we do not charge per sale or on a percentage basis,” which removes any incentive to up-sell, or to sell at all, Feek says. “If we’re showing a customer a BMW versus a Honda, we don’t want to be pushing the BMW. We want to be impartial and we want to really base it on what the consumer needs.”

Feek

Cars are delivered for test drives by contractors the company calls Tred Auto Experts. Feek says they are all four-year college graduates with auto industry experience through things like auto shows and ride-and-drive events—though not necessarily in sales—and are trained to answer specific questions about the vehicles and the Tred process.

So far, Tred test drives are turning into sales four times out of ten, far better than other “lead generation” platforms used by auto dealers, which Feek says convert to sales only about 10 percent of the time. Tred isn’t disclosing how many vehicles have been sold through its platform thus far. Feek says its “well into the double digits.”

That 40 percent conversion rate is probably helped by the fact that people using Tred are pretty deep into the process of buying a car already, as evidenced by their willingness to pay for a test drive—although $19 seems like a bargain if it can save hours spent at a dealership.

Also, the at-home test drive makes it easier to see how things like car seats or golf clubs fit in the vehicle, and how the vehicle fits—or doesn’t—in the garage, Feek says. It also allows people to get a feel for a car by driving on the streets they’re used to.

At the end of the 15-mile test drive, Tred gives car shoppers information on the buying process, including generic information about dealer add-ons such as maintenance plans and warranties, and a “to do” list for closing the purchase at the dealership. A couple hours later, Tred sends a report with notes, photos, and video taken during the test drive; market prices on the vehicle from sources including KBB, Edmunds, and Truecar; and the dealer’s price. Feek says dealers can offer whatever price they want over its platform, but they know their price will be presented alongside this market information. “That usually keeps them honest, so to speak,” Feek says.

All of this is designed to reduce the anxiety and pressure of haggling with a car salesman—though the deal is still closed at the dealership, and customers aren’t bound by the dealer price. It also cuts the transaction time down from an industry average of more than four hours to something closer to one hour, Feek says. (That’s important to dealers who are rated by manufacturers on customer satisfaction, which is heavily influenced, Feek says, by the length of the buying process.)

Feek says it wasn’t easy to get buy-in from dealers, some of whom are “skeptical of innovators” thanks to efforts in the last five or six years that “did not always have the best interest of dealers in mind.”

He says Tred has gained credibility in part because its investor group is led by Fraser McCombs Capital—an auto-industry focused venture firm managed by auto dealers—and includes former General Motors chairman and CEO Rick Wagoner. (Other investors in the $1.7 million seed round that the company announced in January include Maveron Capital, Lowercase Capital, Great Oaks Venture Capital, David Cohen of TechStars, and Founder’s Co-op.)

But plenty of auto dealers are adjusting to changing consumer expectations about shopping.

Wendy Lowen, Internet sales manager at Park Chrysler Jeep outside of St. Paul, MN, wrote about old school and new school approaches to auto sales in the Dealership Innovation Guide, a trade publication, earlier this year.

“We truly believe that if a customer could buy a car online the way that they shop on Amazon.com, they would,” Lowen wrote. “So our challenge isn’t trying to find ways to entice customers to change what they want in order to accommodate our sales process, our challenge is to find ways to adopt our sales process to accommodate the way our customers want to shop for cars.”

It’s easy to look at the Tred platform and imagine a car-buying process that cuts out the dealer entirely: Gather information on line, as most people already do. Narrow it down to a few vehicles. Order up a few test drives to pick a winner. Close the deal directly with a manufacturer.

Feek says the company has had interest from manufacturers, but that’s not the direction he’s heading. “Dealers serve a very critical role, and I believe they always will,” Feek says.

They support used-car pricing for manufacturers; provide service and maintenance; give customers a consistent point of contact; and handle local marketing, he says.

Manufacturers and their dealer networks have “a complex but very mutually dependent relationship and our intention is to work within it. I don’t see—certainly not in my lifetime—will people ever be buying cars directly from manufacturers,” Feek says.

What about Tesla? Feek sings Elon Musk’s praises and puts “an asterisk” on his previous statement for the world-beating entrepreneur.

Tesla has faced resistance from powerful auto dealers’ lobbies in several states including North Carolina, New York, Texas, Virginia, and Massachusetts. This has taken the form of lawsuits and new proposed legislation seeking to block Tesla from selling directly to consumers. The dealers argue that direct sales by manufacturers threaten the competition that franchise laws are designed to protect.

Feek says he sees lots of advantages to the Tesla model, but “my personal take is that they have a really hard road ahead of them in terms of selling direct.”

Tesla’s state-by-state fight underscores the different laws governing car sales across the country that Tred will have to confront if it expands beyond Washington state.

“There are definitely differences and Washington is a bit more on the challenging side, which is good practice for us,” Feek says.

Benjamin Romano is editor of Xconomy Seattle. Email him at bromano [at] xconomy.com. Follow @bromano

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