Frequently asked questions For Vehicle PUT Option-Updated 15 AUG 2004

These are some of the questions that I normally get from dealers in Sydney.

Dealer : What is this put option ?

Answer : Its a contract that gives you (dealer) the rights but not obligation to sell to the potential customer at the price the customer has contracted. As it is a contract specific performance could be secured as this goes to the root of the contract. Currently no web-based system offers the opportunity for clients to decide on their own prices and the traditional web-based system is merely a referal system to a dealer which requires a dealer to close a deal on site. The problem is that there is a 50/50 chance of closing at each inquiry but in our system, the clients decide on the price first which provides some indication of the willingness to purchase. On top of this, the customer volunteers to be locked in at the said price. All that is left is to decide whether to sell or not to. In short, half the work is done on line.

Dealer : Is it not a bad idea to allow potential customers to counter offer ?

Answer : I doubt so since it would be uncommon to find any potential customer to merely accept a given price for a vehicle. The art of negotiations leading to close any deal requires the customer to find a bargain (whether illusory or real). The fact is that from my research 98 % of potential purchasers do counter offer and at least 50 % of them actually manage to discover a discount satisfactory to close a deal. The issue here is how to promote this counteroffer rather than to discourage such behaviour.

Dealer: I want a system that  reduces my cost.

Answer: Our system is online and approximate the cost of a salesman per annum. We charge a percentage for each transaction according to volume etc. In fact, the benefits of a virtual negotiation system is not new and success has been found in companies such as Amazon which does not have a front shop. In fact, there is no reason why one cannot adopt such model to sale 24 hours 7 days a week while reducing the cost at the front shop. From my research, and with respect I would not stock that many actual vehicles physically. There are other technology such as multi-media to show and impress clients online and offline.  I envisage in the future, that sales people can visit clients directly to demostratre the vehicles instead of waiting for them to come to a physical site. Look bankers are doing it now by going to visit customers so why not dealers. There are many ways to cut cost but our system is designed to make money by generating more leads that are locked in via a contract.

Dealer : So whats the differences here ? Customers can make a counter offer so why do we need your thing ?

Answer:  Sure, but not online and certainly not one whereby the customer is required to settle the offer with a deposit. Deposit means cash flow to the dealer. Further by handing a deposit it also demonstrate genuine interest to close a deal. Also by depositing some money it is unlikely the potential customer will consider another dealer which means one less customer for the dealer's competitors.

Dealer : What do you mean less competitors ?

Answer : Frankly the motor vehicle industry is one of zero sum. Ie if your potential customer walks to another dealer then you get zero and vice versa. Your cost of spending time and negotiating is wasted but more importantly you are not going to make a sale other than by desperate means. In 2003, almost 600,000 cars were sold in Australia. Consider that you can capture 10 percent of this market because you have potentially locked in future customers. You can offer lower prices because you have market and economic of scale dictates that you should sell by volume to reduce overrall cost. However, the impact here is greater since your competitor lose clients which they cannot replace with unless the population increased. This factor is more critical than losing one or two customers because you cannot meet their prices. By locking in future clients, you effectively starve your competitors of potential clients. Our system provides you with a right but not obligation to sell, in default you pay the potential clients a compensation which is calculated by our system based on cost of money and price uncertainty or missed opportunities.

Dealer : We are not interested in pricing strategies if this is one. We market the technology  behind the vehicles and the image ?

Answer: I cannot argue with this but consider this, Ford Motor Company became what it is today and others follow suit because of pricing and that is by making motor vehicle affordable to all. They done this by mass assembly which was the only solution then. The market has obviously change quite a bit in the last 100 yrs and if we look at  the actual cost of vehicles, they have been in the decline if not for the artificial tarriffs sponsored by  governments. Fact is at least 50 %  of the population looks at price first and then compare safety features. Otherwise why do advertisement for low value cars show a price tag while the same cannot be said of BMW etc. My conclusion is that price is a factor and is undeniable.

Dealer : So what's the future ?

Answer:  Well, I can envisage a future where people will be able to bid or counter offer directly to manufacturers or by-passing dealers. This actually has several advantages since it provides an accurate forecast to the demand which is supported by cash provided by the willing buyers at the price of their choice. Else someone will create a portal that will be similar to Amazon or even Ebay type of models. And the question is whether one can adapt to the changing times or be part of history.  Its quite similar to the big music distributors but see what happens when apple i-pod came in. Consumer wants cheaper music and consumer gets. The only issue then is the technology fuel the demand which was unstoppable. Therefore it is a matter of time to get all the contracts iron out and at this stage we do not have the resources to do this with the vehicle manufacturers. However, having said so we are negotiating with a motor-cycle manufacturer to carry their products and who knows.

CK