Ugly Duckling Finds Web Fertile Ground for Leads

The Internet is proving to be an efficient vehicle to generate new leads and sales for used car dealer chain Ugly Duckling Corp. Inc.

This first quarter, 12,135 credit applications filed by consumers generated $15.1 million from 1,725 car sales — nearly 9 percent of the company's overall $164 million take for the period.

“We're starting to understand that in our credit niche of the market, folks like the anonymity that comes with applying for credit over the Web versus getting turned down in person,” said Steve Geary, director of corporate systems at Ugly Duckling, Phoenix.

Ugly Duckling claims to be the No. 1 operator of used car dealerships in the buy-here, pay-here market, which caters to customers with no credit or bad credit. It underwrites, finances and services contracts generated at 77 company-owned dealerships in metropolitan areas in eight states.

Clicking on a prominent application tab on the home page takes consumers to a secure page. Once applications are submitted, the consumer's preferred dealer typically responds via e-mail or telephone.

The company realizes that a speedy response is critical.

“If we get an app, we're usually responding within a few hours,” Geary said. “We try to be as responsive as we can, because we know the chances of conversion are highly correlated to how quickly we respond back.”

An advantage of the Internet is that Ugly Duckling can measure the conversion of online applications to cars driven off the lot. The rate currently hovers between 12 percent and 14 percent. Offline, it is different.

“Walk-in, no, we don't have good data,” Geary said. “We don't have a good lead tracking system as far as people showing up on the lot.”

While other marketers still notice a dichotomy between their online and offline customers, that is not the case with Ugly Duckling.

“Our profile of our Internet customer is almost the same as our regular customer, except they pay better,” Geary said. “As a whole the loan defaults of Internet loans are roughly half of traditional loans.”

Split equally between men and women age 24 to 48, the typical Ugly Duckling customer has an annual household income of $30,000 to $35,000 and is employed in heavy blue-collar trade work.

Cars sold to this audience typically are 5 to 8 years old with 80,000 to 100,000 miles and are priced around $8,500. The preference is for American brands such as General Motors, Ford, Dodge and Chrysler, though Ugly Duckling sells imports as well.

Ugly Duckling sold 56,870 cars last year, pulling in revenue of $483.2 million, up 23 percent from 1999.

The company, however, does not currently intend to sell cars directly to customers through the Internet.

“We handle the front end, but the back end we really require that folks show up at our dealership,” Geary said. “Our management and the dealerships really are the [loan] underwriters. They're making the loan decisions on every aspect of the deal, and they need to be involved.”

But is steadily becoming a critical medium to attract potential customers and qualified leads.

“We do mass marketing, especially TV, some radio, and we do get a lot of just walk-in traffic,” Geary said. “We think [the Internet] is opening up an avenue to customers we wouldn't normally have access to.”

The instant credit application has been up on since the site went live in November 1998. While the Internet leads accounted for almost one in 10 cars sold this first quarter, it is slightly below last year's average.

Applications from the Internet accounted for 10 percent to 12 percent of cars sold through its lots last year, Geary said. While the economy's downturn has slowed online applications slightly, there is another, more seasonal reason.

“Typically, February and March are our busiest months, and a lot of that traffic tends to come in from traditional channels,” Geary said.

“It's an aspect of our business, in the sub-prime credit market niche, that's when folks have the extra cash to do tax refunds,” he said. “We have a tax-refund program where we actually process their return — we engage a third party — and they can use the proceeds from any refund toward their down payment.”

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