Zag, the online car-buying platform known for its transparent upfront and guaranteed pricing, just landed $37.4 million in strategic capital, most of it coming from financial services goliath USAA. Different from other car transaction sites in that it connects consumers with about 2,000 certified dealers, Zag says its mission is to improve the car-buying experience for the average consumer as much as possible.
And with sales climbing steadily (130 percent since December 2007), Zag appears to be a bright spot amid the bailout-hungry automotive industry's financial doom and gloom. Even though it has only 6.8 million members across the country, it might just be the web-based model car dealers are looking for in the future as archaic systems get swept out with the recession.
This may or may not be good news for the industry establishment. The site might significantly cut operation costs, but the basis of Zag's business model is its use of group buying power to lock in lower prices for individual vehicles. So far, it has maintained quality standards and efficiency by opening its platform only to consumers affiliated with certain trusted groups -- like USAA, for example (also AAA motor clubs, Overstock.com, Capital One Auto Finance and American Express). The Santa Monica, Calif. company's executives say they hope this above-board strategy for doing business will help restore flagging consumer trust in the auto industry overall.
Most car-buying sites -- at least those that have become household names (think Vehix and CarsDirect) -- specialize in used vehicle transactions and even luxury auctions. Zag is pretty unique in the space, offering a viable and seemingly safe alternative to actually going to dealerships in person (a trend that will pick up speed as more traditional lots close their doors due to the downturn).
Zag has also received capital from Capricorn Investment Group, GRP Partners and Anthem Venture Partners. The company has a special relationship with USAA, which lets customers of its Federal Savings Bank secure an auto loan and price guarantee through the platform. USAA reports that more than 25,000 of its members have used the site, saving an estimated $19 million.