August 30, 2004, 12:00 AM

Why Detroit is heading to the web

(Page 3 of 4)

Five years ago, many dealers and vehicle manufacturers thought that more of the automotive market would adopt a direct sales model. Ford Direct, for instance, was founded on the premise of helping Ford and its participating dealers build a direct Internet sales platform, where customers would use the Internet and e-commerce to purchase a Ford vehicle in the same way they bought books online from Amazon.com and highly customized personal computers from Dell Inc. The parent company, Ford Motor Co., had ambitious plans to sell directly to the public in Canada and contemplated selling cars online in the United States. “We built Ford Direct with technology to handle complete e-commerce, but the model was ahead of the market,” says Ford Direct CEO Steve St. Andre. “The timing and circumstances weren’t right.”

Peak in sales

Other manufacturers and Internet start-ups also followed Ford’s lead and set up direct business-to-consumer e-commerce companies or units, including Daewoo International, a South Korean car maker, with plans to sell entirely online in California.

But the market didn’t materialize-at least until now. Five years ago, online car buyers didn’t have the research and negotiation tools they have now to complete most of the sales transaction, including price comparison, entirely over the web. And dealers and manufacturers weren’t thinking about innovative ways to cater to Internet-only buyers.

But after a record number of years, driven by a barrage of incentives, the number of new vehicles customers are purchasing is expected to peak at about 17 million units this year, causing dealers-and manufacturers-to implement new ways to find and retain buyers. “Dealers need to think about the future and ways to differentiate. One way to do that is by developing strategies that cater to people who want to shop and buy over the Internet,” says Ask. “The timing and technology weren’t there five years ago, but the Internet is a pervasive force in automotive retailing today. More dealers and manufacturers should be concentrating on how they can close more deals online.”

A big part of finding and retaining Internet-only buyers is building a web retailing platform that makes it easy, convenient and as hassle-free as possible for customers to purchase a vehicle, a strategy that eBay is implementing with very successful results, Ask says.

On eBay Motors, the site’s inventory of approximately 35,000 vehicles is supplied by individual car owners and, at times, several thousand independent and franchise dealers that use eBay to advertise and sell a portion of their used vehicle inventory.

Inspections

Dealers pay $40 per auction to list their vehicles on eBay Motors and an additional $40 when the vehicle is sold. To enhance their listing, dealers can select additional site placement or upgraded graphics for fees ranging from $5 to $100. To give buyers-and themselves-confidence in selling cars over the Internet, dealers can include an e-Bay-certified inspection in their vehicle listing priced at $80 for an exterior, cosmetic inspection or $99 for an exterior and mechanical evaluation.

To assist successful bidders in completing the transaction entirely online, dealers can work with one of eBay’s payment partners,Escrow.com, a third-party funds collection and disbursement company, or its own PayPal Inc., an Internet payments processor that accepts and posts secure electronic down payments.

“Dealers like our auction because each vehicle listing receives an average of eight bids and because we’ve taken the uncertainty out of buying a car sight unseen over the Internet,” Chesney says. “Of all vehicles sold on the site, 80% are interstate transactions”

Despite the fact that a significant portion of eBay’s automotive business is generated by dealers, many major manufacturers such as General Motors Corp. have no immediate plans to develop auction capabilities or complete online payments processing options for their dealers-at least in the United States.

GM, for instance, operates BuyPower, an Internet marketing and online sales program that generates online leads for dealers but stops short of offering online payments processing and national vehicle delivery options. “Most automotive buying begins on the Internet and ends in the showroom because our research shows that nearly all GM buyers still want to smell the leather, take a test drive and conduct negotiations with a dealer face to face,” says Jack Bowen, general director of GM Customer Relationship Management, which oversees GM BuyPower. “Our Internet program in the U.S. is focused on aggregating and helping to facilitate leads for our dealers.”

Treading lightly

GM and other manufacturers stop short of offering their dealers-or themselves-full assistance with complete direct-to-consumer e-commerce processing for a number of reasons. In most instances, manufacturers don’t want to antagonize dealers by bypassing them and selling direct from the factory. Many state laws also protect dealers from what they perceive as unfair competition by stipulating that only licensed dealers can sell new cars to the public. For example, Texas and other states prohibit any party from selling vehicles over the web unless they are an authorized dealer.

But companies such as CarsDirect.com are working with dealers on ways to sell new cars entirely online and they foresee a solid future in offering customers and dealers a complete e-commerce program for selecting, pricing and buying vehicles over the Internet.

CarsDirect, which works with about 3,000 new and used car dealers, offers a program whereby online new car buyers pay one Internet-specific price for a vehicle, use a dealer locater service to find the dealer with the nearest available inventory, and then choose among different finance options through major financial institutions such as J.P Morgan & Co. to pay for the car and complete the transaction online.

While CarsDirect.com, a privately held company whose owners include Amazon.com, Oracle Corp. and about 10 other investment bank and large dealer groups including UnitedAuto Group/Penske Automotive and Asbury Automotive, doesn’t disclose financial information, it notes that business is growing, a sign that more customers and dealers are looking for more completely online auto sales.

Adaptation

Customers can use CarsDirect.com to view vehicle reviews, ratings, safety features and specifications to simultaneously compare competing vehicles, or search for available manufacturer rebates and incentives on the specific new vehicle they’re looking for. CarsDirect and its participating dealers negotiate all vehicle pricing. The company’s business model is built on retaining an undisclosed percentage of the final transaction and other specialized marketing and advertising services. “There is a growing market for complete Internet car buying, and more dealers are looking for ways to consummate that particular type of sale,” says Chuck Hoover, senior vice president of marketing and business development for CarsDirect.

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