Will the Web Drive Auto Sales?

SAN FRANCISCO (06/02/2000) - They can't kick the tires, adjust the seats, or rev the engine. They may not even save money. But, tired of haggling with salespeople, a growing number of people are buying cars online.

Internet auto sales were $2.1 billion in the United States in 1999, but are expected to hit $27.3 billion in 2004, according to International Data Corp.

(IDC), which recently released a report on the trend.

Originally, online sites were referral services for dealers, according to Jonathan Gaw, research manager with IDC's Consumer E-Commerce Major Purchases group. Often the online customer wasn't treated any better in the showroom than someone who walked in off the street. But when the online sellers "introduced a model of upfront, no-haggle pricing, and it was a price you could believe, that really spurred growth," Gaw adds.

Items in stores have price tags but autos in showrooms don't, and the practice "has nothing to do with what the buyer wants," Gaw notes. Instead, customers are forced to wade through an already complex process, complicated artificially by the automobile distribution system.

Likewise, obstacles to online sales are not technological. They have more to do with finding a business model that streamlines the process and rewards customers as well as automobile dealers, online firms, financing and insurance companies, and manufacturers. Auto sales sites purport to wring the inefficiencies out of the process.

Trimming Margins

For instance, each sticker price includes about $350 in advertising costs, according to Ann Delligatta, chief operating officer of Autobytel.com, one of the leading online auto vendors, which sells 50,000 cars monthly through its dealer network.

"Customers tell us they like the feeling of being in control," Delligatta says.

"We feel like we've turned the process upside down."

Autobytel.com Inc. offers two purchasing models. You can choose the type of car and accessories you want, and a local dealer calls with a firm price quote within 24 hours, which you can accept or reject. Or, if you're really squeamish about talking to dealers, you can find cars online and complete the sale with an Autobytel.com employee.

Other leading auto sales sites include CarsDirect.com Inc., which now sells direct to consumers, and Autoweb.com, founded by a former car dealer.

Room for Everyone?

Unlike IDC, London-based market research firm Economist Intelligence Unit questions the impact of online car sales. "It remains to be proved whether a single extra vehicle has yet been sold because of the Internet," says a recent report.

Retail car sites are struggling to grow fast enough to survive and to find the best formula that does not simply add a layer of complexity, researchers suggest. Yet, it cites J.D. Power-LMC in noting that while only 4 percent of U.S. auto sales were done entirely online in 1999, Web sales will hit 10 percent in five years.

Like people who browse in bookstores and then buy from Amazon.com Inc., online car shoppers still cruise showrooms before buying, Gaw says. "If you'll do that for a $25 book, you'll definitely do it for a $25,000 car."

For online auto retailing to be successful, sales must be as seamless as buying books online, he adds. That requires knitting together all the players, including lease options, warranties, financing, insurance, and other factors.

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