Auto site consolidation accelerates

The US online car buying industry continues its shakeout. Some sites, however, are taking the opportunity to buy out their competitors to become even bigger players in the field.

The online auto buying business continues to consolidate, with Autobytel announcing on Wednesday plans to buy Autoweb in a stock deal worth about $15.6 million.

The combined company is projected to have revenue of more than $100 million per year and will create a network of more than 7,000 dealers, 24 international automotive manufacturers and more than 2 million Web site visitors monthly.

As part of the deal, Autoweb stockholders will receive .3553 shares of Autobytel common stock for each share of Autoweb common stock. The deal is subject to regulatory and shareholder approval of both companies.

"We believe this combination provides strategic and financial benefits to both groups of shareholders," said Mark Lorimer, Autobytel's president and CEO.

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The power of Autobytel and Carsmart brands combined with Autoweb's strong relationships with leading portals and key affiliates will allow the combined company to become the industry standard for automotive research information with the largest audience of online automotive shoppers, said Dean DeBiase, chairman of Autoweb.

During the last several months, Autoweb has restructured its business and substantially reduced expenses, said CEO Jeffrey Schwartz. Autoweb's recent restructuring of marketing agreements with its portal partners is expected to further reduce future obligations by $40 million through 2003.

Lorimer will remain president and CEO of the combined company and Michael Fuchs will remain as chairman of the board. Jeffrey Schwartz will join as vice chairman of the combined company.

The company will trade under Nasdaq symbol "ABTL" and will be known as Autobytel.

Overall, the online car buying industry has been a tough one. Already, a handful of independent Web-based sites have seen an industry shakeout largely blamed on flawed business models and strict state franchise laws barring automakers from selling vehicles to anyone but franchised dealers.

In the last 90 days, many Web-based auto buying sites have either closed or been acquired including Autoadvantage.com, Autoconnect.com, CarOrder.com, Bestoffer.com, OpenAuto.com, DriveOff.com, Dreamlot.com and Greenlight.com.

Online car buying efforts have also been struggling because some dealerships feel a threat from the major car manufacturers moving into the car buying space. More than half of the 3,300 dealers surveyed for a December J.D. Power and Associates report said automakers wanted to put them out of business by selling vehicles directly to consumers via the Internet.

Online sales account for just 1 percent of the roughly 50 million new and used cars sold nationwide each year, according to industry estimates.

Even though more than 50 percent of all consumers looking to buy a new vehicle use the Internet for research, few of them complete their transactions online using sites like Cars.com, Carpoint.com, CarsDirect.com, Autobytel and Autoweb.

However, J.D. Power and Gomez estimate online car sales could account for as much as 10 percent of the transactions by 2005 as both consumers and dealers grow more comfortable with the no-haggle transactions.

Baba Sheety, an automotive analyst at Forrester Research, predicts that 6.5 percent, or $33 billion, of new-car sales will be completed over the Internet by 2005.

"The most popular business model for selling autos online is the dealership referral model," said Thilo Koslowski, analyst at Gartner Group.

Another emerging business model with promise is "locate to order" model being spearheaded by General Motors along with Autobytel.

GM is beginning a three-month test starting May 1 of its idea of selling autos online with guaranteed, dealer-set prices in the Washington, D.C. area. Visitors to Autobytel's Web site looking for Chevrolet cars and trucks can scout the inventories at 22 participating dealerships the area, said Mike Devereux, head of business development for e-GM, the automaker's Internet arm.

"Customers prefer pure-play Internet companies that are non-biased," Devereux said. "If customers are going to be there, we need to be there."

Autobytel also will provide GM dealers with related training, Web-based customer-service applications and other technologies, Lorimer said.

Autobytel, which collects sales leads and passes them on to dealers, has seen its stock, which premiered at $39.94 on April 1, 1999, steadily drop to below $5. Yet Lorimer predicts Autobytel will be one of the few on auto buying survivors.

"The car business is vast and complex," Lorimer said. "It takes a lot of knowledge to succeed. A lot of people who came into this space claiming to close car deals online didn't understand the complexities of the business."

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