Online auto sales driven by new business models

22 MAY 2000 - The Internet is forcing businesses to be more innovative in serving increasingly demanding consumers. The automotive industry, for example, can provide many lessons.

For the past two years, the US auto industry has witnessed the emerging threat posed by used car superstores, led by CarMax. A new group of competitors has also forced its way into the retail market, with much greater potential impact. These Internet agents are doing some of the most innovative marketing and selling in the business.

Internet agents, such as the current market leader, AutobyTel in the US or Autos4Asia in Thailand, do not sell cars directly. Instead, they facilitate sales by providing easy access to information and bringing buyer and dealers together for hassle-free purchases. In this respect, their customer appeal is very similar to that of the superstores.

Until recently, AutobyTel differed from the superstores by offering only new cars, but now the target markets are converging. CarMax is selling new cars, and AutobyTel is offering used cars.

AutobyTel has dealers spanning North America, Europe and Japan, and is aggressively expanding into the AsiaPacific region. It represents virtually all brands in all major markets.

When it receives a detailed purchase request, AutobyTel funnels the information to an appropriate dealer located close to the buyer. Dealers respond within 48 hours with a competitive, final price. The dealer then executes the transaction and delivers the vehicle.

This model differs from other wholesale models. WalMart may team up with selected auto dealers that will offer special prices to WalMart customers, but it doesn't ask the dealers to change the way they do business. AutobyTel does. Its dealers employ special salespeople who handle only online customers. In addition, a follow-up system allows the Internet agent to monitor each dealer's performance.

AutobyTel's early success has been startling. From zero sales two years ago, it now processes more than 100,000 purchase requests a month. For some dealers, AutobyTel already represents more than 30% of total sales. If Internet agents can sustain such volume and growth rates, they will soon wield significant power over the dealers.

AutobyTel has expanded its sphere of influence to encompass financing and insurance. Its partners in these early endeavors include such firms as Chase Manhattan, GE Capital, and AIG.

There are clear-cut winners in this new retail environment: the Internet service providers, their partners and, of course, consumers.

Car shoppers have increased access to product and purchase information, and to consistently fair prices. The losers are traditional dealerships and finance and insurance companies, including the finance subsidiaries of auto companies.

Whether auto makers will ultimately be winners or losers depends on their innovation in maximising the power of the Internet.

General Motors in Taiwan heightens its customers' convenience by designing a virtual online test drive and offering door-to-door delivery of a testdrive vehicle. Its site accounts for more than 10% of the company's business in Taiwan.

The continued strengthening of Internet agents will funnel more sales to a few select dealers, thereby accelerating dealer consolidation. If the number of dealerships in a major market is reduced from, say, 60 to six or 10, the remaining dealers will be able to offer consumers greater choice with less total system inventory.

In a world where people routinely travel for 20 or 30 minutes to buy a television or save 10% on a hammer, auto makers can safely assume that consumers will travel just as far, or farther, for a broader product selection and competitive prices for a much larger purchase. This is not only the premise behind AutobyTel and CarMax, but it is also remarkably similar to Saturn's successful distribution infrastructure.

The consolidation of sales locations will also affect the delivery of aftersales service. Historically, service has been bound by a one-to-one relationship with sales locations. As consolidation takes place, service can be reconstructed around networks of lightly capitalised, routine maintenance shops in convenient locations.

Direct, cost-efficient communication with consumers is a powerful way to build understanding of buyer preferences, generate brand loyalty, and launch new products. Through online questionnaires, auto makers can generate databases to be used for everything from targeted communications to new product news to chat rooms.

Some auto makers are already using the Internet to enhance their brand images. Lexus, for example, fosters its exclusive image through the Patrons' Circle, accessible only to owners who input their vehicle identification numbers.

Similarly, Jeep reinforces its rugged outdoors image with a site called Camp Jeep, where Jeep owners can learn about promotional events and offroad trips. The site also promises to offer engineering roundtable meetings, where consumers can meet with engineers and executives online.

The Internet is fertile ground for creatively delighting the consumer. Internet agents satisfy fundamental consumer preferences for information, selection, and convenient transactions. As a result, the percentage of online car sales compared with total car sales should continue to climb.

The Net is also open ground for new types of competitors. The faster you prepare to embrace this dynamic environment, the more likely you are to succeed.

Daewoo becomes first Korean firm to sell vehicles online Nissan & CarPoint Japan tie up on Net auto sales