Online car buyers are driving blind

Car-buying sites need to offer real prices on real inventory.

COMMENTARY--I'm an anomaly among car buyers because I bought my first car through Autobytel.com instead of haggling at a dealership. The process took about two weeks. The second time around, however, I needed a car in a week. After waiting two days for a return call from a CarsDirect.com rep, who was unsure how long it would take to find the car I wanted, I decided to go to a traditional dealership. A model closely matching what I wanted was ready for pickup in time for the weekend at a slight premium over the CarsDirect price.

Direct-sale detours
I don't fault CarsDirect for failing to meet my tight deadline, but my experience may provide some insight into why online car-buying services are faltering. Unlike computers, which direct manufacturers such as Dell can custom-build and ship within a known period of time, car buying is still hostage to an ancient inventory system that seems to create gluts of models consumers don't want, and shortages of the ones they do.

Some analysts and automakers say the industry needs to create a better "locate-to-order" system before it can tackle build-to-order. But solutions have been hard to come by. Neither online referral services nor independent direct-sales services can tell you online whether a specific vehicle is available because franchise laws prohibit them from taking ownership of inventory. Instead, services such as CarsDirect simply broker sales with participating dealers that agree up front to a specific price for each configuration. A CarsDirect sales rep still has to locate the car, and this could take time.

CarsDirect's recent purchase of car-buying site Greenlight.com should increase the likelihood that the car you want will be in stock because it expanded its dealer network to 3,000 in 40 states. The company says the callback time is now often hours, not days, and five days for delivery is typical.

Things didn't work out as well for some other online car-buying sites. MSN CarPoint's DriveOff.com brokering business closed its doors in February. And CarOrder abandoned the broker model in January to become a true online dealer by buying franchises in California. The service now sells only from these dealers' inventories.

What's on the lot?
What may have done in these services is the lack of a real-time inventory system similar to the Sabre system the travel industry uses to check flight availability. "The matchmaker model will ultimately succeed," says Chris Denove, a partner at J.D. Power and Associates. "Consumers plug in the exact vehicle they want to purchase, and the Internet service finds the closest matching vehicles and the price."

Another problem is that more than 60 percent of manufacturer pricing data on car-buying sites contains errors of varying degrees, according to Art Spinella, president of CNW Marketing Research. Until a real-time inventory system is in place, automakers and large cross-brand dealers such as AutoNation (www.autonation.com) have an advantage because they know where their cars are and have access to all the regional pricing. At press time, Ford was running its FordDirect pilot (www.forddirect.com) in New Jersey, through which it offered fixed "ePrices" online from local dealers on specific configurations that approximate prospective buyers' choices. General Motors made a similar move with GM BuyPower (www.gmbuypower.com) late last year in Minneapolis and St. Paul.

But, says Denove, "the disadvantage is automakers must work not only with the consent of their dealers but with the enthusiastic consent of their dealers." As any car buyer who's walked into a dealership with a stack of Web printouts can tell you, dealers are wary of the Internet.

Consumers share the same wariness of dealers, which is why GM CEO Rick Wagoner urged dealers to support a venture it's calling AutoCentric JV, which would let consumers buy both GM and non-GM cars.

The used-car model
Ironically, the most radical approach to locate-to-order direct sales online has been taken by used-car seller iMotors (www.imotors.com). Freed from franchise laws related to new-car sales, iMotors can purchase used cars from the same sources as dealers. But it won't buy a car until it receives an order and a $250 deposit. It doesn't guarantee it can find the car, but it provides an up-front price it claims is typically "hundreds to thousands of dollars below Kelley Blue Book retail."

If it finds the car, it brings it to one of its inspection centers around the country for a 269-point inspection and reconditioning. You pick up the car in any of 32 cities with an iMotors warehouse, and get a three-month, 3,000-mile warranty plus a seven-day/ 700-mile money-back test period.

iMotors also offers guaranteed 14-day turnaround on hundreds of popular configurations through its Express service. This represents a marked improvement over the traditional used-car process, and even goes beyond what new-car services can provide in the current environment.

Which brings me to the real point: Low prices and quick turnaround are just the trappings of online car buying. Fundamental change will occur only when the selling process molds to consumer needs, rather than vice versa.