PALO ALTO, Calif., July 31 (Reuters) -- The auction site eBay has had enormous success selling everything from art to computers, but early on, it did not see much potential in the used car business.
Until one day a company executive scanning the model car section stumbled upon a full-sized Ferrari for sale.
It was a fortuitous finding for eBay, which, in response to customer demand two years ago, set up eBay Motors for selling cars, motorcycles, parts and accessories--and watched it grow into the largest merchandise category on its site.
Today, eBay Motors remains a leading destination for hard-to-find and very expensive cars like Ferraris, but it is also becoming a preferred destination for run-of-the-mill buyers, who once perused the neighborhood used car dealer's lot.
Used car dealers are also turning to eBay to reach a wider audience, sell hard-to-move cars, and generally speed up the sales cycle and increase revenues.
"It is actually becoming a big part of our business," said Marcos Bayona, who runs Internet sales for The Porsche Center in San Antonio, Texas. He has used eBay to move cars off his lot to as far away as Puerto Rico.
"We're able to turn them a lot quicker online," Bayona said. "And if we can sell it in a five-day auction instead of keeping it on the lot for 30 days," it makes sense to sell it for less.
Randy Darden, another used car dealer in Texas, said about 25 of the 200 or so cars he sells every month, are sold on eBay. Like other dealers who have discovered eBay, Darden says he typically sells cars online for at least $2,000 less than they sell off the lot. Because he can move them much faster through an Internet auction, he does not regard these lower prices as a loss.
"eBay has given us more of a retail avenue," said Darden, who owns DRK Wholesale in Arlington, Texas.
eBay, which charges sellers a $40 listing fee and another $40 if the vehicle is sold, says that some kind of motor vehicle is sold on its site every two minutes, a motorcycle every four, a sport utility vehicle every 18 minutes. The site receives almost five times more traffic than General Motors online car sites, the next largest online car destination. One day recently there were 67 Ferraris, 18 Lamborghinis along with more than 2,400 plain old Chevrolets for sale on eBay Motors.
If buying a car, sight unseen, seems to stretch the limits of Internet retailing, eBay says its success has come from building safeguards into the system to prevent fraud and misrepresentation.
Buyers may arrange through eBay Motors to have a third party inspect the car before the deal closes, use an escrow service to hold payment until the vehicle is shipped, and obtain a warranty in which up to $20,000 will be refunded in the event of fraud.
"It was not the most obvious move, when the Internet was young, to use the online auction format to start selling used cars, and moving them cross country," Simon Rothman said, recalling that a number of serious car collectors went to eBay in its earliest days.
"It's really hard to find a collector car," Rothman said. "There isn't a dealership for them."
After tapping the collector car market, eBay soon found that many ordinary car owners were having just as much trouble selling their vehicles off line. Some living in big Midwestern car manufacturing centers, for example, found it virtually impossible to sell a foreign car in their home towns. The Internet exposed them to a much larger customer base.
Rothman, a life-long car enthusiast, eventually used eBay to locate a hard-to-find sportscar, across the country from his native California, in Philadelphia, and arranged for an inspector to view the car before he completed payment.
The experience helped him see how a well-monitored online car site could remove much of the mistrust typically associated with buying a used car from an unknown entity. Buyers and sellers who connect on eBay sometimes arrange to meet face-to-face but most of the time they will complete the deal through eBay because of the warranty and other protections eBay Motors provides.
"If you buy a used car in a local market, what do you really know about the seller?" eBay's Rothman said. "We have a lot of dealers on our site now and my guess is that five or 10 years from now, they will make up a new stratum within the auto industry."