23-year-old computer’geek’ Brian Stafford – still driving his first car and with no auto retailing experience – plans to buy 100 dealerships outright
It was always apparent that those powerful and ambitious intruders from outer space – the Internet Service Providers – would not be content to play a mere supporting role to America’s automobile dealers. What was perhaps not so obvious was the speed with which the onslaught would occur. Such illustrious names as Microsoft and Dell Computers are currently engaged in a turf war against a 22,000-strong dealership body backed by the National Automobile Dealers’ Association and an anxious but determined band of car manufacturers alarmed at this attack on their traditional fiefdom.
The internet’s popularity with the public is already manifest. According to a recent J D Power Autoshopper.com study, 40% of all car buyers ‘shopped’ one or several web sites in 1999 before making a purchase – up from 27% in 1998, and the forecast for 2000 is 55%. Of the 40%, 2.7% actually bought on the internet, against 1.2% in 1998, and a prediction of 5% for this year. Although only $9 billion of the industry’s estimated $534 billion sales can be attributed’ to the net, indications are that that number will more than double this year. What is perhaps more significant is that 14% of the industry’s web sites each registered 500 ‘hits’ per month, a substantial increase over 1998.
If one is inclined to dismiss these statistics as relatively small beer, remember that the pioneer web sites are a mere five years old. In that very brief time, 74% of the nation’s dyed-in-the-wool dealers have been persuaded either to use an outside agency or develop their own site. At the present, US automobile dealers are a carefully protected species.
However close the servers get to completion of a sale, physical delivery still has to be handled by the dealer. The internet service providers, shackled by restrictive laws that have no parallel in Britain, are on the attack (the spectacle of manufacturers seeking shelter under the very state laws expressly enacted to cramp their own style does seem rather ironic).
AutoByTel.com is playing a prominent role in probing the boundaries of these legal restraints. In a programme brazenly called the ‘Out-of-dealer Experience’ fronted by the company’s president Mark Lorimer, the supplying dealer’s identity is withheld until the very last moment. This ‘dealer’s friend’ web site claims that this is precisely what many buyers want.
Michael Dell’s CarsDirect.com has taken the fight into the enemy’s stronghold by lobbying in four important states to be permitted to sell vehicles without a business location. It does not take much perception to realise that this would give Dell a huge advantage over the traditional dealer burdened by an expensive physical operation.
Of course, there is no guarantee that Dell could receive direct supplies from any manufacturer. Unfortunately for the invaders, however, at a time when they might have wished for a level playing field, they face a new rebuff. The already restrictive laws of Texas are about to be ratcheted a further notch, this time specifically targeted at external web sites. Touted as an attempt to clear confusion, the new rules are directed at ‘brokering’ as defined by AutoWeb.com’s ‘fee per hit’ programme. ‘Fee per month’ is okay, ‘fee per hit’ is not. I have to admit that the logic of, and the need for, this fine distinction escapes me. Texas goes further.
Henceforth, exclusive territories are a ‘no-no’ and every dealer must pay the same flat fee. For the buying services, this latter is a serious problem – a similar monthly fee for, say, a Mercedes dealer in a large city and a KIA dealer in a small country location would seem to be economic nonsense, but that is apparently what is intended. Even so, other states are confidently expected to follow suit.
In this clash of the Titans, dealers themselves are not without their detractors. Goldman Sachs Investment Research likens them to the dinosaur, with one analyst commenting: “Brokers [the lead generators] will buy dealerships to circumvent state legislation. Acquiring one franchise for each of the top 40 brands in California, Texas and Florida would cost a mere $75 million. Dealers will become delivery boys for the manufacturer. They will not sell cars. Servicing will be franchised out to chain service providers such as Jiffy Lube and Kwik-Fit.” Quickly pointing out Goldman Sachs’ conflict of interest (they are substantial investors in CarsDirect.com) NADA ridiculed this apocalyptic prophecy, claiming: “The automobile business will continue to be a people-to-people field. Trade-ins are a stumbling block to the ‘click-and-click’ scenario. The whole trade is far too complex for such a simplistic solution.”
As a response to the threat of the ISP’s legitimately buying dealerships, this riposte somehow misses the mark. One man who is planning an end-run around current protective legislation is 23-year old computer geek Brian Stafford. Still driving his first car, with no auto-retailing experience, and seemingly unruffled by the disdain of his fellow-ISPs, he plans to buy 100 automobile dealerships outright. Not for him AutoNation‘s expensive acquisition campaign – he will concentrate on tiny rural dealerships – all he needs is the franchise.
Impressed (not to say, astonished) that his carOrder.com is backed by a $100 million facility from a Texas software provider, both Ford and General Motors are entreating their dealers not to sell to this upstart from cyberspace. But it is doubtful if this huffing and puffing will suffice. He is perfectly entitled, given adequate financial resources and good character, to buy his way into the dealer network. Brian Stafford may be ahead of the game, but he is only one of an estimated 100 ‘lead generators’ infiltrating the industry. Notwithstanding the past year’s rapid proliferation, it will be interesting to have a recount in one year’s time.
Popular with the buying public they may well be, but a shake-out is inevitable. In October 1997, when I last examined the impact of the internet on the retail automobile scene, I posed the question ‘Help or Hype?’. At that time the results were inconclusive – for every adherent there were others discrediting this technological revolution. The balance has shifted conclusively, as an information tool the battle is won. America’s dealers seem to have accepted the inevitable and are falling over themselves to establish their own web sites. So, what about Britain – will this ‘craze’, as it has been dismissively termed there, run out of steam? With the success of such servers as Freeserve, and the example of the United States before them, there can be little doubt that the growth in internet use in Britain will accelerate. It’s called progress. Unfortunately, Britain’s dealers don’t have an organization with the clout of NADA – or Texas – fighting their battles. It is therefore all the
more important for them to establish their own web sites. After all, wouldn’t it be nice to eliminate all that costly press advertising.