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AutoByTel proves the Net can move big-ticket items

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When it comes to selling big-ticket items on the Web, AutoByTel is fast becoming the expert.

In its two years on the Web, AutoByTel has handled 575,000 requests to buy cars, with about 175,000 of those coming in the last two months. Although these are requests and not necessarily closed deals, the growth trend is still clear.

Auto companies are now interested in accessing AutoByTel's databases of consumers' car preferences, as well as linking to the site, says Chief Financial Officer John Markovich.

MOVING INTO THE USED-CAR BUSINESS

The Irvine, Calif.-based company was founded by Pete Ellis and John Bedrosian in 1994, moving from the Prodigy online service to the Web in March 1995. It added a used-car lot last March, and plans to sell auto insurance through American International Group, a network of underwriters.

How does AutoByTel work? Technically, it's a local area network of Compaq ProLiants running custom software and a commercial SQL database in Irvine, linked to the Internet via a high-speed T-3 line from Sprint. Of the 90 AutoByTel employees, 24 work on the technical details.

The computers can handle 50,000 purchase requests per hour, Mr. Markovich says.

DEALER NETWORK CLOSES SALES

But the real secret to AutoByTel's success is its dealer network, which closes all the sales. AutoByTel has more than 2,000 subscribing dealers, each with brand and geographic exclusivity. It will cap the number at 3,000 of the 22,000 U.S. auto dealers later this year, when "consumers will be within 30 minutes of their local AutoByTel," Mr. Markovich says.

The dealers pay an initial $2,500 to $4,000, depending on location and the price of their cars, to get into the system, then another $2,500 annually. Monthly fees range from $500 to $2,000, in addition to fees based on the number of customers supplied by AutoByTel. In all, it comes to about $60 per car sold, Mr. Markovich estimates.

AutoByTel recommends its dealers establish a separate department for AutoByTel sales, with its own profit-and-loss statement, and a salaried manager whose incentives are based on the number of cars sold, not a percentage of the gross.

Mr. Markovich says that while it may cost $101,500 to sell 100 cars in a conventional system, dealers average about $18,500 to process 100 AutoByTel requests. The $83,000 in savings, $830 per car, are split between dealer and buyer.

While dealers set their own prices, Mr. Markovich says most of those savings go to lower the price of the car.

SITE OFFERS PHOTOS, INFO

For buyers, AutoByTel offers pictures and data on a wide range of cars on its Web site and a simple form buyers fill out when they want to make a purchase.

The form links to the dealer database, identifying the closest dealer, and delivers a fixed price for that car.

Andrea Pedang, the AutoByTel manager for Lexus of Westminster, Calif., says that while after-the-sale service is the same for an AutoByTel customer as any walk-in buyer, she has noticed a slight difference in her online customers.

"They're a little more thrilled than the average customer, because it was an easy, easy process. They can't believe how easy it was."

The used-car lot works a bit differently. International Warrantee Services of Cleveland has been contracted to photograph AutoByTel dealers' used cars and input data on them into the system, charging dealers a fixed fee per car for the listings.

The database is still being built, but the idea is that consumers can input the make, model, specifications and price of a target car, and get a quick match from their area. Again it's a fixed price, but AutoByTel is offering a money-back guarantee and 90-day national warrantee through its dealer network.

All this creates synergies AutoByTel is just starting to leverage, Mr. Markovich says. So far it has handled $24 million in private financings and is now preparing to go public.

COMPETITION COMING

There is competition coming from small entrepreneurs and CUC International, a major online retailer whose program is called AutoVantage. And of course there's the new phenomenon of used-car superstores that are spreading across the country.

But Mr. Markovich claims the advantage over real-world superstores. "We're not buying bricks and mortar, or inventory, or personnel, or receivables," he says.

"We're not paying multiples on book values that never existed until last year or so. And we're not tying ourselves to specific manufacturers or geographic areas."

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