Are these the best or worst of times for online car-buying services?
In many cases, revenue is rising for car sites, but few are posting a profit. Several are re-evaluating business models and ad strategies. Some are looking for dance partners with carmakers, portals or other Web sites to drive business to their sites.
"There are already more services than the market can handle," said Chris Denove, director of auto-consulting operations at consultancy J.D. Power & Associates. He said there are about a dozen "significant, independent players" and foresees an industry shakeout in the next 12 to 18 months with the urge to merge or form alliances gaining momentum.
Mr. Denove said the window of opportunity already is closed to newcomers lacking deep pockets.
"If you're thinking of starting an automotive online-buying service tomorrow and you don't have at least $50 million in the bank to build your brand, you might as well save yourself the trouble," he said.
MANUFACTURERS' DIRECT PUSH
At the same time, manufacturers are reaching out directly to consumers. Volkswagen of America is selling limited-edition Beetles only online.
General Motors Corp. has GM BuyPower, an online vehicle shopping and buying service that Modem Media-Poppe Tyson, Norwalk, Conn., will push heavily as part of a $30 million account for e-GM, GM's e-commerce business unit.
GM's Saturn Corp. is in the midst of a test with three online auto services--Autobytel.com, Autoweb.com and AutoVantage.com; Saturn gathers leads from the sites and sends them to dealers under the program.
As manufacturers push forward, some online sites are hitting the brakes.
For example, DreamLot.com, Mountain View, Calif., had planned to roll out its used-car-sales Web site in April. A former in-house spokesman said the company is regrouping due to a shortage of funds, participating dealers and technology glitches.
An Austin, Texas, online car venture, carOrder.com, this month laid off 100 people, about one-third of its staff.
REFERRAL NOT SUSTAINABLE
Services that charge referral fees need to evolve their strategies because they're no more than middlemen and the referral format is not a sustainable business model, said Rob Leathern, an analyst and auto specialist at Jupiter Communications.
Adam Weiner, senior analyst at e-commerce market researcher Gomez Advisors, agreed. Dealer-referral Web sites "are just adding another layer" to car buying. "Customers can get a greater selection of dealers in the Yellow Pages" than from services that refer prospects only to member dealers.
MSN CarPoint gets "plenty of revenue from referrals to dealers, but we're pursuing new revenue streams," said Gayle Troberman, marketing director of the Microsoft Corp. arm. The site plans to add data services, charging carmakers, suppliers and others for aggregate data generated on its Web site.
Microsoft pledged to build the first online build-to-order car-buying system linking consumers to Ford Motor Co., with whom CarPoint allied last year. Ford earlier this month said the program would be tested in two Canadian markets.
CARPOINT'S FIRST OFFLINE ADS
CarPoint, which had limited advertising to online, will shift gears this fall with its first offline advertising from McCann-Erickson Worldwide, Seattle.
"We'll have to increase our ad budget significantly to go to offline advertising," said Ms. Troberman, declining to give specifics. The service wants to reach a broader audience for its planned line of expanded services.
When asked if CarPoint is profitable, she said Microsoft doesn't release specific financial data about its units.
As for profit, Autobytel has lost money since it started in March 1995.
"That's nothing new for dot-coms," said Mr. Denove of J.D. Power. He called Autobytel "the undisputed dominant leader" with the strongest brand in the segment.
Small wonder. Autobytel, started by a former car dealer, was among the first online car-buying services. It spent the most in measured media last year in the segment, $8 million, according to Competitive Media Reporting. Autobytel was the first dot-com to advertise during the Super Bowl, a 1997 effort that was repeated in 1998. Even so, the marketer has started to rejigger its business model.
It recently created new revenue by licensing its brand in different countries. "International is a great revenue generator," said Ann Delligatta, chief operating officer of Autobytel.
It's adding a new service, Autobytel Direct, which it started promoting last month in a TV commercial from Grey Advertising, New York. It's also doing a direct promotion to more than 1 million newspaper subscribers in seven major markets.
AUTOBYTEL PLANS USER FEE
Autobytel offers its original service, charging dealers a referral fee for every customer lead sent to them. Under Direct, dealers still pay a fee, but Autobytel takes control of the customer. Autobytel plans to "eventually charge the consumer" to put in their vehicle request to a dealer under Autobytel Direct, Ms. Delligatta said.
Dealers also pay Autobytel for exclusive geographic territories, but the areas are shrinking as more dealers enlist. Even so, Ms. Delligatta said dealers are enjoying higher sales volume.
Ms. Delligata said President-CEO Mark Lorimer projects Autobytel will post its first profit in the second quarter of next year.
The car-buying service posted a net loss of $8.1 million in the first quarter ended March 31 vs. a net loss of $6.1 million during the same period a year ago. That includes results of CarSmart.com, which Autobytel acquired in mid-February.
CarSmart has company in finding a dance partner.
Just last week, Autoweb inked a four-year deal with America Online to use Autoweb's content, data and technology across AOL's sites to allow consumers to research and buy cars. Autoweb also recently entered an alliance with Lycos, which owns 10% of Autoweb; that gave the portal an instant car-buying service. Autoweb's first-quarter report said Lycos and CarsDirect.com invested $29 million in the company. CarsDirect, which filed last week for an initial public offering, has a different approach. It gives consumers a price and then buys the vehicle so customers don't have to visit dealerships. Autoweb refers customers to its more than 5,000 member dealers and charges them a fee.
Mr. Weiner at Gomez Advisors sees integration of online and off-line sellers as a major trend in the industry. He said bricks-and-mortar facilities are needed and consumers seem to prefer to give sensitive personal data face-to-face.
LOCATION VITAL TO CONSUMERS
Online services that bypass dealer involvement aren't giving consumers the information they want--such as the location of the vehicle the buyer wants, he stated. The customer could get the car cheaper by going directly to a dealer, he said.
One company trying to address that issue is Vehix.com, partly owned by AT&T Media Services. Vehix gets most of its revenue from AT&T so it does not charge dealers, said Larry Scott, VP-marketing. The company that John Garff, a dealer with 18 franchises, founded in 1996 also collects fees from auto insurance and car finance companies.
Mr. Scott said the private company hit black ink last year and has been profitable every month of 2000.
Morey Mahoney, Denver, handles Vehix advertising. Three new TV spots break this week on cable as part of a $35 million campaign, Mr. Scott said. Initial ads in January focused on the Vehix brand, while the new spots focus more on driving site traffic.
Separately, Autoweb has scaled back its offline advertising plans as it drives to turn a profit in early 2001, said Jim Wolfe, VP-marketing.
The marketer announced last fall it would spent $12 million on a TV push from Lowe Lintas & Partners, San Francisco, through the first half of this year. But it spent just $2 million in measured media last year, according to Competitive Media Reporting. Mr. Wolfe said it spent $4.5 million in the first quarter of 2000.
Autoweb is also working with car manufacturers, now providing online buying services to all of Nissan North America's Infiniti dealers.
Cars.com charges dealers a monthly fee for its service, which varies from $500 to $1,500 depending on the market. Cars.com markets locally, primarily in its 130 member newspapers, but also buys local spot TV, radio and outdoor ads. Cars.com pays half of local-market ads in a co-op program with member newspapers.
Alex Vetter, director of client services at cars.com, said the service gets a consistent grass-roots advertising presence. Stein Rogan & Partners, New York, handles cars.com, which said it spent $12 million in last year's fourth quarter on a 16-market spot TV push.
James Maguire, marketing director, said cars.com plans its first national magazine ads later this year. He disputed Competitive Media Reporting data showing only $1 million was spent on measured media last year, saying that amount was spent in Washington alone. He said member newspapers offer the service an equivalent of $50 million in advertising a year.
American Isuzu Motors advertises on cars.com and, Mr. Vetter said, "We want to work with more manufacturers." BMW of North America just signed up for a new customer relationship management program that lets it send e-mails to customers from its home site.
GREENLIGHT DEPLOYS RADIO
Newspapers have not been as kind to Greenlight.com, with some of them refusing to accept ads, said Alison Berkley Wagonfeld, VP-marketing. The car-buying service, which went live in November, advertises mainly via spot radio in the 12 regions where it has member dealers. Greenlight has three main investors: Amazon.com and two dealer chains. The service has about 30 member dealers in each of its 12 regions.
Greenlight finds the car the customer wants and provides up-front pricing. "We get volume pricing from our dealers, so we can put a profit margin on the cars and that lets us have a transaction fee and still be competitive," she said.
Greenlight plans to kick off its first national ad campaign from Bartle Bogle Hegarty, New York, later this year.
"There's a lot of growth in the category right now," said Ms. Berkley Wagonfeld. "My sense is in the next couple of years there will be more partnerships and 100 companies will probably drop to a couple of major players."
Copyright May 2000, Crain Communications Inc.