There are two truths about buying cars: First, the more information the consumer has, the better. And second, interacting with auto dealers can be a particularly distasteful experience.
The Internet should therefore be the answer to a car buyer's prayers, right? After all, the Net provides reams of information on the performance and pricing of old and new cars. And, the Web can be a refuge from the car lot, giving buyers the chance to make their purchases without having to shake a salesperson's hand.
But car sites are still largely stuck in first gear, bogged down by the complexities of the vehicle trade. Complicating matters is a new counterattack launched on behalf of Detroit's Big Three automakers.
Most of the current traffic at auto sites is for research. This year, just 17,000 households are expected to use the Internet to finance, purchase and arrange for delivery of a car - a fraction of the 37 million new and used cars that will be sold through dealerships. Business models differ. Only CarsDirect sells vehicles directly to the consumer and can make hundreds on each sale, depending on the vehicle. For most car sites, referrals that result in sales generally make the most money - around $300 per vehicle. A simple referral nets about $20.
"This is a tough business by its nature," says Maryann Keller, a former auto industry analyst who now heads vehicle sales at Priceline.com. "It has relatively low volume and high customer-acquisition costs on an infrequently purchased item."
The thorniest obstacles for online auto dealers are state laws that make it difficult for anyone other than a local dealership to sell cars in a given area. Those rules relegate many online auto sellers to the role of referral sites for local dealerships.
Some Web sites have run into technological limitations as they try to expand their business. Carsdirect.com, which sells cars to consumers after buying them from auto dealers, says lack of standard information and computer systems among dealers make it difficult to match customer requests with inventory at a dealer's lot. "There's no plug-and-play capability for dealerships," says Carsdirect CEO Bob Brisco.
Then there's the "kick the tires" issue. Many people want to see a vehicle before shelling out an average of more than $20,000. Detailed specs and high-resolution photographs on a site cannot replace gripping the steering wheel, feeling the bucket seats or checking out the trunk space.
While dealing with these pressures, online auto sites must now cast a wary eye toward Detroit. In August, General Motors (dossier), the world's biggest car manufacturer, proposed teaming up with its dealers on a site that provides consumers with objective third-party auto information on all makes and models. The site would allow consumers to buy GM cars online or direct them to links if they want to buy other manufacturers' cars.
Just a week later Ford announced that it would soon set up a site that will let customers configure, price, finance and purchase a new Ford car or truck. FordDirect.com will be jointly owned by Ford and its dealers.
Responding to challenges from many sides, online auto sites are retooling their business models in search of broader appeal among consumers and dealers. Some, like Autobytel, no longer require dealers to sign exclusive agreements.
Some sites work to establish even deeper relationships with dealers. Over the last six months, Carsdirect, for example, has allowed dealer groups to buy equity stakes.
Autoweb, meanwhile, has been looking for new ways to make money. The company used to get the bulk of its revenue from charging dealers for customer referrals. Now an increasing percentage comes from automobile spec information that it provides to major Web sites like America Online (dossier), Lycos (LCOS), Yahoo (YHOO) and even Microsoft (MSFT), which operates competitor Carpoint.
Autoweb and Autobytel hope their moves appeal to Wall Street. The two publicly traded dot-com auto sites have each seen the value of their shares fall more
