Auto Dealers Take Web Offensive

Extranets, exchanges combat 'disintermediation'

Heeding repeated warnings that the Internet is the meteor that will bring their extinction, automotive dealerships are putting aside their fears and doing something the dinosaurs couldn't: adapt.

Rather than resist the Web revolution, auto dealerships are starting to embrace it--to improve interactions with both consumers and suppliers. They are taking on their fledgling online competitors and improving dealer-to-dealer communication.

For instance, the National Automobile Dealers Association, which represents nearly 20,000 new-car retailers, plans to introduce its own auto buying site later this year to compete with the likes of Autobytel and CarsDirect.com. Unlike the online car-buying services, NADA won't charge its dealers for sales leads.

"The online buying sites are helping dealers find customers, but a lot of dealers don't like the idea of paying for those leads," said Don Gentry, CIO of NADA. "Our idea is to eliminate the middleman and generate leads through our own site."

Separately, the Cobalt Group is rolling out Motorplace.com, a site that aggregates vehicle and parts data from some 12,000 auto retailers to create an e-marketplace where dealers can find and procure cars, parts and other supplies.

More than a million people work for U.S. car dealerships, but their businesses are inherently disconnected, noted John Holt, co-CEO of the Cobalt Group, which makes Web software tailored for auto dealers.

"Our idea is to build a community where dealers of all types can get together to share information and transact business," Holt said.

And just yesterday, Ford Motor Co. unveiled an alliance with UPS Logistics Group that will use Web technology to speed the delivery of new cars to Ford, Lincoln and Mercury dealerships.

Auto dealers are confronting two perceived threats: manufacturers that could bypass them to sell vehicles directly to consumers on the Internet, and Web sites such as Autobytel and Microsoft's CarsDirect.com, which offer auto sales services that help consumers locate and purchase cars.

About half of the dealers responding to J.D. Power and Associates' most recent survey say they believe their manufacturer suppliers "would like to get rid of the dealer channel in favor of some sort of direct sales model," said Chris Denove, director of consulting operations at the firm, which monitors the auto industry. "And about two thirds of them believe that independent online buying services will be bad for dealers in the long run," Denove said.

But both threats are less real than many perceive. For instance, the chief executives of both Ford and General Motors, appearing at NADA's annual meeting last month, said they have no immediate plans to launch direct-to-consumer build-to-order manufacturing programs.

As for online buying services such as Autobytel, they appear to bypass the dealership, but in fact assign new-car sales leads to dealerships that pay to participate.

In fact, only 10 U.S. states allow consumers to buy cars from any entity other than a state-certified auto dealership. And even if companies could sell directly to consumers online, there are no facilities yet to replace dealer services such as test drives and warranty repairs.

"It's sort of like an Internet company saying that they are going to offer heart surgery over the Web and bypass the heart surgeon," said Autobytel CEO Mark Lorimer.

In fact, automaker Saturn is getting even closer to its dealers. The GM subsidiary said last month it will spend $300 million to expand its extranet connecting dealers and suppliers.

The extranet, which will link 15,000 Saturn retail employees at 400 sites, will replace Saturn's IBM AS/400-based dealer network with an Internet-based network that employs customer relationship management software from Siebel Systems and a consolidated server farm managed by Computer Sciences Corp. The network will provide many new capabilities to Saturn dealers, but one of its chief functions is to help Saturn salespeople deal with customers over the Web.

"There are two things we can't offer over the Web: test drives and that new-car smell," said Phil Johnson, systems manager for sales, service and marketing at Saturn. "Just about everything else can be done over the Web." Still, Johnson insists that Saturn, whose dealer network has created a community of loyal customers, "has no interest" in selling direct over the Web.

However, if reports of the auto dealer's demise are exaggerated, reports of its relative lack of Internet savvy may not be.

While 75 percent of dealers have Web sites, said J.D. Power's Denove, "most of them don't have a clue what to do with them. They have a lot to learn about what they can do with the Web, both on a b-to-c and b-to-b level."

NADA's Gentry reluctantly agreed. "There are a lot of dealers that are very Web-savvy, but there also are a lot of them that don't understand that they can't wait till the next day to answer their e-mail," he said. "There is a lot of education still to do, but it is difficult to get that across in a year when dealers sold 17 million cars and broke every record in the book."

NADA is attempting to accelerate the implementation of Web technology among its members by endorsing two new Cobalt software packages. The NADA Web Essentials Package offers basic Web development and business management tools at a price of $350 a month. The NADA Web Premier Package offers tools for developing online ads, managing sales leads, handling online customer service and tying into Cobalt's auto parts locator system.

In addition, Cobalt and NADA plan to develop a consumer automotive portal that will let buyers search the inventories of dealers. Sales leads will be passed to the nearest qualified NADA dealer for free, rather than being routed only to paying dealers, as they are with Autobytel, Gentry said.

Not surprisingly, Autobytel CEO Lorimer questioned whether NADA will have the financial resources to maintain a complex consumer buying site. "A company like AutoNation.com lost $9 billion in market capitalization trying to compete in this market," he said. "You can lose a lot of money in this industry."

Over time, there could be a shakeout among the online buying services, said Blair Pritchard, Internet services manager for Pleasanton Auto Mall, a California dealership.

"There is significant competition among them as they try to differentiate themselves," he said.

Meantime, many auto dealers are looking to the Web not only to capture new customers, but also as a means for keeping customers after the sale. Using the expanded Saturn extranet, for example, dealers will be able to let customers access service records or warranty information over the Web. The extranet also will let Saturn dealers exchange sales leads and best practices data with one another, as well as parts and inventory information.

Such capabilities are part of an emerging dealer strategy of sacrificing margins on a new-car sale to make money on auxiliary or follow-on services, such as financing and repair, Lorimer said. "They may see the new car as a loss leader to gain a customer," he said.

Such strategies are pressuring auto dealers to cut costs by deploying Web technology on the back end as well as the front end. That's the idea behind Cobalt's Motorplace.com, a dealer-to-dealer exchange that helps retailers find vehicles, parts or even office supplies at low cost for fast delivery.

"It costs dealers over $1 billion a year to maintain an inventory of obsolete parts," said Cobalt Group's Holt. "Just by itself, that's a significant savings they could make by using an exchange like Motorplace.com."

But whether they use Web technology to save money, compete with one another or compete with other online entities, auto dealers will have to stop worrying and learn to love the Net, as Dr. Strangelove might say.

"The hardest part of this whole thing is training," said Saturn's Johnson. "We have to find ways to make our retailers less scared of the technology so they can take advantage of it."

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