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Want to buy a car???
DJS New Internet Venture To Sell Cars Online, Cut Out Dealer Middleme
DJS New Internet Venture To Sell Cars Online, Cut Out Dealer Middlemen
By Fara Warner, Staff Reporter of The Wall Street Journal
A new Internet venture backed by computer executive Michael Dell's
personal-investment firm and co-founded by idealab Chairman Bill Gross plans
to become the first company to sell cars entirely through the Internet,
bypassing showrooms and salesmen the way Amazon.com Inc. bypasses bookstores.
The venture, called CarsDirect.com, promises to heat up competition
among auto makers, online-buying services and dealer groups such as AutoNation
Inc., which are scrambling to control the growing number of consumers who go
online to shortcut the traditional process of shopping for new and used
vehicles.
CarsDirect.com, which already has sold $20 million of cars through a
test Web site since December, is launching its updated Web site this month may
and plans to begin buying dealerships later this year, company executives say.
Unlike other third-party online car companies, such as Autobytel.com
Inc. or Microsoft Corp.'s CarPoint, CarsDirect.com doesn't funnel sales leads
to dealers. In fact, consumers never have to talk to a dealer if they so
choose. Instead, CarsDirect immediately gives consumers a set price online
based on recent average selling prices. It works through existing dealers to
get the car at those prices.
Consumers, who pay a credit-card deposit of $250 to start the process,
can use CarsDirect to apply for financing through Bank One Corp.'s subsidiary
Finance One. The subsidiary is signing a partnership with CarsDirect to create
an online auto-financing venture. Finance One's existing network of about
10,000 dealers also will be used as a source of vehicles for CarsDirect. In
the end, CarsDirect will deliver vehicles to buyers' homes or offices and even
put its own brand on the back of the car.
"The auto business is probably the biggest retail segment in the world,
but the direct model through the Internet has never really been applied to it
before," said Glenn Fuhrman, managing principal at MSD Capital LP, which
invests Mr. Dell's private funds and has taken a stake in CarsDirect. "People
said they were doing it, but nobody really was."
Mr. Gross, who sits on CarsDirect's board, said that even when
CarsDirect buys dealerships it "plans to close them down. We'll keep the land,
but we won't have people on the showroom floor." Mr. Gross said the company
already has $25 million in capital to begin acquiring dealerships. Mr. Gross's
idealab, a venture incubator, has also backed eToys and Cooking.com among
other Internet-retailing sites.
CarsDirect has also attracted other big-name backers, including Goldman
Sachs Group Inc. and automotive publisher Primedia Ventures.
"Detroit's going to be scared," said James McQuivey, senior analyst
with Forrester Research in Cambridge, Mass., who wrote a report predicting
such a company would be created. "Everywhere I go, people always ask if we
could do the Dell model in cars and when is it going to happen." Dell Computer
Co., founded by Mr. Dell, sells computers direct to consumers through the
Internet.
But CarsDirect faces big hurdles. The company said it will be able to
deliver cars anywhere in the country, but that means in many cases it will
have to work through a tangle of state laws that govern car sales. It's also
still only in the early stages of setting up a dealer network. AutoNation, the
biggest auto retailer in the country, already has a national network and plans
to sell $500 million of cars over the Web this year. Manufacturers also are
forging ahead with their own sales on the Internet and will balk at
cooperating with yet another third party trying to steal carsales online.
Chris Denove, director of consulting operations at J.D. Power and
Associates, cautions that CarsDirect must keep its prices low. But that won't
be easy since prices fluctuate as manufacturers and dealers raise and lower
discounts. CarsDirect's co-founder and Chief Executive Officer Scott Painter
said the company will keep prices in the lowest 10% of the range for given
models. Initially, Mr. Painter said the company would even subsidize the price
of a car to stay competitive.
"In the long-term, we think large volumes are going to help us make
more money on the cars," he said. The company, which doesn't add service fees
to the price of its cars, plans to sell vehicles at an "average" price for a
given area and squeeze profits out of volume discounts from dealers.
CarsDirect also plans to generate revenue from other services it offers, such
as financing, maintenance and insurance, he said.
There's also a risk that consumers will be reluctant to commit to as
costly a purchase as a car with just the click of a mouse.
"Three years ago, we were convinced that selling cars directly to the
consumer online was the right model," said Alex Simons, group product manager
for Microsoft CarPoint. "But we got overwhelming negative responses from them.
They said they like the local presence."
Still, a number of auto makers are pursuing ventures that bring them
ever closer to selling cars to consumers via the Internet. Ford Motor Co.,
through its minority interest in the Tulsa Auto Collection retail network,
Tulsa, Okla., is selling Ford Mustangs on the Internet. And Toyota Motor
Corp.'s U.S. sales arm is considering testing a new version of its Web site
that offers a look at the company's inventory, said June Okamoto, the U.S.
division's Internet marketing manager. But Ms. Okamoto said dealers remain a
big part of the selling process.
Dealers who have worked with CarsDirect said they still feel as if they
are a part of the process, especially when it comes to service. "We are
getting consumers who are ready to buy and they are going to be long-term
customers," said Ryan Autrey, dealer principal at Long Beach BMW, in Long
Beach, Calif. He said he has sold about 14 cars through CarsDirect since
January and has the same number on order.
Copyright (c) 1999 Dow Jones & Company, Inc.
All Rights Reserved.
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