ABTL CEO Interview from MarketWatch.
cbs.marketwatch.com
Company Autobytel.com
Whom We Talked To Mark Lorimer, CEO
IPO Date Mar. 26
Offering Price $23
Stock High 58
Stock Low 21 1/4
Last Update: 5:12 PM ET May 17, 1999
Profile: New York-based Autobytel.com (ABTL: news, msgs) operates an Internet Web site that offers vehicle information and purchasing services.
Notable: After postponing its first attempt to go public in 1997, Autobytel.com sold 4.5 million shares at $23 a share this March, a few days after rival Autoweb completed its own initial public offering.
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Wall Street since you guys went public, and obviously your major rival Autoweb (AWEB: news, msgs), the reception hasn't been too endearing, at least perhaps compared to some other Internet concepts. Why do you think that is?
Walker: I'm not exactly sure, but I think it has a lot to do with just time. The auto business is a lot more complex than some of the other models that are out there.
In terms of the stock coming out and not crashing through the ceiling immediately, we're in some pretty some good company with some Internet names that are now trading at significant premiums to where they started.
Are people just not clear, are they worried about manufacturers coming online, dealers coming online? Do they not think there's a leader in this market yet, and they're waiting for one to emerge?
Walker: No. I think the leadership issue is pretty well established so far. Every measurable statistic we're in the lead, including branding both domestically and internationally. It has more to do with just understanding the distribution scheme, which is much more complex, with cars.
A lot of other the companies that are out there are buying and holding product in inventory, and selling it at a negative gross margin, while we're out here actually working the cost end of the distribution scheme specifically, trying to reduce the cost of customer acquisition for dealers as well as the selling cost of dealers, which consumes about $1,200 a car, and getting that money back on the table so it can be shared by consumers in the form of lower prices.
It just takes a little more education to get the word out on the Street.
You mention you don't hold that inventory, so you're less of a retailer, and more of an intermediary in that you provide information and contact between the dealer and the buyer.
Walker: Right. Given the way our traffic has been scaling, we've become a virtually a firehose of ready-to-buy customers that we just can point that to dealers that have agreed to service them properly in a way that's brand-neutral to the manufacturers but promises a great experience for the consumers.
there's no question the Internet has made auto buying a much more pleasurable experience ...
Walker: We started it.
I definitely give you the props for pioneering the market. However, you still have to deal with dealers, and there is some question about whether people want to go and see the product for themselves. There still are issues about how appropriate this is for the Internet. It's great for information, can it take that next step to get further down the transaction?
Walker: Basically, the answer is yes. In the most recent study I think it was by Forrester, indicated that 49 percent of people were willing to buy a car without a test drive. The second thing, is the information that we give consumers at Autobytel.com is so robust and the process -- you know, a test drive at your home and office or in and out of the dealership within an hour -- is so good, that the friction in the process of buying a new car is largely removed.
You have had some problem with dealer turnover, as had your competitor, or competitors. Why are they doing this, and how are you stopping it?
Walker: Our problems are orders of magnitude less severe than anyone else's. We, for instance, in the fourth quarter of last year and the first quarter of this year, we're down to about 5 percent turnover per quarter, while some of our competitors out there are averaging 10-15 percent per month. And that has largely to due with the fact that we're actually delivering value in car sales into those stores that we deal with.
Meaning you're giving exclusivity [to participating dealers]?
Walker: It's not only that. It's just our brand appeals to people who want to buy a car. Our brand has a very consumer friendly appeal, meaning that people who want to buy a car come to our site. They use a lot of the other sites, including the manufacturers' sites, just for information gathering purposes.
This has been borne out by two J.D. Power studies in a row that have indicated that we're No. 1 in dealer satisfaction. We've also swept every consumer indication -- for instance, J.D. Power's last consumer study on people on the Internet. So, on both sides, on the consumer side and the dealer side, we're ranked No. 1, going away really.
That's not to say that the market doesn't have a lot of competition. If a dealer isn't happy with one site it isn't too hard to pick another one out there.
Walker: It's not, which is one of the reasons why our traffic in terms of purchase requests and people coming to transact, has been considerably higher.
One of our competitors out there that's public, for instance, we have probably twice as many, according to their release numbers, people coming to look for cars and then buying cars than they do, twice the closing ratio, as well as more than twice the level of satisfaction...
We not only started this thing, but from very early on, there has been a lot of smart money that realized what we're about. Our earliest investors were GE Capital, AIG Insurance. We have investments from MediaOne, from Metro, which is the second largest retailer in the world. Both in Europe and the United States, as well as Japan, we have smart investment money behind us. This is not a VC-recapture scheme, nor are we going to play it that way. This is a long-term stable business model as recognized by some of the biggest car names as well as some of the biggest retailers in the world.
Obviously the dealer market is very fragmented, and there is no national brand when it comes to the car market, beside from the car manufacturers themselves. Is that another way that this model becomes appealing?
Walker: Certainly. Our direct-to-site traffic has been increasing rapidly
That means without portals?
Walker: Without portals or without any referrals or links. That's people just typing our URL and coming direct now accounts for over 36 percent of our traffic. That indicates that the brand awareness that we've been working to build has been taking hold. And I think that there is a big play for a brand as you see us move in the future aggressively into service retention and servicing the car, which is another $250 billion a year market, as well as other activities that one does with the car, that branding that we've spent so much effort and will continue to do so will start to show.
"It'd be fairly easy for me to light up all of GeoCities with banners that say send me a purchase request and I'll send you a dollar. But that's not going to transact nay business."
Losses compared to Autoweb were bigger and that is because you think it's a branding war right now?
Walker: Largely. The scale of the whole operation is just very different also, to the extent of starting it up around the country as well as now seven other countries are all significant. We'll be announcing soon a Japanese venture, and we've already launched the Swedish and U.K. ventures with our partners there, which are large and significant automotive distributors, one of which is partially owned by Ford and Volvo. And we'll also be in Denmark, Finland and Norway.
The international market is a large opportunity so its good to see you moving there. You mention the car manufacturers are partly involved in that. To a large extent, you can't be too involved with these guys, so what role do you see them playing?
Walker: It's a complementary one. The manufacturers spend a great deal of time, money, energy and thought in communicating out to the world an image for their particular automobile. And that's not something we're involved with ...
We're about the transaction.
Most of the activity to date has been new car sales. But you started selling insurance, and now you plan to get involved in bringing mechanics with car owners,a and that kind of thing.
Walker: As we move forward, yes, you will see that shortly. What we have done recently is move into the used car market, which is actually a larger market than the new car, including auctioning. We have 2,700 dealers with access to the wholesale.Autobytel.com auction, which is currently just a dealer-to-dealer system. But it'll eventually be dealer-to-consumer and consumer-to-consumer. And auctioning is going to be a big part of what you see us do.
"Auctioning is going to be a big part of what you see us do."
What's your fee there?
Walker: We take a percentage of sale from the seller.
Is it set now?
Walker: It's still being tested. But the one you're using now that looks like it's going to be holding for the dealer auction is 1 percent of the price of the car.
Would you partner with someone like eBay on something like that?
Walker: We're constantly looking. We'd partner with anybody on anything. The answer is, if it makes sense for what we're trying to do, which is reduce costs to the consumers so they can get better prices, we're open to discussing it at any time. And we're in discussions constantly with lots of different parties.
Sure, it just seemed like a logical fit as they try to move upscale and regional.
Walker: One of the challenges we have is finding out exactly how to safeguard the auction system for the consumers as we move it out. It's obviously a much more complex issue when you're delivering a car than it is when you're delivering something of much less value.
What about Microsoft (MSFT: news, msgs)? Their CarPoint is a very popular site. They obviously have a lot going on, but they seem to becoming more committed to their Net ventures.
Walker: Really?
It seems like it.
Walker: Ok. (laughter)
(laugh) You disagree?
Walker: No, no, no. I don't disagree. I don't really have an opinion on it. Microsoft's CarPoint is a fine site. It's actually a beautifully executed Web site.
But again, one of the distinguishing factors that we're trying to get people to appreciate, no matter how good the Web site is, it doesn't get the product delivered. What gets the product delivered is understanding automotive distribution and working with the dealers inside the dealerships.
Microsoft, for instance, conducts its dealer activity through a third party. We have, for instance, 25 people in the field in districts throughout the United States going to the dealerships and working with them to improve the customer experience and to reduce the cost of selling the car everyday. That's all they do is they go into dealerships and do that.
How does Microsoft work it?
Walker: They distribute CarPoint through a third party called Reynolds & Reynolds, which is a dealer services organization. Didn't know that, did you?
I didn't know that. They don't advertise that. (laughter) Well, that's interesting. Now what about Autoweb charges a fee per lead, which to me seems a little more fair, dealers pay for what they get, as opposed to a set fee, if the traffic isn't coming to them?
Walker: Not this year, but last year, when the J.D. Power survey on dealer satisfaction was released, we were No. 1 far and away in every category. They had a quote in there that said that Autobytel is proving the old adage you get what you pay for. We're the most expensive service for a dealer to maintain. We charge more, and our revenues are actually ramping on a quarter-over-quarter basis faster than our traffic. We had a 43 percent increase between quarter one '99 and quarter one '98 in purchase requests, but a 100 percent increase in monthly fee payments. So it's a situation where the dealers, so long as we're delivering highly qualified buyers who are interested in transacting, have been more than willing to pay increasing fees.
For the amount of money we spend in marketing and advertising, it'd be fairly easy for me to light up all of GeoCities with banners that say send me a purchase requests and I'll send you a dollar. But that's not going to transact any business, and in the long run, that's going to have an adverse effect n the per-request model.
Our model allows us to concentrate on delivering qualified purchase requests and qualified buyers to the stores, and that's been borne out now for two years in a row by J.D. Power studies and the fact that our revenue is scaling faster than the traffic.
Speaking of revenue, are you comfortable with the models that are out there? We're getting pretty far in the second quarter.
Walker: Well, we don't make projections. Period. However, what we're aware of out there as the models -- as we told everyone on the roadshow, I think the permitted statement is we're comfortable with the models.
As far as improving the service, what are some of the things you have planned in the next couple of months?
Walker: You'll se us move aggressively into service. You'll see us beta the comparative insurance quotation system, where consumers can come in and actually get the largest insurance companies in America to give individualized quotes so that consumers can compare them in real-time. As well as you'll see continued international expansion and added content and personalized features on the site. As well as the official launch of our community site.
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