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Car Wars

Car Wars

Scott Barrett sums up the auto wars like this: "Last summer another CIO told me, 'I just bought my new car from AutoWeb.'" So far, so bad for Barrett. He's the CIO of AutoNation, a humongous corporation of car dealerships. But the plot thickens: AutoWeb doesn't really sell cars. It's a new Web-based business that helps consumers do online comparison shopping and then passes their contact information to local dealerships as a sales lead. "It struck me that [the other CIO] didn't buy his car from AutoWeb; he bought it from a dealer. But that wasn't his perception," Barrett says. And that's the kicker. "The last thing you want is to give up ownership of the customer." Ownership means customer loyalty, word-of-mouth advertising, repeat business, a continued revenue stream. When a customer decides to buy a new car, Barrett wants him or her to think, "Better head over to AutoNation"-not "Better check out AutoWeb." This is a critical age for those who would sell cars. Not because people aren't buying vehicles; US sales, as of midsummer, were widely expected to equal or break the all-time high (set in 1986) of 16.3 million cars and trucks in a year. No, the problem with the automobile industry, essentially, is the Web: A menagerie of new companies and new business models are crawling out of the Internet's primordial stew, upsetting the long-standing balance of power between car makers and car dealers. Forrester Research, based in Cambridge, Mass., predicts that in 2003 the Web will influence roughly 8 million new car purchases, half a million of which will occur entirely online.

One vital common denominator among many of the Web auto companies is the allure of "no-haggle" shopping: See car, like car, like price, buy car-without inflated sticker prices and all that back and forth to the manager's office that some consumers regard as demeaning, dishonest and a waste of time. Of course, no-haggle pricing, like many other services touted by online auto players, requires cooperation from the brick-and-mortar folks who ultimately make, deliver and service that car. So on the one hand, the new online auto industry players are seeking partnerships with dealers and manufacturers alike.

But on the other, the issue of customer ownership lurks in the back of auto executives' minds and renders those partnerships, in many cases, uneasy at best. The question of who owns the customer has festered in the auto business for a long time, so the rise of the middleman is picking at old sores. And as in every other industry invaded by the Internet, the old guard is re-examining everything from the smallest details of their operations to their very business models. "They can see that the iceberg is there; the question is, can they turn?" says James McQuivey, a senior analyst at Forrester and author of a report titled "New-Car Buying Races Online." RISE OF THE MIDDLEMAN Wasn't the Web supposed to be an agent of disintermediation? In the car business, new intermediaries are popping up faster than kids at the sound of the ice cream truck. AutoWeb (www.autoweb.com), for instance, provides all kinds of information for the car shopper, like prices, Kelley Blue Book values, recall and service bulletins, and reviews. Ultimately the company site seeks to record the customer's identity, location and purchase preferences, then pass this information along to participating dealers in the customer's local area.

Such companies are often called lead generators. Other sites such as CarMarket (www.carmarket.com) function more along the lines of newspaper classifieds, or simply provide information for comparison shopping. Some sites rely on ad banners for their revenue, while others collect fees from either the dealers or the customers.

According to Barrett, AutoNation's CIO, consumers who use the Web as part of their car purchasing process fall into two fairly distinct groups. One group wants the convenience of being able to do some comparison shopping without having to drive from dealership to dealership. The other group is looking to avoid the negotiation process that has for so long been the standard way to do business for car salesmen. Online businesses do a good job meeting the expectations of the first group, but the "no-haggle" promise is much tougher to deliver. "Once they got off the Web, they were getting pulled back into the traditional haggling process," Barrett says-a result of a disconnect between the online businesses and the dealerships to which they forwarded their leads.

In fact, Barrett asserts that he's seen research indicating that Internet buyers actually have lower satisfaction levels than do the customers who go through the normal channels. (Forrester's McQuivey, however, disputes that conclusion, saying that many dealers have "gotten a handle" on meeting online shoppers' expectations, which, he adds, are likely to be higher in the first place because they are armed with better information about their possible choices.) Autobytel.com, AutoWeb, CarPoint and Cars.com all follow a business model that bridges that gap. Autobytel.com , founded in 1995 and based in Irvine, Calif., has signed up a network of nearly 3,000 accredited dealers, representing most major auto brands. A consumer visiting the Autobytel site can click a few buttons to indicate the sort of car she is looking for-passenger or SUV, perhaps under $25,000, preferred manufacturers (if any)-and call up a list of matching vehicles for comparison purposes. Once the buyer decides on a particular model, she submits a purchase request online, and the site passes it to the closest Autobytel-accredited dealer, who looks at the specifications and calls the buyer with a price quote within 24 hours. Autobytel recommends that its dealers establish a separate "electronic sales" department to handle all Web-based leads, since buyers who come in through the online channels have a different set of expectations from those who walk in the front door. Autobytel provides onsite and offsite training for dealers' dedicated sales managers as well as for sales directors, receptionists and anyone else necessary for getting the online customer directed to sales personnel trained to deliver on the "no haggle, no hassle" promise. "Some of the lead generators advertise 'no haggle' on their sites, but then they send the customer to multiple dealers," says Ann Delligatta, executive vice president and COO of Autobytel. "I don't know what they expect will happen on that end." Clearly, the competitive element puts the likelihood of negotiation back on the table.

Delligatta's background underscores the fact that for the middleman, truly no distinction exists between the business and its technology. She was hired two years ago as chief technical officer; now she runs the company's operations.

Generally speaking, the race among the middlemen is to establish the broadest range of services. Autobytel does not have this space to itself by any means.

Even Microsoft is in the game with its CarPoint site, which, like Autobytel, advertises a network of trained dealers to back its informational services and no-haggle shopping. When the winners and losers are decided, "I think the straight lead generators will be a piece of the fallout," Delligatta says. The winners online, she believes, will be the companies that do the best job of meeting customer needs all the way through the buying cycle and beyond. "The cost of aggregating consumers to the site will be more than they can bear unless they can offer the consumer many more types of products and services online." Autobytel garners its revenue from ad banners on its site and from dealer fees and related consumer services such as financing and maintenance. Is this an Internet business model that will succeed? The jury is out. Autobytel claims to have the highest brand recognition among Web auto sites, yet as of the first quarter of '99, it was still unprofitable, losing roughly $6 million against revenues of $8 million during that quarter. The company is currently racing to broaden its portfolio of services. For example, Autobytel recently began hosting auctions of used and wholesale vehicles on its site.

But building an online business depends as much on relationships with dealers and manufacturers as it does on adding site functionality. Some of the dealers have been collaborating to figure out how to build the online business, Delligatta says, although "there are dealers who are second- and third-generation auto industry who definitely think they know the way it is supposed to be done." Manufacturers have also been difficult; those relationships Delligatta describes as "evolving. Those are the big guys who are used to controlling things." If the car makers are indeed holding back from relationships with the middlemen, they could be in for an unpleasant surprise.

"We're selling a lot of cars-a million dollars an hour. [Manufacturers] should be on the phone with me, figuring out how to get their information in front of customers on my Web site," Delligatta says.

DEALERS RESPOND

Dealers also have some reason to believe they hold a few cards that will always keep them in the game. Car buyers can swap as many electrons as they like online, but eventually they want to go pick up an actual car. And cars need maintenance, which means the customer wants convenient and excellent service, for which many are accustomed to relying on their dealers.

Still, smart dealers are finding ways to join with intermediaries rather than resisting or ignoring them. AutoNation's response has come in stages. First Barrett and the rest of the company's management team sifted through industry research to determine what, exactly, the online shopper is looking for. Then the company set about ensuring that each dealership in the chain has its own Web site that is connected to the central AutoNation site. AutoNation, based in Fort Lauderdale, Fla., has more than 400 new-vehicle franchises-representing 36 brands-plus 40 used-car superstores. (The company also owns the National and Alamo car rental businesses.) The IS team established a template that allows new functionalities to be added to the central system and rolled out quickly to individual dealer Web sites.

More ambitious, though, is AutoNation's new Web-based Compass system. Compass is the company's way of tying it all together, says Barrett. The company has established relationships with a number of online lead generators. Compass combines contact information from those sites with leads from AutoNation's own Web presence (www.autonation.com), hundreds of dealer sites and a new Internet sales site (AutoNationDirect.com) in a single database, and then acts as a prospect management system. The Compass system alerts sales staff in the appropriate AutoNation dealership, via pager, as soon as a new lead arrives in the database; then it walks the sales force through each step of the sales process, recording and time-stamping every contact with the customer, whether by phone or by e-mail. Barrett says research indicated that fast response time was a critical customer expectation. Initially AutoNation averaged 1.7 hours to contact a new customer lead; its goal is to pare that down to one hour. The system also provides management with the ability to measure the quality of leads-based on actual sales generated-from each source and from the company's own sites. "They can see transaction volumes in real-time. It's a great tool for managing the entire sales process," Barrett says.

AutoNation is unusual in several respects. For one, it is at the forefront of dealers responding to the Web-based changes in their industry. The many others who are unresponsive at this point will either change or be swept away. Another unique aspect of AutoNation is its size. It is a big chain of dealerships in a world still mostly dominated by small, independently owned dealerships. That size becomes critical when funding complex projects like Compass-as well as AutoNationDirect for selling directly over the Web, which AutoNation began doing last June. So whether the middlemen turn a profit (which some eventually will) or morph into some as yet unforeseen next incarnation, AutoNation has eggs in other online baskets.

THE BIG BOYS

It will be a huge step forward, however, if and when AutoNation is able to tie the manufacturers as well as the middlemen into the Compass system. "The lead providers are small, nimble companies, and it was easy to establish links from them into the Compass system," Barrett says. But manufacturers are having some difficulty figuring out how to respond to the new players in their sandbox.

The motivation appears to go back to the issue of customer ownership. Car makers are working to transform themselves into consumer-focused companies, and the Web is a great channel for facilitating that change. At the same time, manufacturers naturally want to exert their brands' influence no matter what channel customers come through; they don't want to drop everything they've accomplished in building a loyal customer base just because the Web showed up.

"This is a very complex industry. An electronic customer interface [is important], but most [consumers] want to do a lot more than electronic shopping," says Bernard Mathaisel, formerly executive director and CIO at Ford Motor , based in Dearborn, Mich. (Mathaisel, Ford's first CIO, left the company in July. He is now corporate vice president and CIO of Solectron in Milpitas, Calif.) "Customers want to go and test drive, see the colors in the daylight, sit in the back seat, imagine how much luggage they can put in the trunk," he notes. That fact lobbies for the continued existence of the tried-and-true manufacturer-dealer relationship.

Mathaisel also asserts that Ford's Web site (www.ford.com) gets more hits (about 5.4 million per day) than the very largest of the "ecumenical" sites that provide information about cars from all manufacturers, and it continues to add functionality to its Web site to maintain this edge. Mathaisel also notes that manufacturers are privy to some information that third parties cannot provide. For example, custom ordering a vehicle is tremendously complicated (which power trains fit with which chassis?). There are roughly 1.2 million possible buildable combinations in Ford's Taurus line alone. Ford uses its knowledge about these combinations to determine whether it can match a given customer's design requirements. And only the manufacturer can provide accurate tracking of the completion and delivery date of that vehicle.

"If I were one of the third parties, I would be very concerned about my future.

They had a short time when consumers wanted electronic brochures. [Now] consumers want to do a lot more than that-they want to [custom] order the vehicle and track its delivery. The only place to do that is through [manufacturers and] dealers," Mathaisel says.

On the other hand, Ford President and CEO Jacques Nasser, who is relentlessly pushing the $144 billion giant to become a consumer-oriented-rather than product-oriented-company, sounds more receptive to the Autobytels of the world.

"I've welcomed the Web-based businesses," Nasser says. "Are they causing some rethinking and change? Yes, and I think it's very positive for Ford." Having said that, Nasser does not specify the ways in which Ford will work together with Web intermediaries in the future; time will tell whether Mathaisel's replacement as CIO, 25-year Ford veteran James Yost (whose full title is vice president of process leadership and CIO), will build bridges or burn them.

Meanwhile, Ford seems to be trying a little bit of everything, selling used cars online and experimenting with new retail formats like its "Auto Collection" superstores that house all of Ford's numerous brands (Ford, Lincoln, Jaguar and soon Volvo, among others) under one roof.

STAY TUNED

So the three parties-manufacturers, dealers and middlemen-are circling each other warily, offering to shake with their right hands while still keeping a dagger handy in the left. Who will be left standing, and how will they be interconnected, when the dust settles? One inevitable event will be a shakeout among the online businesses. "The good news for these referral services is that they are the dominant show on the Web, compared to AutoNationDirect.com and other dealer sites," says Forrester's McQuivey. "The bad news is that with so much competition, they match each other feature-for-feature, and it's very hard to see any profits for them any time soon." Whichever of these new businesses survive the shakeout, the confrontational edge in the industry should dull over time. In an ideal world, all three parties-makers, middlemen, dealers-would cooperate to provide a new level of service and convenience to the consumer.

And the power of consumer choice will push them to it. Ironically, all this jockeying to own the customer may be in vain-in an age of instant comparison shopping, customers will not care to be owned. They will still have favorite cars, favorite dealers and favorite Web sites, but their allegiance will be harder to maintain than in the past, and customer ownership will be shared-if there is such a thing at all. "If they're spending time wondering how to own the customer, they're thinking about the wrong thing. With this much information available to consumers, owning the customer is not a reality," says McQuivey.

Or, as Delligatta puts it, "In the Internet economy, it's the consumers who are in the driver's seat."

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