Industry News & Trends

Death to the Dot-coms? It’s Starting to Look Like That

I came across this article written for Digital Dealer By Peter Perrotta back in August 2000.

It’s really interesting to read something form several years ago and reflecting upon it 8 years later.

Enjoy and share your comments!

By Peter Perrotta, August 2000

While the Autobytels of the world may not ever go away completely, new trends are emerging, suggesting that a shakeout is imminent. This is key. You don’t want to get caught on the wrong side of the aisle.

For the most part I try to bring you "news you can use." You may be too busy at your respective dealerships to even have a free finger you can use to test the pulse of some of the key indicators in the automotive world. That is why you read this magazine, right?

By now, you have heard about the Internet. You’ve heard all the startling statistics that tell you by 2003 you’ll be selling almost anything you can get your hands on over the Web, right?

For a while now, we’ve tried to steer away from continually boring you with statistics that emphasize how big the Internet will become. Instead, we’ve made a conscious effort to steer away from that to bring you a much more "how to" approach to selling cars on the Web.

However, that doesn’t mean there isn’t any intrinsic value in pointing up some of these trends from time to time. Now, is one of those times.

The trend is this. By now it is clearly obvious that the dot-coms haven’t figured out how to make money doing whatever it is they do. Namely, trying to squeeze a profit by selling your cars off of your lots.

Just take a look at some of the stocks of some of these companies, Autobytel is one example, and the proof will be in that pudding. The stock markets woes of late haven’t helped much, either.

Anyone who works anywhere near Wall Street can tell you at least two things for sure these days: the venture capital money many of these dot-coms used to launch their businesses is quickly drying up and the high flying days of the technology sector, which includes Internet stocks, are not coming back anytime soon.

The double whammy here is that interest rates are sure to rise, with the Fed attempting to put the brakes on the irrationally exuberant stock market, and any investor worth his salt is now out there looking for companies to invest in that actually have profits, can you imagine.

This may spell death to some of the dot-coms. With the IPO market drying up, interest rates rising, their stocks on the down slide and no hopes of turning a profit anytime soon…well, you do the math.

Sheldon Sandler has. Sandler, founder of Bel Air Partners, financial advisors for the automotive industry in Princeton, N.J., says the referral model or lead-generating car buying services is "virtually dead."

Sandler knows a little bit about money having spent a good portion of his career as a Wall Street analyst.

"Their fundamental business model is flawed," Sandler says. "They can’t make money. We knew it was a joke from the start."

Initially, the dot-coms were flush with venture capital money. They made some money selling regional contracts to car dealers.

However, Sandler says there was such a proliferation of these services their own revenues, let alone dare we say profit margins, began to get eroded.

Moreover, the Autobytels and Autowebs have a hard time gaining any brand loyalty. "The consumer can’t differentiate between them and the dealers just used them," Sandler says. "How will they make enough money to stay in business? The answer is they won’t. Until you control the inventory, all you can do is direct people."

Sandler and others in the know currently subscribe to the notion that a rotation is already underway. That rotation has more of the dot-coms pushing into the direct selling approach used by Carsdirect and Greenlight.

Underlining that point, Autobytel has launched its Autobytel direct in an attempt to capture revenues from both sales models.

Sandler says consolidation in the dot-com arena is already underway. This will lead to short term changes with the stronger continuing to survive.

However, Sandler believes that even the direct selling model employed by the third partner sellers won’t bring in enough revenues to sustain them.

In two to three years, Sandler says, the dot-coms will mostly be gone.

Filling the void, Sandler predicts, will be a strong network of Web sites that are controlled by both the manufacturersand dealers.

"As long as the inventory is still coming from the dealers, the dealers are still in control and the manufacturers are in control of the dealers," Sandler says. "Don’t forget the manufacturers want brand identity. The factory will find a way to do their own (Web) sites. They have the bucks. They have the cars.

"They (the factory) want the relationship with the consumer. The dealer will be hurt by these guys (the factory) coming together with the consumer," he predicts.

However, to make up the difference, Sandler thinks the factory will provide added incentives to the dealers to make up differences, especially on the loss of profits on the front-end of Internet sales.

"The factory may end up cutting a check back to the dealer to make up for the loss of gross profits on these sales," Sandler says. "It will be more of a ‘Detroit’ system with a direct factory to consumer relationship. The dealer will deliver the car after the factory builds it for the client."

Is Sandler on the mark here. I think so. Maybe not 100 percent, but I think he’s pretty close. There will be a shake out on the dot-com horizon. There will be a move towards direct selling models.

That is the short term outlook. The long term will be a combination of Web selling through the use of factory and dealer Web sites, with much less dependence on the intermediaries. It makes sense.

To date, dealers have been somewhat lazy. They have put up Web sites but haven’t been able to figure out how to drive traffic to them. So, hence, they rely on the Autobytels of the world.

But, once the dealers and the factory get on the same page with this (and they will) they won’t need the Autobytels of the world. Think about this: Why should they continue to give these guys a piece of their pie?

The answer is there will come a day when they won’t have to.

Here we are 8 years later. What had changed VS what has not changed?

J
  • J
  • September 20, 2007
Great idea on the post Jeff...

Personally, I was not yet in this space 8 years ago but have done my best to catch up on the industry, trends, etc. I would have to agree that there will most likely come a day when there will not be a need for lead aggregators - although I am not sure that day is "just around the corner" just yet. For the management / ownership of maybe a few few thousand dealerships who have taken time to understand the Internet (SEM, auto specific search sites, online newspapers, blogging, etc) and leverage its power; there are thousands more who do not seem to care about understanding the Internet at all. Most seem to consider having visually appealing, flash heavy websites as "doing enough" on the Internet.

There seem to be plenty of tools, vendors, etc. to help dealerships break away from the need to buy leads. The problem is, in a lot of cases, no one at the dealership level really takes time to become educated on the Internet and how to best implement those tools(SEO, PPC, Blogging, RSS, etc.) at their dealership. Until more owners and GM's make this a priority, lead providers will most likely continue to find ways to add to their value proposition; which in quite a few cases still yields higher ROI than some traditional advertising methods.


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    EJ
  • September 20, 2007
That's definitely an interesting article to bring back. As I was reading it (and I skipped over how the article was written in 2000), I found myself vehemently disagreeing with some parts.

A few of the obvious parts left out of the arguments were laws and regulation around the sale of cars. I know that Ford has/tried a direct car model as did Carsdirect, but they both ended up being blocked by regulation.

Franchised dealers have better access to inventory and may always control certain sections of the market, but there will always be room for creative, independent dealers. Look at Carliquidators.com or Evenlevel.com.

Finally, obviously eBay Motors has managed to make a play as a dot com selling used cars, and I didn't see a single mention of them in the article. Certainly VC capital has dried up for web 1.0 companies that try to change distribution channels through the internet, but not for social sites that change interactions.
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    Lao Shi
  • September 20, 2007

This is a great article and looking back allows us at times a clearer image of where we are going.

Many manufacturers selling products through retailers and dealers were slow to embrace the Internet as a sales & marketing tool for fear of alienating channel partners. The idea of B2B trade exchanges as the means to lowest price using online auctions and sales proved to be by almost any measure a failure except via ebay and some of the larger independents. It maybe due to their huge success that there are not more competitors in this market.

Many manufacturers are still trying to figure out how to get closer to consumers online. Their biggest fear is in alienation of their dealers and channel partners. However when one OEM develops a successful model the others who are smart will follow quickly.

The real value of Internet marketing isn't talking to customers, but listening to them, which is the basis of the "Toyota Plan" to establish a more direct channel to their clients.

Another key integration leading to a more effective online presence is that of customer relationship management (CRM) systems which will improve over the next few years. Look at how much they have improved in the last few years and there are more companies now in the game, quality companies producing quality solutions.

Pity the poor company signing a contract to be locked into a 5-year agreement today with one of these "archaic" legacy companies.

This type of marketing relationship, OEM-Consumer, aligns the desires and wants of consumers with the capabilities of the "OEM Company", and the success results in a loyal customer.

Korea is a classic example of this as they have 23 million Internet users, one of the highest percent based to the country's population in the world.

KAMA (Korean Automobile Manufacturers Association) is an active model of how Korean OEM's are using the Internet to reach their Korean customers. It may pay some of the US Dealers to research this. As we all know Korea is moving very quickly up the ladder.

Some automotive manufacturers have been in the forefront of this change, streamlining their supply chains via the dealers and establishing a trading exchange, Toyota, Ford, and General Motors, are able to better manage the entire order-to-delivery process and differentiate offerings to customers according to their value, some better than others.

Toyota and Ford were one of the first auto manufacturers to use the Internet to reach Hispanic customers with great success. Even today, 2007, you will find dealers in Hispanic communities without a Hispanic site as part of their ecommerce solution…. Go Figure? The Hispanic market continues to be the fastest-growing consumer segment in the U.S.

Some OEM's for the most part know this and strive to offset the lag and inefficiencies of the present system.

Via the Internet, more power has shifted to the customer, and those companies that are able to integrate their supply chain and their customer strategies via the Internet will achieve breakthrough performance.

To date this channel has been filtered through the dealer system so the data in many cases is skewered. As the OEM companies centralize their process and channel direct to the consumer they will receive back exactly what the consumers are looking for, the complaints, ideas, desires and suggestions, also the OEM will be able to give the consumer correct product information and eliminate much of the misinformation that is in the market place today.

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I miss Pete Perrota. I think he left automotive. I knew him from the Auto Retailing On the Web (AROW) conferences that he ran. I even spoke at one... Heck, the year was 2000 and I was on the speaking circuit as a CRM "expert." 937-643-1189 if you find and read this Pete.

www.ai-dealer.com/CAW%20CRM%20Oct%202000%20Article.pdf

I found that artile several months ago and left some comments after it on the original post... even tried to hunt down Pete and Sheldon Sandler afterwards to see what they thought of brick and mortar car dealers adopting shopping cart based ecommerce as Web 2.0 on the Internet or "click and mortar" as has happened in every other industry.

Shopping cart based ecommerce is here. Not just Ai-Dealer. Lithia has a custom solution built for their new used car superstore (www.L2.com - sorry folks, it apparently only runs if you have an ADP DMS), AutoNation will apparently be out with one soon too, my last company NeoSynergy has one www.neosynergy.net/products_buydirect.html, and others even automate dealership price responses as auto responders (in exchange for your email address of course - My Live Offer, Rednumbat).

Shopping cart based ecommerce is coming to automotive. You can either get one or learn to compete with one... hopefully when that happens dealers will finally start to learn how to make their websites somewhere worth going for consumers. I wrote about it last week in my management briefing series. If you would like some free ideas of what I had in mind, you can read it here.

http://www.ai-dealer.com/Hub_or_Spoke.html

If you would like me to add you to my newsletter list, just send me an email to bhoecht (at) ai-dealer.com

Great post Jeff... Seven years old and still very bang on.
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    JAT
  • September 25, 2007
Selling vehicles online is a funnel process. You advertise the vehicle online, the customer searches for their vehicle, your listing is appealing, they click on it, they email your dealership and include a phone number for you to contact them. Once an email lead turns into a phone lead it then hopefully converts to an appointment, the customer then physically sees, smells, drives the vehicle they are interested in and hopefully purchase the vehicle. This will go on this way for sometime to come. If I had a dime for every prognosticator of wisdom that stated "Cars will be sold directly online thru email with little or no sales person involvement" several years back, I'd be a millionaire. Customers buy from people they like, that they've had repoire built over the phone and then in person, from an actual sales person. If I was asked what would be the biggest probable "Sales Prevention Tool" that could ever be implemented by a dealership, it would have to be adding a robotic voiced voice mail tree type of customer response system from internet generated advertising on vehicles. I can envision seeing Call Bright reports with call durations of 8 seconds. C'mon guys, people buy from people they like and they need to see & feel the car before making the commitment. It's the sizzle not the steak. Systems like this are purely steak.
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    CS
  • September 26, 2007
Nice post, Jeff. Reading this article today made me laugh.

The factories might continue to shrink the new vehicles sales field, but they're losing ground in the used sector. With a few bulk feeds, smaller sites can be just as visible to consumers because of sites like Oodle.

Money will be thrown at projects like myride.com, but generating leads comes down to having an inventory of cars for sale and exposure to the market, which is something that anyone can do without a million dollars.
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    BubbaBubbas
  • March 5, 2012
WOW it's 2012 and dot coms are stronger than ever.  Dealers are quaking in the shoes over Zag, Truecar, Edmunds, etc.  
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