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?