These days your typical online car-buying experience might go something like this: you're looking for, say, an Audi A4. You click onto one of the popular Web referral services--like Autobytel or AutoWeb--and configure your new set of wheels. The service locates a dealer who can match your options, but the showroom happens to be 100 miles away. And, you have to put up with blue when you wanted silver. Price? The dealer's got MSRP in mind, rather than invoice.You start sending e-mails or decide to visit the dealer, but either way you're forced to haggle just like the last time you bought a car. And you're left with the nagging feeling that you could have gotten a better deal.
For all the New Economy fanfare, the Net hasn't exactly revolutionized the way we buy cars. Yes, some new cars come Web-ready and with all kinds of gizmos, as enthusiasts at the Paris Auto Show saw last month. And the Net surely can let us save time by doing car research online. No longer do we have to call a dozen dealers or drive to a bunch of lots. This year an estimated 1.8 million Americans will use the Web to find their new cars, according to Jupiter Research. That's 11 percent of all new vehicles sold. But only 82,000 of those sales will be closed directly online. For the rest, Net vendors only pass referrals to dealers, where the sales-and-negotiation process is usually the same sweat-and-mortar experience it's always been. "The present business model doesn't add a lot of value for the consumer," says Robert Leathern, a Jupiter analyst in San Francisco.
For all its cost-cutting and automating, the industry hasn't much changed the way it works since Henry Ford invented the assembly line: manufacturers churn out cars, let them stand around in lots and hope someone buys them. The average new car spends 60 days in one of those lots, and the auto industry is one of the few where consumers not only have to negotiate the price they want, but also the product itself, rarely leaving with the exact car they came in for. Manufacturers spend billions in rebates to get rid of cars that don't have the preferred color or options. Using online technology to produce cars more in tune with what customers really want could save manufacturers and dealers--and, ultimately, consumers--a lot of money: $60 billion a year, according to a recent analysis by Goldman Sachs. That's an average of almost $4,000 per vehicle.
To start mining that lode is why rivals Ford and GM joined up with Oracle, Commerce One and i2 Technologies in November to develop a B2B e-procurement platform. (DaimlerChrysler later signed on too.) The idea is to wire up manufacturers with suppliers to automate procurement and speed up production. Ford has also teamed up with Microsoft, with the goal of giving MSN's CarPoint access to Ford's manufacturing pipeline. That will help Ford sell cars before they're shipped. Volkswagen is experimenting with software that sends information on what customers are buying at its dealerships to everyone in the supply chain--from car designers to parts suppliers--making it easier to build cars that match demand. Once everyone is wired up, the Net will make it possible for consumers to configure a car online, and for carmakers to build vehicles to order.
But don't expect that Webi-fied Ford soon. Changing from today's production-driven system to one defined by customer demand requires retooling the industry-supply chain. There's also the touchy issue of franchises. Dealers want their cut, as do the states, which like the sales-tax revenue; the states are unlikely to change franchising laws that make it illegal for anyone but a local dealer to sell new cars. There's also a key consumer issue: cars aren't a commodity like airline tickets. People still like a test drive, want to trade in their old vehicle and expect after-sale service. "As long as dealers contribute value, they don't have to worry," says Jens Neumann, a Volkswagen board member. Translation: when selling moves online, dealers will have to concentrate even more on services like financing and maintenance.
With the built-to-order car still a gleam in a carmaker's eye, the next-generation business model might be called "locate-to-order." That's how Forrester Research describes the networking of manufacturers, dealers and Web-based third-party services that will let consumers use the Net to get exactly what they want. Some time soon you'll be able to go online to do a vehicle search across dealer inventory, as well as final-stage factory production, which will return high-percentage matches with a price commitment. Already, AutoNation, the world's largest online seller of cars, features a real-time database of existing cars at what they claim are no-haggle prices. Edmunds.com just launched a shopping feature that links to the databases of different Web referral services, manufacturers and dealer networks, allowing improved comparison shopping.
The site also gives consumers bargaining power with estimates for each vehicle's market value, based on inventory and demand data. Dealers who still don't cooperate can be bad-mouthed through a ratings system--similar to the way eBay users rate sellers--due to be rolled out by the end of the year. Multibrand sites like Edmunds's will start giving carmakers better data on what customers really want, undistorted by dealers' arm-twisting and massive showroom discounts.
There are surely kinks to be worked out. For one, vehicle data are still inconsistent. DaimlerChrysler is testing inventory listings in Oregon and Washington, but dealers don't put all their cars online. Specifications often aren't complete. And dealers are reluctant to be open about prices. For all of carmakers' efforts to go online, consumers have preferred to shop at neutral, unbiased sites. That's why GM has said its future Web site will offer a front door to all brands. Right now there's frantic positioning going on. Web sites like Dreamlot and Autoallies shut down this summer, and the early favorite, Autobytel, has lost more than three fourths of its stock-market valuation since January. The Net is supposed to change everything--but it may take a little longer with the slow-moving car industry.