Click Here For A New Sedan! (Not Yet, Alas)

Buying cars on the internet seemed like such a good idea back in the go-go '90s. After all, most car buyers would rather have a root canal than go toe-to-toe with a car salesperson. And auto companies figured they could turbocharge their profits by wringing out some of the estimated $2,000 per car they spent on a distribution system dating to horse-and-buggy days. But now, several years after predictions of the death of every car salesman, the showrooms remain and the dream of pure, unintermediated online car buying is still just that.

The typical Web-savvy customer is like Shekhar Raj of Toledo, Ohio. When the 48-year-old medical researcher set out to buy a new car on the Net, he kicked some virtual tires on a variety of Web sites, speccing out horsepower and creature comforts. Then he found his favorite model's invoice prices--those wholesale prices once known only to car dealers and manufacturers. Finally, Raj clicked a "purchase request" button on the Autobytel Web site. But the UPS man did not arrive at Raj's door the next day with his new Honda Accord packed in a brown box. Instead, Raj received an e-mail from his neighborhood Honda dealer, offering him a good price and telling him to come on down. In short, the Internet did not deliver a new car to Raj, it delivered Raj to a car dealer, where he signed the paperwork, cut a check and picked up his wheels the old-fashioned way.

So much for the revolution. Auto dealers are currently enjoying record sales, while some of the hottest online car sellers of the '90s have gone the way of the Pets.com sock puppet. That doesn't mean car shoppers reject the Net--most actually now go online before they set foot in a dealership. But those who actually buy a car online, like Raj, account for a scant 4.1 percent of the U.S. auto market. And after all this time, the online car-selling model that was supposed to overhaul the auto industry has yet to drive out of the red. The granddaddy of online car-buying sites, Autobytel.com, is behaving like Pac-Man going through the wreckage of the virtual auto business. It joined forces last month with former archrival Priceline.com and last year gobbled up AutoWeb.com.

Yet, like other online car sites, Autobytel still isn't profitable. Executives at online car sites insist profits are just around the corner, and Autobytel expects to be in the black by the end of the year. But analysts predict that more online car sites will run out of gas before the concept proves it can make money. "There's still too many players," says Edmunds.com president Jeremy Anwyl. Why is Autobytel one of the last sites standing? "We didn't try to reinvent the retail channel," explains CEO Jeffrey Schwartz. "The company that partners with dealers ultimately wins."

But wait a minute. Online auto merchants were supposed to put that plaid-suited car dealer out of business. Instead, online car sites have become to dealers what the Internet is for so many instant-messaging teenagers--a love connection. Sites like Autobytel, Microsoft's CarPoint and Cars.com drive car buyers into the arms of car salespersons. And dealers close the deal with about 13 percent of the buyers sent their way by the online sites. In return for those referrals, the online car sites get subscription fees from dealers for providing prospects. Autobytel, for example, charges its 9,000 subscribing dealers a flat fee averaging $840 a month to hook up with its users. Getting fees from a critical mass of the nation's 23,000 car dealers is the key to turning a profit for the online car merchants.

There's already a critical mass of tire kickers in cyberspace. Nearly two thirds of car buyers now begin shopping with the click of a mouse, up from just one quarter four years ago, according to a new study by J.D. Power and Associates. The average Internet car shoppers visit seven sites and cruise the Web for two months before buying. They tend to be younger, more affluent and more distrustful of dealers, according to J.D. Power. They visit informational sites like Edmunds.com and Kelley Blue Book (kbb.com) to check out car reviews, compare features and print out those once super secret invoice price lists. "These days, everybody is an Internet customer," says Michael Rosengarden, a Toyota and Mercedes-Benz dealer in suburban Chicago.

And that's why dealers have learned to love their former cyberspace competitors. Some 70 percent of car dealers surveyed by J.D. Power now receive customer referrals from the likes of Autobytel and Cars Direct.com--and most subscribe to multiple online car sites. Back in the '90s, politically connected car dealers trooped to statehouses across the country, and got legislators to stiffen franchise laws that prevented cars from being sold anywhere outside a traditional showroom. That legislation effectively forced the online car sites to become referral services, rather than direct selling agents.

Car manufacturers who once had visions of eliminating the middleman entirely now have set up their own online referral services to drive traffic to their dealers. Sites like GMBuyPower.com allow consumers to personalize the options they want, find a specific vehicle in dealer inventory and obtain financing. GM says its site attracts more than 1.5 million visitors a month, which results in about 70,000 sales leads to dealers. "There was a transformation of the industry," says Brian Wines, manager of GMBuyPower. "The Internet is helping us."

Still, J.D. Power's survey found car buyers have less trust in the manufacturers. "When it comes to pricing," says J.D. Power researcher Scott Weitzman, "people still prefer the independents." Whatever portal consumers come through, dealers now realize the Internet can fill their showrooms with shoppers. That's why most dealers have their own sites now. "Some dealers used to look at the Internet as a sexually transmitted disease," says Bill Krouse, a Chevy and Mazda dealer in White Bear Lake, Minn. "Now we're all giving it big hugs."

So in the end, there is a revolution of sorts in the showroom, but it's an information revolution. "The reality is that people don't want to consummate online," says Priceline's chief operating officer, Mitch Truwit. But they sure don't mind if an online car site hooks them up with a dealer. And now that buyers have bargaining power, they don't want to go back to the bad old days when salespeople (and the mysterious manager behind the curtain) had all the leverage. That's why it's important that online car sites start making money off all this matchmaking. Then everyone can drive home happy.

Click Here For A New Sedan! (Not Yet, Alas) | News
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