DaimlerChrysler, Ford and GM have each sent dealers letters recently regarding their dealings with online sales outlets. Each has reminded dealers that franchise agreements do not allow dealers to sell cars to third parties for resale. What is unstated is that such deals will probably mean there is no valid factory warranty on vehicles sold by these third parties. They may technically be second-hand cars, even with very low delivery mileage. All three manufacturers make the point, however, that sites which act as a referral service, or presumably as an “agent,” for the dealer are fine. Since dealers will almost certainly be delivering and providing service for the cars they provide, there is, operationally, not a great difference between the business models. The key sticking point is who books the final sale. For dealers it probably won't make much difference at all, if any. The key difference will be for the online buying services, who can book much higher revenue if they buy cars from the dealers and then sell them to customers. Profits will not be affected (unless dealers are generous with payment terms), and margins will certainly be much better if they are not buying vehicles. It would seem then that in all aspects services such as Autobytel are much better models than CarsDirect.com.
Where is all this going then? The greatest benefit will come when manufacturers can create a fast and efficient system to build-to-order. A regular franchise dealer could, effectively, eliminate practically all his sales force and employ one or more online services to act as “salesmen” instead, paying a commission, or referral fee, for each sale. He no longer needs a large showroom or lot for new cars, since he doesn't need to keep any inventory on hand. Instead just enough space for the best version of each model he sells, for those customers who still want a test-drive. Administration is also reduced, since most will be handled by the online service. The dealership becomes a service and fulfillment center, with much lower costs. I can foresee three dominant business models emerging. In all cases the website acts as a salesperson, handling all details of the sale, including finance and locating or ordering a car to be built — all on behalf of the dealer who will deliver the car and handle routine servicing.
The first models like GM BuyPower — the manufacturer handles sales from its website, finds or builds a car to order, and organizes finance and ancillary services. The manufacturer can build a direct relationship to the customer, and increase its share in revenue from ancillary services. The manufacturer can further increase its control over the customer experience by restricting participation to dealers who meet certain customer care standards. Large manufacturers which are able to offer a range of vehicles at any price point have some advantages here.
The second is similar to Autobytel.com — a third party site acts as a salesperson for a large number of dealers covering multiple manufacturers in most regions. The buying site may also link directly to manufacturers, ordering customers' cars for the dealer. The attraction for buyers is the site's wide coverage of brands. In addition to dealer commissions the site can boost revenue through deals with independent providers of ancillary services such as GE Capital and AAA. Such sites may in fact be directly affiliated with the providers of ancillary services, such as finance companies and insurers, wishing to increase their own customer base and increase customer loyalty with such additional services.
The third model is where I can see sites like CarsDirect.com evolving. A large dealer group, or network of dealers, is directly affiliated with a buying site either as shareholders or subsidiaries. This gives the group greater control over the customer experience, finance options and ancillary services such as telematics and communications, but involves greater investments and ongoing costs which can depress margins. A large investment in dealership franchises with most manufacturers may be required to offer the range and geographical coverage of independent sites like Autobytel.com.
The growth of ancillary services is the key factor here. Finance, cell-phones, internet access and telematics (with potential for service to be booked automatically by the vehicle) all provide additional revenue, and a proliferation in providers gives an incentive to take control of sites (both on- and off-line) where such services are chosen. The aim therefore is to attract the premium customers who use these services, while lowering marketing and administration costs. The ability to offer unique option packages (or even model variations) is one way to attract customers. Already GM's Vauxhall subsidiary in the UK offers special .com editions to online buyers. While manufacturers have the advantage here, other more successful sites may also offer such packages in future. The primary attraction however is a strong brand and the ability to offer a one-stop service for the entire vehicle buying process, from model comparison to delivery. Independent providers have the advantage here, with their ability to offer models from all manufacturers (even the small and obscure) in almost all regions, and a broader range of ancillary service options. For manufacturer sites, those able to offer a wider range of vehicles in the customer's price range, such as Ford and GM, have an advantage over single-brand sites. As always providing cars the customer wants is the key, either providing something that everyone wants, or everything that someone will want.
Tags: AAA, Autobytel, Carsdirect, DaimlerChrysler, dealers, Ford, GE, GM, telematics, web-sites
