Automakers taking measures to strike back at online car brokers

Call it the e-business equivalent of "The Empire Strikes Back." In an effort to ensure the success of their own online ventures, the Big 3 US auto makers are trying to beat back dot-com invaders by prohibiting their dealers from selling vehicles to online brokers.

General Motors, Ford Motor Co. and DaimlerChrysler Corp. have all issued warnings to dealers over the past few weeks, telling them not to sell autos to online brokers. The Big 3 say they're simply re iterating long-standing policies, but the timing of the warnings is curious: All three manufacturers are putting the finishing touches on their own online sales strategies and trying to gain back some ground lost to online auto sites.

"The reason GM cares now is that they want to get into that business," said John Forehand, an attorney with Myers Forehand & Fuller, in Tallahassee, who represents dealers. "Three or four years ago, all of the business was from referral sites, but now these companies want to buy franchises and sell cars themselves. It's the classic problem of who's going to control the [customer] information."

Dealers have sold vehicles to offline middlemen for years, but the Big 3 have become more concerned about the practice recently with the rise of Internet-based operations such as CarsDirect.com and carOrder.com, a unit of Trilogy Software carOrder.com actually takes title to the vehicles it buys from dealers and then resells them to customers online. The Austin, Texas, company is in the pro cess of buying its first new-car dealership.

Sites such as Autobytel.com and AutoWeb.com, which simply generate sales leads that they then pass on to dealers, have fallen by the wayside as the new breed of direct seller has emerged.

The new car brokers represent a much greater threat to the manufacturers than the referral services do because they deliver vehicles directly to consumers. This takes away the big gest profit opportunity the dealers and factories have: financing.

Most dealers make between 2 percent and 3 percent net profit on new-car sales, but margins on finance contracts are usually several times that amount. And the manufacturers all have their own captive finance companies that never have a shot at a customer's business if he or she doesn't come into the dealership.

All three automakers say they don't want dealers selling to online brokers such as carOrder.com because these companies can't provide after-sale service on the vehicles and therefore undermine the manufacturers' brand identity.

But a GM official said the Detroit-based automaker is concerned that it can't easily extract customer data from sales that go through third parties, which would weaken the company's marketing and customer-retention efforts.

While each of the Big 3 has had some online sales presence for years, they are all in the process of updating those efforts to address the new challenges presented by the growing field of competitors. Two weeks ago, GM announced a partnership with systems vendor Reynolds & Reynolds to help speed up the order-to-delivery process.

This is the first step in a strategy that GM hopes will enable its customers to one day log on to its BuyPower.com site, select and order a vehicle, and then simply go to the dealer to take delivery. Ford has a similar plan in the works through its partnership with Microsoft CarPoint site.

This strategy would bypass strict state laws that forbid manufacturers from selling vehicles directly to consumers.

The manufacturers are telling dealers that they will face punishments if they continue to deal with brokers. In its letter to dealers, GM said it will withhold cash incentives on vehicles sold to brokers and will even terminate the franchises of repeat of fenders.

Not surprisingly, most dealers take a dim view of the factories' directives.

"I agree that we need to maintain the brand image, but we should be able to deal with whomever we want," said a West Coast GM dealer who asked not to be named.

Ford recently tried to sell used cars directly to consumers over the Internet in Texas, but state regulators forced the automaker to shutter the site, saying it violated state law.

And GM has also drawn the ire of its more than 7,000 US dealers with a plan to buy and operate up to 700 dealerships nationwide and sell vehicles to customers online. GM later backed away from that strategy.

Drivers yield to automotive e-services
Can't get enough e-services? Then hit the road.

General Motors last week agreed to license its OnStar mobile communications technology to Honda Motor Co., the first time GM has licensed the technology. Honda, of Tokyo, plans to offer the service in its Honda and Acura lines, beginning with the 2002 Acura RL.

GM, of Detroit, has essentially had the telematics market to itself for years as its OnStar service spread from the company's high-end Cadillac division to its five other lines. But now, new companies, including Infomove, are offering services that go well beyond GM's.

OnStar provides vehicle tracking, emergency services, roadside assistance, remote vehicle diagnostics and a locator for convenience services. Infomove, of Kirkland, Wash., will soon introduce an Internet-based service that will offer directions; personalized, real-time traffic data; vehicle maintenance alerts; e-mail; and news and sports updates.

Subscribers also will receive location-based advertising on their in-vehicle screens, according to Peter Holland, president and CEO of Infomove. For instance, a driver coming up on a Starbucks coffee shop might receive an electronic coupon for 20 percent off a latte.

Holland said he is aware of the myriad privacy issues that such a service raises and said that drivers may have the option of turning off the advertising component.

Infomove recently signed a deal with DaimlerChrysler and expects to announce a content agreement with Infospace soon.

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