Thilo Koslowski saved US$5,000 buying his 2000 Audi TT roadster using online car buying service Cars.com. "It was a great experience," says Koslowski, a senior automotive analyst at Gartner Group.
JD Power and Associates and Gomez estimate online car sales could account for as much as 10 percent of automobile purchases by 2005, as both consumers and dealers grow more comfortable with no-haggle transactions. And Baba Sheety, an automotive analyst at Forrester Research, predicts that 6.5 percent, or US$33 billion, of new-car sales will be completed over the Internet by 2005.
So why does the online auto sales sector look like a giant car wreck?
In the past 90 days, many Web-based auto buying sites have either closed or been acquired. The list of casualties includes Autoadvantage.com, Autoconnect.com, Bestoffer.com, CarOrder.com, Dreamlot.com, Driveoff.com, Greenlight.com and OpenAuto.com. Although more than 50 percent of all consumers looking to buy a new vehicle use the Internet for research, few of them complete their transactions online.
The fact is online auto buyers like Koslowski are as rare as used cars "driven by little old ladies from Pasadena." Internet sales account for just 1 percent of the roughly 50 million new and used cars sold nationwide each year, according to industry estimates. The shakeout is largely blamed on flawed business models and strict state franchise laws, which bar automakers from selling vehicles to anyone but franchised dealers. The online car buying industry has also been struggling because some dealerships feel a threat from the major automakers moving into the car buying space. More than half of the 3,300 dealers surveyed for a December J.D. Power report said automakers wanted to put them out of business by selling vehicles directly via the Internet.
Yet, despite the fender benders, analysts remain bullish about the sector's future. Where are they placing their bets?
"The most popular business model for selling autos online is the dealership referral model," Koslowski says. Web sites Autobytel.com, Autoweb.com, Carpoint.com and Cars.com offer consumer information such as pricing trade-in values, even dealer incentives and a monthly payment calculator. These sites take consumer requests and send them to dealers. The dealers calculate the best price on the vehicle, check their inventory and send an email with a price quote to the consumers.
Cars.com labels itself as a "digital marketplace" for consumers and car dealerships, says Mitch Golub, general manager. "It's for the consumer because we have terrific content," Golub says. "It's for the dealers because we drive traffic through their front doors. That's the biggest differentiation between us and our competition. All roads lead to the dealer."
Cars.com, founded in 1998 in Chicago, has 130 newspaper partners, to cut its marketing and advertising expenses and to drive business to local dealerships.
