05/17/1999
The Wall Street Journal Europe
Page 15
(Copyright (c) 1999, Dow Jones & Company, Inc.)

A new Internet venture backed by computer executive Michael Dell's personal investment firm and co-founded by Idealab Chairman Bill Gross plans to become the first company to sell cars entirely through the Internet in the U.S., bypassing showrooms and salespeople the way Amazon.com bypasses bookstores. The venture, called CarsDirect .com, promises to heat up competition among auto makers, online buying services and big dealer groups like AutoNation Inc., which are scrambling to corral and control the growing number of consumers who go online to shortcut the traditional process of shopping for new and used vehicles.

CarsDirect.com, which already has sold $20 million worth of cars through a test Web site since December, is launching its new, updated Web site this month and plans to begin buying dealerships later this year, say company executives.

Unlike other third-party online car companies such as Autobytel.com Inc. or Microsoft Corp.'s CarPoint, CarsDirect .com doesn't funnel sales leads to dealers via the Internet. In fact, consumers never have to talk to a dealer if they so choose. Instead, CarsDirect gives consumers a set price online immediately, based on average market value. It works through existing dealers to get the car at that price. Consumers can use CarsDirect to apply for financing through Bank One Corp. subsidiary Finance One. The subsidiary is entering a partnership with CarsDirect to create an online auto-financing venture. Finance One's already existing network of about 10,000 dealers also will be used as sources of vehicles for CarsDirect . In the future, consumers also will be able to apply for insurance and other auto-related products. In the end, CarsDirect delivers the vehicles to the home or office and even puts its own brand on the back of the car.

"The auto business is probably the biggest retail segment in the world, but the direct model through the Internet has never really been applied to it before," said Glenn Fuhrman, managing principal at MSD Capital LP, which invests Mr. Dell's private funds. "People said they were doing it, but nobody really was."

Mr. Gross, who sits on CarsDirect 's board, said even when CarsDirect buys dealerships, it "plans to close them down. We'll keep the land, but we won't have people on the showroom floor." Mr. Gross said the company already has $25 million in capital to begin acquiring dealerships. Mr. Gross's company, Idealab, has also backed eToys and Cooking.com among other Internet retailing sites. CarsDirect has attracted big-name backers, including Goldman, Sachs & Co. and automotive publisher Primedia Ventures, and is getting attention from industry analysts.

"Detroit's going to be scared," said James McQuivey, senior analyst with Forrester Research in Cambridge, Massachusetts, who wrote a report predicting such a company would be created. " Everywhere I go people always ask if we could do the Dell model in cars and when is it going to happen." Dell Computer Corp., founded by Mr. Dell, sells computers direct to consumers through the Internet instead of through retailers.

But CarsDirect faces big hurdles and big competition on the road to success. The company said it will be able to deliver cars anywhere in the country to customers, but that means in many cases it will have to work through a tangle of state laws and motor franchise laws that govern the sale of cars. It's also still in the early stages of setting up a dealer network. AutoNation, the biggest auto retailer in the U.S., already has a national network and plans to sell $500 million worth of cars through the Web this year. Manufacturers also are forging ahead with their own sales on the Internet and will balk at yet another infringement on the online relationships they are trying to build with consumers.

Chris Denove, director of consulting operations at J.D. Power and Associates, cautions that CarsDirect must keep its prices low. But that won't be easy, because car prices fluctuate greatly as manufacturers and dealers raise and lower discounts. CarsDirect 's co-founder and chief executive officer, Scott Painter, said the company will keep prices in the lowest 10% of the range for given models. Initially, Mr. Painter said the company would even subsidize the price of a car to stay competitive.

"In the long-term, we think large volumes are going to help us make more money on the cars," he said. The company, which doesn't add a service fee to the price of the cars, also will be gaining revenue from the other services it offers, such as financing, maintenance and insurance, he said. There's also a risk that consumers will be reluctant to commit to as costly a purchase as a car with just the click of a mouse.

"Three years ago, we were convinced that selling cars directly to the consumer online was the right model," said Alex Simons, group product manager for Microsoft CarPoint. " But we got overwhelming negative responses from them. They said they like the local presence."

Still, a number of auto makers are pursuing areas that bring them ever closer to selling cars to consumers via the Internet. In Tulsa, Oklahoma, Ford Motor Co., through its minority interest in the Tulsa Auto Collection retail network, is selling Ford Mustangs on the Internet. On the auto collection's Web site, there's a Mustang Express area where consumers can configure a Mustang, submit their request, and have it built to order within 21 days. Buyers get e-mails on the status of their cars, and the Mustangs can be delivered to their homes if they want.

By Pamla Bloridge

Next month Saab takes a bold step toward letting customers do everything from buying a car to getting repairs done without going to a dealership.

It's one of the first attempts by an automaker and a dealer to use the internet as a primary tool to sell and service vehicles.

"There is no reason why you can't do 100% of the sales process on your computer screen" said Joel Manby, chief executive of Saab Cars USA Inc. 'We want to be a leader on the Internet'.

On Feb 1, Saab of Santa Ana, Calif. Is scheduled to open a new building and launch a yet-to-be named web site, where customers can tap all sorts of services without visiting the dealership. Among them: Shop inventory for a particular vehicle; Schedule up to weeklong test drives; Apply for credit; Pay for the vehicle and get it delivered. The dealership will bring up to three vehicles to the customer's home to compare different models or colours.

On the service side, Saab of Santa Ana will send a repair van to a customer's home or office to perform oil changes, tire rotations, scheduled maintenance, and other minor work. For more complicated work, the dealership will pick up the vehicle and leave a loaner for the customer.

Saab of Santa Ana also will let customers pay for service work over the Internet. The dealership is setting up a secure Web site that will allow customers to pay for repairs or purchase items. "This is all new territory", said Dennis Joy, general manager at Saab of Santa Ana. The dealership is owned by John Campbell one of the nation's first dealers to switch to one price, no haggle selling.

He owned several Saturn franchises in California, but recently sold them back to Saturn to focus on his Saab franchise. Now the Saab dealership will be no-haggle. Despite his focus on the Internet, Campbell has gone all out to build a model dealership. He has flown in several Swedish birch trees - Saab is based in Sweden - for a mini-forest where customers can sit at tables and hook their computers to phone and electrical jacks. He has also a slot-car track that resembles Saab's birthplace in Trolhdttan complete with miniature mountains and snow.