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CarOrder's revamped site sends middleman packing

The car e-tailer that failed to turn a profit with its broker-based business model is using its two dealerships so customers can buy cars directly from its dealer inventory.

    The middleman is dead. Long live the dealership.

    That's the mantra of CarOrder, an online vehicle purchasing company that for two years failed to turn a profit from the broker-based business model popularized by CarsDirect.com, Greenlight.com and other online automobile brokers.

    The Austin, Texas-based company dropped the .com from its name and acquired two California dealerships late last year. It unveiled Tuesday a new site that allows customers to purchase online--with no haggling--any vehicle currently in the dealer inventory.

    Buying the dealerships outright means that CarOrder does not have to worry about niggling franchise rules that inhibit brokers from selling directly to consumers in many states. The acquisition also enables CarOrder to save money by selling only those vehicles on its dealership lots.

    CarOrder customers can pick up their vehicles at the two locations or have the vehicles delivered anywhere in California for $50 to $200, depending on the vehicle and the distance. As CarOrder gradually buys more dealerships, it will be able to deliver them to customers in other states. But CarOrder has no immediate plans to purchase more dealerships.

    Traditional online car brokers allow customers to custom-order their vehicles, and then the broker must engage in a sometimes lengthy and costly search to find the exact match. Once the broker finds the vehicle, he or she must buy it from the dealership and then essentially resell it to the consumer, possibly inflating the final purchase price for the buyer. Many states have laws forbidding the final delivery of a vehicle to any destination except a certified dealership.

    "We're not adding another layer, so we're able to offer a better price because it's direct from the manufacturer," CarOrder spokesman Beth Viner said.

    A whole, new look
    CarOrder, which was once among the nation's largest online brokers by transaction volume, radically revamped its business model in the past year and a half as many other independent car-buying Web sites, including an attempt by Priceline.com, failed.

    Fed up with CarOrder's inability to make a profit--or predict when the company would become profitable--executives closed their broker site in August and tried a more radical approach: It purchased two dealerships encompassing seven vehicle makes and installed the company's staff-developed e-commerce software to facilitate online sales.

    Trilogy Software provided funding to buy the dealerships. Trilogy gave CarOrder $50 million in cash in October 1999 to revamp its strategy, and in August gave an additional $25 million to fund the acquisitions of dealerships in Palmdale, Calif., near Los Angeles, and Los Banos, Calif., south of San Jose, Calif. The acquisitions were completed in December.

    The new site has only been operating for two days. CarOrder would not say how many customers or sales it has received since then. But Viner said the company's 26 employees in Austin, Texas, are much more confident about its prospects for profitability.

    "We tried it and didn't see how you can be a middleman and still make a profit--it's not a good business model in the first place," Viner said. "We had to move into a real business model, not something that all the dot-coms were doing a year ago."

    But can a company that started as an online broker successfully run a brick-and-mortar dealership for Chrysler, Jeep, Dodge, Chevrolet, Buick, Nissan and Volkswagen? Probably not. So CarOrder maintained the existing dealer staff and hired new workers in the Austin, Texas, headquarters with a traditional dealership background.

    "The manufacturers were pretty clear that we must continue to serve our local markets," Viner said. "We didn't want to obliterate service to the local community. In fact, we want to expand that market."

    Although CarOrder executives insist that their model is better than the broker model, acquiring dealerships also has significant risks. More than half of the dealers surveyed in a recent J.D. Power poll said they believed that automakers wanted to put them out of business by selling vehicles directly over the Internet.