Auto industry speeds up online

The online auto market is revving up with a slew of new deals, promising to make it one of the hottest e-commerce sectors in the new year.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
3 min read
The online auto market is revving up with a slew of new deals, promising to make it one of the hottest e-commerce sectors in the new year.

The changes are happening at a much faster pace than even the most optimistic industry studies projected.

"None of this could happen if consumers weren't willing to use this new online channel," Forrester Research analyst James McQuivey said. "But because they are, it has deep ramifications for the industry."

Some of the latest changes include:

  • Priceline announced today that it has expanded its "name-your-price" auto site to 13 new states. The service is now available in 26 states, including California.

  • Kleiner Perkins yesterday unveiled Greenlight.com, a new online auto site in which it has invested. The latest in a series of new sites that allow customers to buy cars online, Greenlight represents a collaboration with local automobile dealerships.

  • On Monday, General Motors and Ford Motor announced that they have signed marketing agreements with AOL and Yahoo, respectively.

The online car industry represents one of the biggest market opportunities in e-commerce. Americans spent some $289.2 billion on motor vehicles and car parts in 1998, the last complete year for which the Department of Commerce has records. Forrester has estimated that the online market will grow from about $400 million this year to about $16.6 billion, or 4 percent of the total auto market, in 2004.

Some 40 percent of new car buyers shopped for cars online last year, according to J.D. Power & Associates, which expects that number to jump to about 55 percent this quarter. But just because consumers are shopping for cars online doesn't mean they are necessarily buying them online.

In fact, significant obstacles stand in the way of online car sales.

Because cars represent one of the largest consumer investments, many may reject buying a car without seeing it in person.

"Customers still want to drive the car and kick the tires," said Pat Morrissey, director of communications for e-GM, General Motors' new e-business unit. "Obviously, that won't be everybody, but some will still want to get the feel of the car."

Meanwhile, franchise laws in place in most states forbid manufacturers from selling cars directly to consumers, and they require anyone who sells a new car to a consumer to go through a local dealership. Afraid of getting cut out of the car-buying process, and already squeezed by low margins, many dealers may fight to keep such laws in place.

But the obstacles haven't dissuaded companies from trying to get a slice of the growing online car market.

Manufacturers such as Ford and GM are turning to the Internet not only for advertising efforts but to increase their efficiency. By getting into contact with their customers, they get a better idea of what types of cars to produce and what types of options to offer.

"In the old days, most automakers built a car and pushed it to consumers," said Kathlene Vokes, a spokeswoman for Ford. "Now we are catering to the consumers' wishes, supplying what they want in a car. We're looking to turn the industry from a push industry to a pull industry."

A number of Internet companies have moved to sell cars online, each with its own method. Although they are revising their business models, the first generation of car sites, such as Autobytel and AutoWeb, began by simply referring consumers looking for a particular car to their local dealers.

More recently, sites such as CarsDirect.com and CarOrder.com have begun to sell cars directly to consumers. But as much as they might have simplified the consumer experience--new-car buyers no longer need to go from dealership to dealership to compare cars--the back end of the process is still fairly complex. Such companies face the prospects of negotiating with dealers for cars and delivering them to consumers.

CarOrder.com plans to address that by buying dealerships so that it has its own inventory of cars. Greenlight, which hopes to improve on the previous models, has struck partnerships with local dealerships so that consumers essentially buy cars directly from dealers online.