Will GM's Internet direct-sales model catch on?

The automaker's executives say an experimental online strategy the company has been using with its Brazilian unit has been so successful it may introduce the model in other countries.

4 min read
Say tchau to the traditional dicker-and-deal automobile sales model in Brazil.

General Motors' executives say an experimental online strategy the world's largest automaker has been using since September has been so successful that it may introduce the model in other countries.

GM's Brazilian unit, GM do Brasil, has sold 56 percent of its new Chevrolet Celta small car model through the Internet--a direct-sales model that links the consumer directly to the company's Brazilian assembly plant and 470 dealers nationwide.

Customers who order cars through a special Web site from their home computers or at dealer kiosks receive big price breaks and faster delivery than cars purchased the conventional way. Customers may go to dealerships to test-drive the vehicles, but they can do all of their ordering and financing with GM directly through the Internet.

GM introduced its economic Celta in September, and so far, it has sold 15,500 vehicles. Of those, 8,679, or 56 percent, were sold directly through GM's Celta Web site. GM said it hopes to sell as many as 22,000 Celtas by the end of the year, with roughly 80 percent of total sales taking place online.

"It's something we're all learning from," Farid Anabtawi, director of e-commerce for GM do Brasil, said of the 3-month-old direct-sales model. "We're discussing it with colleagues around the world. Each country over time will take the (lessons) that are applicable and apply them to the business model in their country."

Customers who buy online pay a fixed price of about $6,955 for the 1-liter car. That is about 6 percent less expensive than the sticker price of similarly equipped Celta subcompacts sold through a conventional salesperson on the showroom floor. Celta is one of the few vehicles in Brazil that has a no-haggle pricing structure.

Gartner analyst Thilo Koslowski says it may take a while for direct-from-the-maker online car sales to arrive in the rest of the world, but there's no question this will be an important sales channel in the near future.

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The price is lower on a Celta bought online because GM receives a special tax break from the Brazilian government, based on the reduction in inventory and real estate that accompanies online purchases. GM passes a portion of the tax savings on to the consumer.

In order to purchase the Celta online, a customer must put down a small deposit on a credit card or at a nearby dealership with cash or a check. The outstanding balance can be paid at the bank with cash or a check using a special bank slip available through the Web site.

GM can deliver most custom-built Celtas from the factory to dealerships within 11 days. That is far speedier than most automakers can deliver vehicles from the factory to dealerships in the United States. American consumers wait at least six weeks for delivery--and far longer for popular models with lots of options.

Celtas are built at the $554 million "Blue Macaw" assembly plant in remote Gravatai, Rio Grande do Sul. GM has a string of highly efficient plants modeled after Blue Macaw, which is the automaker's lynchpin in a strategy to provide inexpensive but profit-producing vehicles to the growing ranks of middle-class consumers in developing nations.

To woo customers from Volkswagen, the No. 1 carmaker in Brazil, GM says it will reduce the delivery time to as little as four days by March. GM is building five distribution centers throughout Brazil. This will shave off several days of transit between the far-flung Gravatai, Rio Grande do Sul, factory and northern dealerships.

GM said it picked Brazil to test its experimental sales method because the country is surprisingly Internet savvy. According to Jupiter Media Metrix, as many as 14 million Brazilians have online access, including 6 million who surf the Internet from school, cybercafes and work. Roughly 65 percent of new car buyers in Brazil have Internet access.

GM also picked Brazil because it is home to the Gravatai plant, among the most efficient factories in the world. GM and 16 suppliers build cars there using 50 percent and 60 percent fewer workers than in a traditional, U.S. assembly plant, which have unions that typically forbid direct participation from suppliers on the factory floor.

GM may have also picked Brazil because its dealers have more flexible rules governing direct sales. In the United States, most regions have strict franchise laws that ban automobile manufacturers from selling directly to the consumer via Web sites.

Mike Morrissey, spokesman for the National Automobile Dealer Association, said it is unlikely that GM will unveil a direct-sales model in the United States anytime soon. The automaker is discussing alternatives to the conventional showroom sale with its dealers, but franchise laws will forbid GM from bypassing dealers entirely or simply using them as delivery grounds for vehicles purchased directly from GM online.

"The dealer is still the customer's preferred place to get information about buying a car," Morrissey said. "Not every customer is going to be able to visualize the car they want, and not everyone wants to wait even 11 days. I suspect that there will be something akin to build-to-order in the United States, but I don't think that it's going to minimize the role of the dealers."