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Net car seller's e-commerce skids to a halt

CarOrder.com also says it is laying off two-thirds of its employees and will no longer broker car sales through its Web site.

Online car seller CarOrder.com is closing its e-tail operations and laying off two-thirds of its staff.

The Austin, Texas, subsidiary of Trilogy Software said today it would concentrate on purchasing and running car dealerships and would no longer broker car sales through its Web site. As part of its reorganization, CarOrder laid off 100 of its 150 workers, but company executives said that up to 30 of those employees could be hired by different divisions of Trilogy.

"Our experience over the last year was that brokering car sales (online) was not a viable path to profit," said company spokeswoman Erica Brynes. "We're trying to focus on our core competencies."

Brynes said that Trilogy is backing the company's transition and has given CarOrder.com $25 million in second-round funding. CarOrder previously received $50 million in cash and $50 million worth of technology licenses from Trilogy in its first round of financing.

CarOrder's exit from the e-tail business comes amid a slew of similar failures. In the last week alone, Living.com and Value America both filed for bankruptcy protection, saying that they would end their e-tail operations.

CarOrder's reorganization also comes as e-commerce and Internet companies remain mired in a bear market for their stocks. Public and private investors have become increasingly reluctant to fund companies without a clear indication of when they will become profitable.

Brynes said the market played a factor in the change of direction for CarOrder, which originally planned, but never filed, to go public earlier this year. "Obviously, the market has shown a readjustment," she said. "Being a profitable company is one of the keys to success."

CarOrder announced last year that it would spend up to $100 million to buy poorly performing car dealerships and turn them into "e-dealers," cutting out salespeople and offline dealerships in the process. The company said it would use its new round of financing to also acquire dealerships.

But the best-laid plans of the Internet company have gone astray; to date, it has not purchased any dealerships. "It has taken longer to purchase dealerships than we expected," said company president Brian Stafford. "Unfortunately, acquisitions don't happen on Internet time."

With no dealerships under its control, CarOrder.com was forced to broker cars--buying them from other dealerships and selling them to the public. That business proved to have low profit margins and high costs, Stafford said.

While awaiting the purchase of future dealerships, Stafford said the company would focus on developing its car purchasing technology. Although he declined to say whether CarOrder would license its technology to other companies, Stafford said it would use the technology in its future dealerships.

"There's a lot of opportunities out there for the technology," he said.

CarOrder is only one of a number of companies to attempt to pair car buyers and sellers online, joining CarsDirect.com, Greenlight.com and AutoWeb.com, among others. Despite the competition, the companies have yet to settle on a profitable model for marketing cars online.

AutoWeb.com and AutoByTel.com started off by passing car buyers on to local car dealerships and getting referral fees for their efforts. Like CarOrder.com, CarsDirect has attempted to broker car sales, actually buying the cars and delivering them to customers. Meanwhile, Amazon.com-backed Greenlight.com has attempted to work with dealerships while still allowing customers to order cars online.

Although the company's Web site still appears functional, Brynes said that later this afternoon it would be replaced with a static Web page, or one in which no orders will be able to be taken.

Meanwhile, CarOrder already is informing callers to the company's customer service center that it is no longer accepting orders. The company said it would notify customers who already placed orders for cars of their order status via email.

The layoffs today were the second set for CarOrder. The company laid off 100 employees in May.