New Routes in the Internet Car Business - ' Where to Turn Now'

Where to Turn Now?

Does the Net have a role to play in the auto industry?

I think in the early days of the Internet, no one really understood how it was going to be important in the automotive industry. Now there are beginning to be some activities where it truly does represent a potential cost savings for the parties who are engaged in replacing the old world with an electronic world.

I guess a couple of things that I would mention that appear to be of some interest are, first, Chrysler is about to replace its old dealer communications system. It's going to be a Web-based communication system where all the ordering, warranty and nuts and bolts of communication, service manuals and training are now going to come in via the Internet. I mean, that's a perfect application for the Internet. Ultimately, the Internet is less expensive and is a far more robust and versatile means of communication between the two parties than the telephones and fax machines and dishes and roofs and television screens. It's an example of how both the auto company and the dealer—-both parties—-will benefit from having that technology in place.

In addition, General Motors is doing something called GMAC SmartAuction. SmartAuction in 2002 will have sold or remarketed something like 300,000 cars, and they expect to go up to over one million cars a year.

SmartAuction is about GM vehicles that are coming off lease. This is a technology infrastructure that notifies customers when to bring a car in for an inspection, before the lease expires.

That information is logged into the system, all the data about the cars—-condition, style, content features and so forth—and then these cars are electronically auctioned, and the only people who can participate are registered GM dealers, and some 4,000 out of 7,000 are registered. It's a way for a dealer to buy a car electronically, and they've set up the systems whereby these cars can be moved from place to place so the logistics are there, the titling is there. There's a real-world functionality that enables this to happen.

This is something that GMAC has worked on for quite a few years, and at first it was small and it lacked the technology infrastructure to make this work. Ultimately, what makes an auction work is you get a lot of supply and you get a lot of buyers. The reason this appears to be working is because they have created credibility over the years that encouraged a lot of GM dealers to participate. So as they put up more vehicles, they get bought. That's an interesting application for the Internet.

Sure, the savings they get may not amount to any more money than they would realize in a physical world auction. In fact, they may even get fewer savings, but they would claim that they're saving time. They're getting rid of the cars faster than they do in the physical world, which would involve putting them in marshalling yards, then shipping them by truck to auctions, and then having them collected at auctions, maybe doing some reconditioning, and then running them through the lane. And dealers are claiming that the big savings here is time. By the way, time-savings in the car industry is a big deal because you have insurance costs, you have interest expenses as a dealer just from carrying that inventory, and you have all the potential of damage, additional depreciation because prices have been volatile, and so forth. So the faster you can get rid of these leased cars, the better off you are.