New Routes in the Internet Car Business

By CIOinsight  |  Posted 01-23-2003

New Routes in the Internet Car Business

Independent auto analyst Maryann Keller has been tracking the auto industry for the past 30 years, first as a Wall Street securities analyst with Paine Webber, then for 13 years at ING Baring Furman Selz LLC. In mid-1999, she joined Priceline.com and spent 18 months as president of the company's automotive services unit. But when her staff was cut back, she resigned. It had quickly become apparent, she says, that most consumers weren't willing to buy a car online. "There was a lot of naïveté in Internet car business," she told CIO Insight Executive Editor Marcia Stepanek in a recent interview. "A fancy Web site wasn't enough to get people to buy a car. It made the Internet a dirty word in the car business."

Keller now owns a consulting firm and works with Sonic Automotive Inc. and Dollar Thrifty Automotive Group Inc., but she still has hope for the Internet. "The Internet has a tremendous amount of promise and can be a very powerful tool," she says. "It's great for communication between an auto company and a dealer or supplier, but nothing has changed for the Internet car buying industry."

Stepanek spoke with Keller about the lessons Detroit automakers learned about business during the Internet boom—and how they're smarter now about what the Net really can deliver. What follows are excerpts from that interview.

CIO Insight: Ford Motor Co.'s new "Back to Basics" strategy is aimed at cost cutting and boosting quality—-a direct reversal of its once ambitious and expensive Internet sales strategy. What did Ford learn about the Internet, in your view, and where are they headed with e-business strategy?

Keller: I think there was a fundamental mistake made by [former CEO] Jac Nasser and the people whom he brought in with respect to the role the Internet would play in the automotive industry and, in particular, in auto retailing. They looked at it as a way of circumventing the dealer; they looked at it as a way of marketing direct to the customer. And so most of their strategies were aimed at what they thought was going to be better customer service, better customer satisfaction—whether in the form of customers being able to get better information from the Internet, or Ford, somehow, managing to get every person who came to the Web site to buy a Ford car. That was the naïveté of 1998, 1999 and 2000—-that somehow, if you magically came and looked at a Web site that blinked at you, you were somehow going to be sufficiently convinced that it was representing a car you really wanted to buy. The trouble is, there's no competitive advantage in Web sites. Everybody has one. And so once everybody has one, it's like everybody's 10-second ad on the Super Bowl; they all blur together, nobody remembers them.

Where to Turn Now

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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.

Ford

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Ford's Tough Breaks

And Ford?

Ford was certainly the champion of customer-facing Internet services, but then none of them worked. None of them provided any particular advantage. I mean, look at all the stuff that Ford invested in. Some of it never came to fruition. CarOrder.com and Trilogy.com and all of that stuff was really more directed at creating systems like build-to-order cars or aimed at siphoning sales leads from dealers, as with FordDirect.com. Ford initially went after some of this with the notion that the dealer was going to become irrelevant or marginalized by the Internet as he went down the pipe, so Ford came up with FordDirect.com to sell cars to customers online, direct from the factory, bypassing dealers entirely. Ford actually talked to me about running the thing, but I told them I didn't think it would work. See, there was this notion running around between Ford and its dealers at the time that, well, FordDirect.com would kind of package a deal. A customer would come online and buy a Ford and then Ford would simply transfer that lead to a Ford dealer who would handle all of it. And this thing would become so rich, important and impressive that it would go public.

I mean, it's functioning, but all it is, really, is a lead-management system. And Covisint, the auto industry's b2b purchasing exchange, was another one of those things that never got off the ground and had at its core the idea that you were going to float an IPO and make a gadrillion dollars.

Is there a role for an intermediary between automakers and suppliers?

Probably there is. I'm not sure that I'm technically equipped to tell you what that role is, but it sure ain't to be an auction owned and run by auto companies.

I think the other place where there is a need for technology is in the area of vehicle design. General Motors, for example, is taking steps out of the vehicle design process by eliminating a prototyping stage, which takes months out of developing a car. They've done a very, very good job of applying technology to the processes of vehicle development, design and engineering. I think Ford has done a reasonable job there. The feeling I think in the industry is that GM is a little ahead.

See, what happens in a company like Ford is that right now they've got so many other things to worry about. They are still contending with these failed Internet projects. There was a lot of money wasted on an Internet strategy that didn't work. For example, Ford had one program that asked customers to register online and become a member of an online owners' group for something like $40 a year. The idea was that Ford was going to pick your car up and wash it, and there were going to be all these little centers around the country where somebody was going to do executive-type things, somebody was going to come out and detail your car. They had all of these things they were doing that were really basically nutty. They had no real world purpose. I mean, it just showed you, frankly, how out of touch Ford was with the real world, how they believed that leaping on this technology was somehow going to transform them in the eyes of the customer.

In your view, then, what are the big lessons that Ford should take away from its failed e-strategy?

Ultimately, it's that no matter how you depict the car or what medium you use to bring the car's message to the consumer, it doesn't matter if the car doesn't live up to the hype, you've got to sell cars that people want to buy. And it doesn't matter how the attractiveness or availability of a car is communicated to potential buyers. That's a lesson for everyone.

In the past two years, Ford has been beating up on their Ford dealers. They have had them do all this customer-service stuff; they have added extra people, repainted showrooms and done all kinds of things to "improve the total customer sales experience." So now you've got greeters at the door and pretty showrooms and leather seats, and you probably have a potted tree someplace. At the end of the day, are they selling any more cars? No. OK, what does that tell you? It tells you that people really don't care whether or not there's a potted palm in the dealership. They care about what they're buying.