The (automotive retail) Twilight Zone

Learning about the automotive retail industry and talking to dealers was like being in the Twilight Zone. It was like being stuck in a time loop where nothing ever progressed. A perpetual web 0.5. Gads, they aren’t even doing ecommerce. They think negotiation by email and fax is best in class or ‘allowing’ consumers to apply for credit is the same as buying online. Grikee, you can’t even get an accurate price online. How could you possibly trust a business that can’t even give you a price for their product?

This journey started back in December 2007. A friend showed me this incredible car buying prototype he’d created at shopnik.com. In January, my friends at Chrysler invited me to bid on their dealer sites. Fantastic, this could be worth millions. By February, Chrysler closed the bidding to a small group of vendors. I lost the chance to bid. One of my dealership principle friends challenged me to come up with an online revenue plan for him. OK, this could snowball. Start small and build.

Lots of things changed between January and March 2008. Gas prices started to soar and automotive sales to slip. Then Bear Sterns collapsed and was sold for the price of the building and the credit crisis started to roll. Dealerships became more cautious about spending money. By June, I abandoned the idea and decided o move on to something more fun.

The plan was to eventually take dealerships from web 0.5 to web 2.0. The first step was to implement the basics. Web 1.0 ecommerce with web 2.0 sharing and bookmarking. It was pretty basic. The goal was to increase dealer revenue, and reduce costs. The strategy was to make buying a car online as easy as buying any other product. The tactics included matching the site product availability with what was available through the dealer group, cross sell, up sell amongst products with an easy to use gallery that could be filtered and sorted according to a consumers needs. It implemented viral sharing and book marking tactics including a widget.

The ideal dealership was a mega dealer group with global reach. Penske would have been my favorite judging from the Morningstar profile. Autonation too. The implementation was designed to appeal to women because 80% of purchases are influenced by women. Women love to shop online.

Women have proved that highly personalized expensive products sell very well online. People with money tend to be time starved educated and to know what they want. For those reasons a couple of online retail pure-plays are shaking up the fashion and jewelry industries.

Like automotive retail, fashion and jewelry are both very traditional, technophobic industries with tight control on their distribution channels. In both cases, industry insiders and investors did not believe these products could be successfully sold online. The argument was that fashion and jewelry are too personal a product and too expensive. The leading brands believed their brand would be compromised online. The experience, the luxury and exclusivity could not be reproduced online. Two pure-plays proved this wrong and now lead these industries in the move online. In fact the pure-plays are admired and hated / feared.

In 1999, when investors were throwing money at any crazy online idea no matter how weak the business plan, they said ‘Fashion, Online, NO’. One brave entrepreneur, Natalie Massenett , went ahead and founded Net-a-porter anyway. The rest is history, in 2007 net-a-porter’s net revenues exceeded £37M representing nearly 10 years of double digit growth. Sales are global. The success of Net-A-Porter has pressured traditional brands like Gucci, Armani to move online. Read more in the Financial times

Similarly, the jewelry industry has been shaken up by a pure-play called Blue Nile.com. Blue Nile’s 2007 revenues were $319 m. They sell more engagement rings than Tiffanies. Their largest single sale was $1.2m (MILLION) in June of 2007. They have shaken the jewelry industry in the US and are now selling globally. Read more in the economist

What’s with automotive?

Doesn’t the argument against selling cars online sound a lot like the arguments made in 1999 against selling fashion and jewelry online? You have to try the product before buying it. It’s a complicated product. It’s expensive. You can’t return it once you buy it. Yeah, all true. Buying online won’t be for everyone. But consider. Those that have to try it first can test a car anytime at any dealership. This is no different than what people do today before buying at a dealership. You rarely test drive the actual car you buy. This is analogous to the shopping trend toward browsing at the mall and buying online. Yes cars are a complicated product, but with the amount of information online most consumers know more about the product when they walk into a dealership than the sales people. Yes, a car is expensive, so is a diamond and Haute Couture. It’s true, you can’t return the car after you drive it off the lot. Is it any different after you’ve wasted half your day at a dealership trying to buy your $30k - $80k car? No! And why can’t you return a car? There’s no law, it’s a policy. In fact there is a law that you can return a car if it’s faulty. It’s called the ‘lemon law’.

The only thing holding the automotive retail industry back from selling cars online is the power of NADA, and the dealership brotherhood. They tightly control the distribution channel and lock out anyone that tries to change things. You do see cracks in the strangle hold. Smart took preorders for Smart fortwo in 2007 and sold out. They’re sold out through 2009 or 2010. Smart cars that listed at $16,000 resold on ebay and at Barrett Jackson for as much as $31,000. Tesla Motors is allowing preorders of their new electric sports car. For a $5000 down payment you can reserve your $100,000 Tesla. Zap, another electric car manufacturer, has a standard shopping cart. There are a few of renegade dealerships experimenting with selling online. They’re willing to ship anywhere.

While the rest of the world moves on, automotive retail is stuck in an endless time loop. As I stand at a cross road in my career, I choose to continue to learn and grow. I’m going to sell really nice handbags using mass customization business model. It’s a dream.