InformationWeek

But this is the Age of E-Commerce, when everything operates on Internet time. Thanks to the growing number of automobile information sites, car-buying referral services, direct-sales Internet operations, and general auto Web sites, those 7,000 doomed dealerships will go belly up in half the time--10 years, Forrester says.

However, auto dealers are learning that E-commerce can be both a friend and a threat; dealers who embrace the Internet are finding it can be a very rewarding relationship.

JM Lexus, in Margate, Fla., has been operating a Web site for four years where it offers a detailed catalog of its inventory and a host of other features. The company also aggressively advertises on local, regional, and national Web sites, including those run by newspapers such as the Miami Herald and USA Today. In addition to a 25-person staff for conventional sales, it employs seven full-time sales reps and a sales manager dedicated to handling customer queries from E-mail and the Internet. And it has links to at least nine auto portal sites on the Web, such as AutoTrader.com, CarsDirect.com, and CarOrder.com.

JM Lexus also is unusual in that it hosts its own Web site. It uses Compaq servers running Windows NT 4.0 with Microsoft's Internet Information Server software. The site is maintained with Microsoft Front Page, and the company employs three people for IS support.

The efforts have been paying big dividends: about 15% of the 400 new cars JM Lexus sells each month result from leads that originated on the Web. In March, the dealership sold 69 cars based on Internet leads. While many of the customers would have come into the dealership anyway, Michael Knapton, Internet coordinator for JM Lexus, is confident that his company's online efforts have been making a difference. "It's what the customer wants to do," Knapton says.

There's even more evidence that the Internet is paying off, he says. The online efforts have been generating more sales--10% to 20% more--to customers who live outside the dealership's geographical marketing area.

Analysts say JM Lexus still is more of more of an exception than the rule when it comes to auto dealerships fully using the tools of E-commerce. But, they say, it shows how the successful car dealer will operate in the future.

More car dealers are catching on, according to James McQuivey, research director at Forrester. In fact, auto dealers are jumping into the E-commerce game faster than he expected. Last year, he estimates, only 5% of auto dealerships had a good understanding of the benefits of E-commerce and were committing the resources necessary to operate a successful Web site and an Internet-based sales and marketing operation. Now, the number of dealers who "get it" is between 15% and 25%, he says. He attributes the change of heart to the excellent results experienced by pioneering auto dealerships such as JM Lexus, and the growing number of consumers who are using the Internet to research and buy big-ticket items such as automobiles.

More than 2 million new-car buyers used the Internet for some aspect of their car shopping in 1998, Forrester says, and the research firm expects that number to reach 8 million by 2003. Still, only about 500,000 of those purchases will be handled completely online. Total new car sales in 1999 were roughly 16 million.

While more dealers are getting involved in some facet of online sales, most online shopping for autos still ends with a visit to a local dealership. That is due, in part, to the dominance dealerships have had in the auto sales market, and also partly because of existing laws. Dealers have a significant regulatory advantage as more of the car sales market moves online because many states have laws that make it difficult for any entity other than a local dealership to sell cars in their jurisdiction.

But the Internet is certainly forcing change on the dealerships. A Web site and Internet marketing skills will soon be a requirement for a successful auto dealership. More important, however, is the Internet's ability to put more power in the hands of consumers, giving them information on new and used car prices that was generally unavailable to most car buyers until the advent of the Web.

In addition, third-party auto Web sites and other E-businesses are attacking some of the most profitable aspects of a dealer's businesses. The high-profit margins associated with loan financing, insurance, and used-car sales are revenue streams that are harder for dealers to protect--in contrast to new car sales, where they still have a distinct advantage.

But like JM Lexus, more dealers realize they can't stop the industry transformation caused by the Internet. If they don't play the game by the new rules, they risk getting blown out of the water.

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