eBay Races into Used Car Marketplace

Online auctioneer eBay, Inc. (Nasdaq:EBAY) and used car listing service AutoTrader, Inc. unveiled a used car marketplace Tuesday for consumers and dealers.

The deal gives eBay's 10 million customers immediate access to AutoTrader's inventory of 1.5 million used vehicles, which come from 40,000 participating automobile dealerships and 250,000 private parties.

eBay has 25,000 cars and 13,000 motorcycles up for auction on its site from private owners. The site, eBay AutoTrader.com, is accessible through both companies' Web sites.

Buying To Follow eBay Procedures

The companies said that the used car buying procedures will follow eBay's widely-recognized auction rules. The site will offer proxy bidding, SafeHarbor trust, eBay's consumer protection seal, and the FeedBack Forum, which allows eBay users to rate each other.

The new site will also introduce several new features in coming months, the companies said, including providing such transaction services as vehicle certification, transportation and finance. All three are considered crucial to the success of online car sales.

Both companies said they will share management, fund development and marketing of the site, which will focus on both consumer-to-consumer and dealer-to-dealer transactions in the United States.

Practical at Local Level

According to Chip Perry, president and chief executive of AutoTrader, dealers will be able to reach more potential buyers than through traditional newspaper ads -- and at a lower cost.

The auto category "has been a home run for us in terms of gross merchandise sales," said eBay President and CEO Meg Whitman. "With AutoTrader.com's extensive inventory of used cars and dealer relationships, we plan to deliver the ancillary services that make this a 'must-visit' site if you are thinking about buying or selling a car."

Expansion of Strategy for AutoTrader

For AutoTrader, the deal is an expansion of its initial strategy, which has primarily been to function as a listing service for auto dealerships and private party sellers.

The eBay deal puts AutoTrader in direct competition with iMotors, Inc., which is selling used cars directly on the Internet and is also setting up a distribution network nationwide to have its cars reconditioned and then delivered to buyers.

AutoTrader's investors include companies with access to used car inventories. One investor is used car auction house Manheim Auctions, Inc., while another is the Dealer Services Group of Automatic Data Processing, Inc. (ADP), which keeps inventories of used cars for its many dealers.

In addition, AutoTrader has reached an exclusive online distribution deal with Trader Publishing Company, which publishes the Autotrader and AutoMart used car listing magazines.

An Interesting Deal?

"It's an interesting deal from eBay's point of view," said Mark Cavallone, who follows the company for Standard & Poor's. The auctioneer, he said, has been dabbling in the used car market for about six months, with local auctions in a few areas. "This is a nationwide extension of that," he said.

By moving into pricey items like cars, eBay stands to gain revenue, though it is too soon to say how much, Cavallone said. AutoTrader's huge inventory also frees the company from "having to rely on consumers" to list their cars, he said.

$370 Billion Marketplace

Although online auto sales have attracted a great deal of attention, the focus has been centered primarily on new cars.

However, according to J.D. Power & Associates, Americans buy more than four times as many used cars and trucks as new ones -- an estimated 42 million last year. The company estimated that used car sales total $370 billion annually.

J.D. Power added that Americans are increasingly going to the Net to find information on both new and used cars. A recent survey indicates that 26 percent of used car buyers used the Internet to help make a decision in 1999, up from 14 percent the year before. Such buyers typically check the Internet to find out information about used car prices.