Will the Net Create Auto Monopolies?

When General Motors Corp. (GM) warned its dealers against selling to "direct" auto brokers like CarsDirect.com, the company confirmed what many analysts have been predicting: e-commerce is forcing a restructuring of the auto industry that is going to pit manufacturers against their own dealers.

GM's letter -- which was sent to its 7,000 dealers -- contains a subtle reminder that the GM franchise agreement prohibits the sale of vehicles to third-party intermediaries.

GM officials said that any dealer caught selling a vehicle to a direct auto broker would not receive a replacement and would become ineligible for GM sales incentives.

Manufacturers Racing To Establish Sites

GM's warning follows a similar threat recently issued to its dealers by Ford Motor Co. However, both GM and Ford are collaborating with their dealers to build Web sites that will go head-to-head with auto e-tailers such as CarsDirect.com or CarOrder.com.

One has to wonder whether it was just a coincidence that GM sent the mass mailing to its dealers the same week CarsDirect.com filed for an initial public offering and announced a cash infusion from two larger dealer groups controlled by Detroit industrialist Roger Penske.

Lead Generation Okay

While neither GM nor Ford prohibits dealers from using e-commerce services such as Autobytel.com -- which generates leads for brick-and-mortar dealers -- both companies seem terrified of ceding control over direct consumer sales to auto Web sites other than their own.

However, some analysts contend that the manufacturers' sites -- which will eventually sell cars directly to consumers -- might cater to giant dealerships to the detriment of smaller franchises. Forrester Research predicts that the direct consumer market for online auto sales will soar to 500,000 by 2003 from 15,000 last year. Losing the ability to maneuver in this niche could spell disaster for the smaller players.

Overhead Costs

Another reason brokered sales could become so important to smaller auto dealers is that many of them are being forced to cut back their sales forces to lower their overhead.

By using an online seller like Carsdirect.com, a small franchise can cut its sales and advertisement costs and focus on delivering cars -- depending on after-market sales and vehicle servicing for profits.

With brutal competition on and offline cutting already-slim margins, the price of maintaining a team of dickering sales people is becoming increasingly prohibitive. The online direct sales model may be the only reasonable option for one-and-two store dealers.

Legally Unsound

It is not only unfair of GM and Ford to prohibit their dealers from using other online sites to broker their vehicles, but also -- in my opinion -- downright monopolistic.

I also feel that it is only a question of time before dealers challenge the automakers' edicts in court, claiming the right to broker cars through sites that are not owned and operated by the manufacturers.

But even if that never happens, the plans underway by GM and Ford to sell cars directly to consumers via the Internet underscore the fact that e-commerce has already wrought a revolution on the automobile industry.