Online Car Sales: Bricks-and-Clicks Still Matter

The prospect of buying a car online always seemed like a long shot. Now, little by little, the Big Three American automakers appear to be backing away from the "buy your new car online" business model.

Last week, General Motors (NYSE: GM) nixed AutoCentric, an idea it introduced 11 months ago. AutoCentric would have paired GM dealers and manufacturers in a venture to sell both GM products and other vehicles via the Internet.

The reason for GM's corporate change of heart? In a statement from the company, all that was offered was that the new venture "is not viable at this time."

Why Now?

Consumers and investors are left to wonder why GM chose this moment to cast a dark shadow over what seemed to be a progressive move to incorporate new technology into one of the country's oldest industries.

There are two possible reasons for GM's decision that AutoCentric is not viable. First, because the economy is in a recession, this might not be a very good time to be spending $50 million (split evenly between dealers and the parent company) on a venture that is highly experimental.

Second, manufacturer-based B2C e-commerce initiatives in the auto industry have so far shown mediocre results. Is the country ripe for another? Perhaps not.

Pocket Change

Chances are that GM's move has less to do with the recession than it does with market analysis showing that consumers are not exactly flocking to the Web to buy vehicles.

AutoCentric was supposed to be a $50 million venture. That's pocket change in some auto manufacturing circles.

Upon announcing the idea last February, Michael Grimaldi, GM's vice-president of field sales said, "If the idea has broad dealer support, we'll proceed. If it doesn't, we won't."

Most dealers still consider manufacturer-based Internet initiatives to be a real threat. It was a stretch for GM to believe that its dealers would sign on en masse.

Haggling Rules

Consumers use the Internet to figure out what to buy, but when it comes time to make the deal , a test drive, tire-kicking and price haggling still rule.

Meanwhile, behind the scenes, automakers' efforts to establish strong supply chains and delivery mechanisms via business-to-business initiatives appear to be holding their own.

There's a lesson in there somewhere. Could it be possible that purely Internet-based auto sales do not appeal to American consumers?

And if so, why do automakers seem hell-bent on finding a business model that would encourage consumers to change their buying habits?

What Works

Instead, it would seem smarter and potentially more profitable for auto manufacturers to use the Internet to steer consumers to brick-and-mortar dealerships.

Last fall, for example, DaimlerChrysler (NYSE: DCX) initiated a system of allowing Internet users to see dealer inventories online.

FordDirect.com is Ford Motor Company's (NYSE: F) similar effort. It allows a consumer to "build" a vehicle by selecting colors, options, etc., and then search by zip code for the desired vehicle at local dealerships.

Adding to the convenience of shopping online, automakers offer features such as calculators that allow consumers to determine what they can afford and what their payments might be. Information on financing options is also available.

As for GM, from May through October it tested a system of pairing Chevrolet dealers in the Washington, D.C., area with Autobytel.com, a popular consumer auto buying site.

According to GM, about 25 percent of sales were closed using this partnership. That's roughly the same percentage of dealer walk-in sales that close.

Building on the Obvious

The Internet was never intended to replace traditional American commerce. The auto industry is about as traditional as commerce can be.

Why it is taking auto manufacturers so long to understand this is a mystery. As one who bought a car via a working relationship between an auto manufacturer's Web site and a local dealer, I can vouch for the increased efficiency and convenience.

Would I have bought the car without some involvement from an established brick-and-mortar dealership?

In a word, no.

What do you think? Let's talk about it.