Disintermediation in the U.S Auto Industry

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Disintermediation in the U.S Auto Industry

• Craig Lizotte

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GM Mission statement

• "G.M. is a multinational corporation engaged in
  socially responsible operations, worldwide. It is
  dedicated to provide products and services of
  such quality that our customers will receive
  superior value while our employees and business
  partners will share in our success and our
  stock-holders will receive a sustained superior
  return on their investment."

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GM Management Team

• G. Richard Wagoner, Jr.
• Chairman and CEO
• Frederick A. Henderson
• Vice chairman and CFO
• Robert A. Lutz
• Vice chairman, Global Product Development

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Autobytel.coms Mission Statement

• To empower automotive consumers with the tools
  and information they need to make smart,
  well-informed vehicle purchasing and ownership
  decisions.

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Autobytel.coms History

• Established in 1995.
• Referral service approach.
• Registered dealers that paid Online. Buying
  Service (OBS) a fee/transaction.
• 1998 registered 1,800 users.
• 1999 registered 3,000 users.

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Autobytel.coms Management Team

• Mark W. Lorimer, President and CEO.
• Charles Ramsay, Vice President of Dealer and
  Manufacturer Relations.

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History of the Auto Industry

• In the early 1900s vehicle manufactures employed
  dealerships to sell their cars for them.
• 1949 due to city influx New car dealers shut down
  or merged which reduced car dealers from 49,123
  to 22,100.

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Industry and Market Discussion

• Market Share

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OBS Market Shares

• In 1998 1.1 of vehicles sold were threw the
  internet channel.
• In 1999 market share grew to 2.7
• JD Power and Associated projected market share to
  jump to 5 in 2000.
• Consumers used the internet to gather information
  about vehicles.
• 1997 17
• 1998 25
• 1999 40
• 2000 66 was predicted
• 2003 Forrester Research predicted the internet
  would influence 8 million new-car purchases and
  470,000 sold online.

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Market and Industry

• One price selling 1999 5 of dealers had one
  price stores since 62 customers preferred to
  negotiate prices. This strategy also reduced
  competition among car companies due to pricing.
• It was though that the online channel would
  eliminate traditional dealers. State franchise
  laws protected dealerships from manufactures and
  Online buying services.
• In the early 1990s vehicles broke down
  frequently when they became more reliable
  dealerships could consolidate there stores.

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Supply Chain

• Auto manufacturing involves a complex supply
  chain and production infrastructure involving
  1000s of companies steel, rubber, plastic,
  glass, electronics, oil, chemicals and many other
  materials.
• A car uses about 2,000 to 3,000 parts so
  companies outsourced some of their operations and
  fabricated some of their own parts with raw
  material from suppliers.
• To differentiate them from other companies
  carefully engineered their engines and
  transmissions.

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Disintermediation

• Law prevented manufactures from selling directly
  to buyers.
• Ford and GM tried selling cars online directly to
  consumers in Huston.
• Texas franchise laws shut it down because the
  unlicensed site was acting like a retailer. They
  would not allow the manufactures to become
  licensed because 20 of state tax revenue came
  from auto sales.
• Custom orders

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ECommerce initiative

• Manufactures attempted to leverage internet
  technology in four areas.
• Moving direct procurement and supply chain
  operations to the internet.
• Auto manufactures integrated Internet services
  into vehicles.
• Auto manufactures were creating or extending
  Internet-based systems to tie together their
  entire sales, marketing and distribution systems.
• Manufactures were boosting their efforts to
  attract online customers some manufacturing
  websites emulated the OBS and enables shoppers to
  initiate a purchase online by referring request
  to dealers.

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OBS Model

• Referral services
• Autobytel signed up 3000 dealers in 1999
• Classified listings
• Auction and reverse auction
• Broker
• Direct sales (auto e-tailers)

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Primary Stakeholders

• Franchise dealers
• Investors
• Suppliers
• Public Policy
• State Franchise Laws

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Creating Value for the Consumer

• In the 1980s consumers had access to consumers
  reports which assessed the value of vehicles.
  This offered consumers value so they could get
  their monies worth and negotiate better prices
  since they know the market price.
• When the internet came along websites helped
  consumers research vehicles and find Manufactures
  suggested retail price.
• Dealerships were plentiful for repairs, because
  cars frequently broke down. When they became
  reliable it was ok to consolidate dealerships
  because, Consumers were willing to pay search
  cost for a car. Since it was an infrequent
  purchase and it would be worth it for the
  consumer if they could negotiate a cheaper price.
  
• Consumer reports
• www.Kbb.com
• www.Edmunds.com

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Capturing value

• The Internet allowed manufactures to communicate
  and gather information from buyers, which was
  originally only done by local dealers.
• Manufactures Created Franchises for independent
  business people. In doing so they didnt tie up
  capital with administrative resources, retail and
  service operations. This leveraged the capital
  of private investors and local dealers who had a
  better knowledge of what sells in their
  geographic location.

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Competitive Risk

• OBS saw Finance and Insurance (FI) as a way to
  diversify their revenue since 94 of new car
  buyers finance their purchases this scared
  traditional dealers because FI services was part
  of their revenue.
• www.Giggo.com was one of the online loan
  companies.
• Autonation.com hit 1 Billion in sales 1999.
• Carorder.com
• CarsDirect.com
• Greenlight.com
• Auctions
• Disintermediation
• GM and Ford set up ecommerce units in 1999.

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DSIR

• If consumers have trust in one company due to
  reliability then other people may purchase from
  that manufacturer. This was important because a
  vehicle is a large infrequent purchase.
• Different manufacturers make similar but
  different types of vehicles in a segmented
  market.

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Missed Opportunities

• The industry had an over supply of dealers which
  created a high pressure sales environment. It
  cost insurance and interest (60 daily/vehicle)
  to keep inventory on the lot so dealers aimed for
  a high inventory turnover. In order to do this
  dealers were unethical in their sales tactics to
  extract the maximum a customer was willing to
  pay, which lowered customer loyalty. This didnt
  help make car shopping a positive experience as
  the auto companies had excepted them to resulting
  in 20 returning. The Customer loyalty problem
  could have been solved by the attitude of the
  sales staff.
• Short supply of popular models

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• http//www.gm.com/corporate/about/company.jsp
• http//www.samples-help.org.uk/mission-statements/
  general-motors-mission-statement.htm