Case study 8 GMBuypower.com

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Case study 8GMBuypower.com

• Tannaz Alinaghi
• Mahkameh Yaghmaie

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Contents

• The origins of GM
• Automotives distribution
• New distribution models
• CarMax
• AutoNation
• Online auto retailing
• Auto-By-Tel
• AutoWeb.com
• CarPoint
• Auto manufacturers on the web
• GMBUYPOWER.com
• Team
• Process
• Website
• Results and dealer reaction

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Challenge

• Facing to a challenging project
• devising a way for GM to sell a significant
  volume of cars over the internet
• Having 90 days to have the service operational
• Different aspects
• Rapid growth of internet based automotive sales
• Representing some threats to the traditional way
  of doing business
• Difficulties in convincing dealers to support a
  sales tool that would cut the average profit
  margin

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The origins of GM

• 1886
• Founder William Durant
• bought the manufacturing rights and founded the
  Flint Road Cart Company
• 1903
• Forming future strategy of aggressive growth
  through acquisition and mergers
• 1908
• Incorporation with Buick and Oldsmobiles

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The origins of GM(cont)

• 1918
• Acquiring the Oakland Motor Car Company,
  Cadillac, and Chevrolet
• 1927
• GM was outselling Ford
• 1977
• Largest company in the world
• 166 billion revenue
• 6.7 billion net income
• 608,000 employees

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Contents

• The origins of GM
• Automotives distribution
• New distribution models
• CarMax
• AutoNation
• Online auto retailing
• Auto-By-Tel
• AutoWeb.com
• CarPoint
• Auto manufacturers on the web
• GMBUYPOWER.com
• Team
• Process
• Website
• Results and dealer reaction

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• Automotives distribution
• Developing Franchise systems
• Changing regulatory environment
• The industry matures
• Purchase experience

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Automotives distribution

• Developing Franchise systems
• 1900-1950
• Working as the retail dealers of their products
• Increasing demand for cars
• Increasing power of big manufacturers over
  dealers
• Increasing competition among dealers

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The courts shift power to dealers

• 1950-1960
• Changing regulatory environment
• Reported withholding product supply and dumping
  car and spare parts inventory
• Direct Selling of vehicles was forbidden
• decreasing power over dealers

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Industry maturity

• 1960 1970
• Increasing dealer profitability
• 1980s
• Annual sales growth had slowed to 1.1 percent
• 1990s
• Increasing pressure on dealer and manufacturer
  margins
• Similarity between automobiles on quality or
  style

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Purchase experience

• Customers
• Visiting multiple dealers
• Comparing models
• Negotiating prices
• Choosing a model and options based on personal
  taste, availability and price
• Dealers
• Trying to increase margin

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Purchase experience(cont)

• Since 1989
• Average car quality has improved by over 40
• Customer satisfaction has improved by 20
• The reason of dissatisfaction
• Negotiating process

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Contents

• The origins of GM
• Automotives distribution
• New distribution models
• CarMax
• AutoNation
• Online auto retailing
• Auto-By-Tel
• AutoWeb.com
• CarPoint
• Auto manufacturers on the web
• GMBUYPOWER.com
• Team
• Process
• Website
• Results and dealer reaction

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CarMax

• Main idea
• Applying the retail skills learned in the
  electronics business to automobile sales
• Developed a new sales model for used vehicles
• First, opened in Richmond, Virginia in 1993
• Introduced a new way of buying cars
• Auto retailing superstores

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CarMax(cont)

• CarMax model differences
• Stores are larger, offer a wider selection
• Employ a no-haggle pricing strategy
• Each car Is reconditioned and guaranteed
• Representatives receive a salary and bonus based
  on
• Unit sales
• Customer satisfaction
• Not dealer margin

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AutoNation

• The most aggressive competitor to CarMax
• A superstore chain
• Business model
• Establish a single retailer that provides the
  complete range of automotive products and
  services
• Finance
• Insurance
• Parts and accessories
• Plans aggressive growth through acquisition

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Contents

• The origins of GM
• Automotives distribution
• New distribution models
• CarMax
• AutoNation
• Online auto retailing
• Auto-By-Tel
• AutoWeb.com
• CarPoint
• Auto manufacturers on the web
• GMBUYPOWER.com
• Team
• Process
• Website
• Results and dealer reaction

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Online auto retailing

• Providing useful information for buyers
• removing the asymmetry of information between
  buyer and seller
• accessing to information about the actual price
  paid by dealers
• A challenge to the dealer model

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A challenge to the dealer model

• Auto manufacturers margin is unchanged
• But,
• Reduction in cost of sales commissions
• Reduction in advertising cost
• Marketing a car unit through conventional
  channels 300 to 500
• Promoting a car unit online 25 to 75
• Internet changed their business
• The top online auto sales sites report
• They generate 702,000 vehicle sales(5) a year

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Auto-By-Tel

• Started in 1995 by Peter Ellis
• Partnership with OSP Prodigy Services inc.
• Vision
• A new type of automotive showroom on the internet
  without the expensive overhead of traditional
  bricks-and-mortar facilities

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• 1,300 auto sales by its forth day
• In 1996
• 345,000 purchase request through its website
• 1,206 subscribed dealership
• In 1997
• 55 million hits a month
• 1.2 million unique customer

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Auto-By-Tel Value-added services

• Services
• Training
• Support
• Real-time sales reports to dealer management
• Requires dealers to contact customers within 24
  hours of a purchase request
• Partnership with AIG and Chase Manhattan Bank
• Insurance
• Auto financial online

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Contents

• The origins of GM
• Automotives distribution
• New distribution models
• CarMax
• AutoNation
• Online auto retailing
• Auto-By-Tel
• AutoWeb.com
• CarPoint
• Auto manufacturers on the web
• GMBUYPOWER.com
• Team
• Process
• Website
• Results and dealer reaction

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AutoWeb.com

• Started in 1994
• Services
• Allows users to research new and used cars for
  purchase
• Advertisement
• Provides a fee-based service to participating
  dealers
• Allowing to access data on the sites customers
• Statistics on local demand for used cars
• In 1997
• 750 participating dealership

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CarPoint

• Founded by Microsoft Corporation in 1995
• Informational website
• Services
• Provides a 360-degree view of over 900 car models
• Comparing similar priced cars
• Using sites loan calculator
• Locating dealers
• Directing customers to Auto-By-Tell in order to
  purchase
• Changed into stand alone online buying service

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Auto manufacturers on the web

• Ford and Chrysler
• encourages its dealers to use the Web as a
  supplement to traditional marketing efforts and
  provides technical and creative assistance to
  dealers in establishing sites.
• Advertising and promotion
• Toyota
• Multilingual online sites
• Developing affinity groups
• Volvo
• Eliminates cost by restructuring its traditional
  value chain using the web

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Contents

• The origins of GM
• Automotives distribution
• New distribution models
• CarMax
• AutoNation
• Online auto retailing
• Auto-By-Tel
• AutoWeb.com
• CarPoint
• Auto manufacturers on the web
• GMBUYPOWER.com
• Team
• Process
• Website
• Results and dealer reaction

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Team

• Ann Blakney
• Changed a number of long-standing dealer
  practices to improve customer purchase
  experiences
• Created value pricing program
• Eliminating haggling
• 11 margin instead of 17
• Putting independently compiled competitor price
  information in the showroom

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• In four years
• 20 increase in sales
• 22 increase in GMs market share in California
• Gathering people with a variety of backgrounds to
  handle operations and technical issues, finance,
  field marketing (working with dealers),
  advertising, and public relations.

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Process

• empower online consumers with information that
  would streamline the buying process
• create a competitive advantage for GM in
  attracting consumers who were using the Internet
  to escape the misery of the traditional vehicle
  purchase process
• Convince dealers to enroll
• Each dealer that signed up had to have a
  salesperson trained in effective e-mail
  communication to handle the correspondence with
  customers.
• GMBuyPower.com
• Lunched on October 27, 1997

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Website

• Extensive vehicle information
• Third-party competitive comparison
• Access to dealer inventory
• A personal message center to communicate with
  dealers
• A no-haggle online list price good for 24 hours
• GMAC financing options

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Benefits

• Customers
• browse through descriptions and specifications
  covering over 200 car models
• develop option packages
• Real-time inventory tracking
• Locating dealers
• Communicating with dealers
• Dealers
• give dealers the tools to meet the demands of
  customers in the Internet

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Contents

• The origins of GM
• Automotives distribution
• New distribution models
• CarMax
• AutoNation
• Online auto retailing
• Auto-By-Tel
• AutoWeb.com
• CarPoint
• Auto manufacturers on the web
• GMBUYPOWER.com
• Team
• Process
• Website
• Results and dealer reaction

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Results and dealer reaction

• underperforming its rivals online
• Many dealers and analysts have been disappointed
• only 8,000 vehicle sales were attributed to the
  website
• Reasons
• Traditional dealers
• traditional buyers are less likely to purchase
  cars over the Internet
• the company is not moving fast enough to
  capitalize on e-commerce opportunities