Disintermediation in the U.S Auto Industry

1. Disintermediation in the U.S Auto Industry Craig Lizotte

2. 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."

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

4. Autobytel.com’s Mission Statement • To empower automotive consumers with the tools and information they need to make smart, well-informed vehicle purchasing and ownership decisions.

5. Autobytel.com’s 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.

6. Autobytel.com’s Management Team • Mark W. Lorimer, President and CEO. • Charles Ramsay, Vice President of Dealer and Manufacturer Relations.

7. History of the Auto Industry • In the early 1900’s 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.

8. Industry and Market Discussion • Market Share

9. 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.

10. 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 1990’s vehicles broke down frequently when they became more reliable dealerships could consolidate there stores.

11. Auto manufacturing involves a complex supply chain and production infrastructure involving 1000’s 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. Supply Chain

12. 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

13. 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.

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

15. Primary Stakeholders • Franchise dealers • Investors • Suppliers • Public Policy • State Franchise Laws

16. 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

17. 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 didn’t 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.

18. Competitive Risk • OBS saw Finance and Insurance (F&I) as a way to diversify their revenue since 94% of new car buyers finance their purchases this scared traditional dealers because F&I 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.

19. 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.

20. 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 didn’t 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

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