Autobytel All Revved Up
Autobytel Inc. was present at the creation of e-commerce.
The service, which provides discount car price quotes to consumers, debuted in March 1995 on Prodigy and spread to the general Internet four months later.
To use the service, car buyers fill out an online form detailing the car they want, down to the model, color and options. A day or two later, a local Autobytel-affiliated dealer calls to quote a no-haggle price.
According to a research paper published in 2000 by the National Bureau of Economic Research, consumers save about 2% when buying through Autobytel, which amounts to about $450 on the average online car purchase.
Similar online services have appeared, but several have since disappeared or were gobbled up by Autobytel, which remains the leader in the field. Its initial public stock offering in 1999 raised $72.1 million.
Like most e-commerce companies, Autobytel has seen its fortunes fluctuate wildly. Its stock hit a high of $41.88 shortly after the IPO but in the last year dipped as low as 70 cents. The stock closed Friday at $2.85 on Nasdaq.
Last year, the company drastically cut back its involvement in a European version of the service.
But Autobytel has survived, which is more than many e-commerce ventures can claim, and its fortunes are looking up. The firm predicts it will become profitable for the first time by the end of 2002. Last year, about 4% of all domestic auto sales were through Autobytel referrals.
Jeffrey Schwartz joined Autobytel in August 2001 as a vice chairman. Four months later he was named Autobytel’s chief executive.
Question: What’s the key to survival in e-commerce?
Answer: If I were to name the one thing we’ve done that made us successful where others were not, it’s that we did not try to reinvent a retail channel. There was already a well-established retail channel for selling cars in this country with a long history. We viewed ourselves as a marketer, not a retailer. What we did is take the marketing costs way down.
It costs a dealer about $420 in marketing to sell a car, on average, working in the traditional media. We cost them about $150 per car they sell.
Q: The dealers pay you directly for the referral?
A: Yes. It costs the consumer nothing to use the service. The dealers pay a fee of about $25 a referral, whether it ends in a sale or not. About 20% of referrals result in sales. We do not get paid a success fee because we are a marketing company, not a brokering company.
Q: Along the way, Autobytel acquired a lot of companies.
A: And we will continue to be acquisitive. We think we can make some strategic acquisitions to keep our market share.
Q: Isn’t that how a lot of tech companies ran into problems, overextending themselves?
A: For us it has been successful, mostly. But we dropped some things to refocus the company on our core business.
Q: What did you drop?
A: We were doing a number of things on the periphery--offering services such as financing, insurance and warranty programs. We have cut back from that.
Q: What happened in Europe?
A: We owned 77% of Autobytel Europe and we dropped our ownership to 49%. That took about $25 million out of the balance sheet. I think Europe will be a great market for us in the future--that’s why we maintained an interest there. But we were incurring substantial operating expenses, resources and management time in Europe at a time we didn’t think that market warranted that much attention. We made the decision to concentrate on dominating the U.S. market.
Q: Will you need to raise more cash to get through the current tech downturn?
A: We have had two consecutive quarters of EBITDA profits [earnings before interest, taxes, depreciation and amortization], so there has not been a big need. We have $27 million in the bank, and I feel quite comfortable we can execute our business plan with that until we turn this thing cash flow profitable.
Q: In the wake of the tech bubble burst, do you think it’s harder for an e-commerce company to interest investors?
A: I can’t speak for start-ups. I am not playing in that market. But there is a robust market today for companies like ours to raise capital if the need should arise. I’m talking about Internet companies that have survived and are getting to the point of creating leverage in their business model. For these companies, I think what you are seeing is an overall renaissance.
Q: There are huge Internet companies that could have adopted your business plan and run with it.
A: We embed our functionality on more than 10,000 sites including AOL, MSN, Yahoo and Lycos. If you want to buy a car and fill out a form on those sites, the referral will still go through us to one of our dealers.
Q: And you share the referral fees with those sites?
A: Yes. It’s a distributed-network marketing model.
Q: Why don’t they just do it themselves and take the entire referral?
A: We invested $500 million in building a network of 9,000 dealers. It would be foolish for them to try and sell all those dealers on a car-buying program. Just like it would be foolish for us to try and out-market those huge sites.
Q: If 60% of new car buyers use the Internet for research, why do only 4% use your service?
A: It has to do with the size of the transaction--it’s the second-largest transaction most consumers will make. It’s also a highly negotiated transaction, normally. So, it takes time for consumers to become completely comfortable with the fact that this is a way to purchase their next vehicle.
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AT A GLANCE
Name: Jeffrey Alan Schwartz
Born: Jan. 29, 1966
Personal: Lives in Calabasas
Salary: $325,000
Education: Bachelor’s and master’s degrees and a doctorate in political science, all from USC
Career: Was vice president of corporate affairs at Walt Disney Co. before joining the Autoweb online service in 1999. Joined Autobytel in August 2001 as vice chairman when it bought Autoweb. Named CEO and president of Autobytel in December 2001.
