Auto-By-Tel Corporation: Using The Internet To Do Business A New Way

Paul, Hastings recently sat down with Mark Lorimer, Auto-By-Tel's executive vice president and chief operating officer to discuss how his company has succeeded on the Internet. Auto-By-Tel was launched in March 1995 to establish a nationally branded, Internet-based marketing service for new and used vehicle purchasing and related consumer services. Auto-By-Tel facilitates the sale and leasing of new and used vehicles for its 1,900 member Accredited Dealer Network by enabling consumers to get in touch with dealers through its Web site. Typically, consumers are contacted by Auto-By-Tel dealers in their geographic area within 24 hours with a firm, competitive quote for the vehicle requested. Since it first appeared on the Web, Auto-By-Tel ( has received more than 750,000 new vehicle purchase requests and, at current growth rates, anticipates receiving one million by the end of 1997. Auto-By-Tel is located in Irvine, Calif., and employs approximately 120 people.

Q:What are the principal factors contributing to Auto-By-Tel's success?

A: There are a few. First, our understanding of Internet technology, Internet consumers and Internet branding. Second, our company is deep in knowledge of the market in which Auto-By-Tel President and CEO Pete Ellis originally chose to employ our Internet skills -- the $1 trillion plus annual sale new and used car purchasing, financing and insurance market. Third, our people, who are inspired, dedicated and very, very hardworking.

As a car dealer for about 30 years, Pete Ellis was in a perfect position to envision the marriage of Internet technology to automotive distribution. Knowing the car market as only a dealer can, Pete set out with Auto-By-Tel to create a nationally branded automotive distribution system, based on existing dealer franchises, and dedicated to the premise of taking the pain out of the car-buying, leasing, financing and insurance processes.

The pain (I've heard some of our customers compare car-buying the traditional way to oral surgery) stems from the expensive selling layers and marketing costs dealers have had to develop in a highly competitive, "over dealered" marketplace. We have been told by automotive analysts that 30% of the cost of a new car is in its distribution -- a phenomenal number. And even with that kind of mark-up, according to the National Automotive Dealers' Association (NADA), the average dealer is barely break even, or loses a few dollars on each new car sale. With Auto-By-Tel the Dealer saves hundreds of dollars in sales commissions, advertising and marketing, and other overhead. By sharing this savings, the Dealer can give the Auto-By-Tel customer a better price.

Pete also knew that consumers had to be educated, so Auto-By-Tel linked up with leading automotive information providers, thereby empowering Auto-By-Tel users with everything they needed to know prior to making a vehicle purchase, including invoice pricing, safety ratings, etc. Once the consumer was armed with information, Pete believed that it was essential that he/she work with a dealer who understood the new Internet customer.

To that end, Auto-By-Tel sought out the best dealers in the country and committed to keeping the number of dealers small enough to ensure quality, but large enough to keep travel time to a minimum for consumers. Haggling and negotiating are prohibited. Auto-By-Tel Accredited Dealers establish an Auto-By-Tel department where an Auto-By-Tel manager, not a traditional salesperson, works with the Auto-By-Tel customer.

Q:What can we expect from Auto-By-Tel in the future?

A: We are now riding the crest of two waves and you can expect that Auto-By-Tel will continue to be at the forefront of both trends.

First, Auto-By-Tel will stand for innovation in electronic commerce, from the development of proprietary, browser-based communication Intranets, to innovative customer service and communication techniques designed for Internet consumers, to the cutting-edge dynamism of our Web site and databases and integration of digital, satellite-based and other international electronic media.

Second, we are also constantly developing new programs to meet our goals and effect change in the automotive distribution market. We recently released our redesigned Certified Used Car Cyberstore, which offers consumers the safest and most efficient way to purchase a certified, money-back, used vehicle on the Internet. ABTAC Online automotive financing, gives Auto-By-Tel users access to quick, low-cost financing approval through leading financial institutions. ABTAC makes Auto-By-Tel the only online program that allows car buyers to submit a Purchase Request for a vehicle and an application for financing approval -- thereby eliminating the hours that can be wasted applying for and waiting for financing approval at the dealership.

Q:Based on Auto-By-Tel's experience to date, do you feel that the Internet is going to become a significant medium through which business is transacted?

A: The Internet allows Auto-By-Tel to put the consumer in control of the purchasing process by providing free, easy access to information and allowing purchasing decisions to be made in privacy. We do not use new technology to sell cars the old way. We have literally changed the way cars are bought, sold, leased, financed and insured. Therefore, if other companies have as their base philosophy a consumer-friendly process, the Internet will become a significant medium -- the sky's the limit! But if the Internet simply expedites old-fashioned processes without measurable benefit to the consumer, it will not be a significant medium.

Q:What do you believe are the biggest hurdles for transacting business on the Internet?

A: Transacting business on the Internet is relatively easy. Transacting business effectively on the Internet is very, very difficult. Probably the biggest hurdle is a lack of understanding of Internet traffic patterns and customer preferences -- combined with a misuse of Internet technology. For example, early attempts at targeted marketing on the Internet often failed for lack of a target.

Another hurdle is consumer skepticism about the Internet and the Internet experience, which is why effective marketing and positive word of mouth are key ingredients in commercial success on the Internet.

Q:Do you think Internet-based companies do an effective job at marketing their services?

A: The Internet is still too young for most companies to understand what works and what doesn't in the marketing arena; but, in a crowded field, full of flash-in-the-pan imitators, branding is essential to Internet survival.

Most companies are struggling to find a marketing model that works and it is the companies that have managed to do that, and to brand their name, that have succeeded. Auto-By-Tel, at a little over two years of age, is a veteran in Internet marketing and was one of the first companies to use keyword search and banner advertising, both of which have proved extremely effective marketing tools. Additionally, aggressive public relations and a consistent print advertising campaign have made a significant contribution.

Our decision to become the first Internet commerce advertiser on the Super Bowl this year was a bold and successful marketing decision, and boldness is very important in Internet marketing because there are so many unknowns. Additionally, Auto-By-Tel has high visibility and/or category exclusivity on some of the most visited sites on the Web, including GeoCities, AOL, CNN and NBC Interactive among others.

Q:What changes do you think need to be made by lawmakers and businessmen to facilitate more effective use by business of the Internet?

A: Generally, "less is more," however, there are some places where thoughtful and facilitating legislation or treaties would help the development of the technology and the content necessary to continue the Internet's worldwide growth. At the international level, cross border rationalization and protection of domain names will protect the investments businesses are pouring into electronic commerce. Treaties standardizing competing key escrow regime proposals would add predictability to development efforts and allow concentration of resources on more critical development projects. International intellectual property conventions need to be strengthened to protect Web content.

While at the federal level, the current approach seems to be to avoid invasive regulation and let the market develop in relative freedom, several states seem to be considering indirect ways to restrict, tax or regulate Internet commerce in manners that only can be termed ominous. While the enormous sums saved by Internet commerce makes it an attractive target for cash-strapped local tax authorities, forbearance will, in the long run, benefit everyone. Regulation of a global medium by local officials seems to be rife with potential problems.