Even for folks who claim no longer to be surprised by the huge sums of money pouring into fledgling Net outfits, this will be an eye-opener. Within a few weeks, CarsDirect.com, a car-retailing site, plans to announce a private financing that CEO Scott Painter says will reach "several hundred million" dollars.
CarsDirect won't reveal the investors since the deal hasn't been signed. But even by the ever-rising standards of venture capital investment, that's a lot. Before this, the most lavish financing was the $128 million put into Via Net.works Inc.
What could inspire such largesse? Unlike rivals Autobytel.com and Autoweb.com, which give price data and help buyers find a dealer, CarsDirect actually can arrange a sale online. It sets the price with the tire-kicker, then buys it from a dealer. CarsDirect lures customers by setting prices in the bottom 10% of the market for a particular model, but must buy cars even more cheaply from dealers to make a profit. Launched in December, the company's early backers include idealab!, the Web incubator run by William Gross, Michael S. Dell's venture-capital fund, and Primedia Ventures. Says Gross of the huge investment: "We would do it just to make sure we can build the largest car dealer in the world."
Painter says CarsDirect will sell 1,500 cars this month and the value of vehicles sold through the site could reach $400 million this year. That's quite a leap, considering it only hit $100 million last month. Painter says September's pace puts CarsDirect ahead of the top single-franchise U.S. dealer. But, says James McQuivey, senior analyst for Forrester Research Inc., CarsDirect's model is still untested. "All they have is motivated salespeople in a call center" who try to get dealers to sell cars for less than CarsDirect's customer is paying. Meanwhile, Autobytel.com Inc. is testing direct sales, too.
CarsDirect plans to plow millions into ads and brand building. Those efforts have been shortchanged so far. With its new funding, that won't be a problem.