Make or Break for Autobytel
Mark Lorimer paces nervously in his office. The burly, red-haired chief executive of online car-referral service Autobytel.com Inc. (ABTL ) suffers from chronic back pain and can't stay seated for too long. Even if he could sit still, he wouldn't be able to relax. Lorimer is anxious about hearing from General Motors Corp. (GM ) at the end of this month. On Feb. 21, Autobytel was chosen by the car giant to design and test a Web site that lets potential GM buyers comparison-shop among several of its dealers. The 90-day test ends July 31 and could lead to a broad partnership with GM. "If all goes well," says Lorimer, "we'll have the ability to do this on a larger scale."
Getting the nod from GM won't get rid of Lorimer's back pain, but it will ease the aching sense that his company is hurtling toward a dead end. Last year, Autobytel posted an operating loss of $35 million, up from $26.7 million the year before. The shares, which once traded as high as $44, are down to $1.40, and analysts say the company could be hard-pressed to make earlier projections that it would lose $2 million on $16.5 million in revenue during the second quarter. That could be more bad news for a company that all but one Wall Street firm has stopped covering.
In response, Lorimer has spent much of this year rushing to fulfill a promise that Autobytel will turn an operating profit in the third quarter. To get there, he's slashing advertising costs and halting the development of Web-site features such as an auction site and a loyalty-points program deemed too costly to maintain. It's working: The company's operating loss has narrowed in each of the past four quarters, dropping to $5.3 million in the first quarter of this year from $9.6 million a year ago. "The rules have changed," says Lorimer. "To bring profitability in, we must lessen the focus on growth."
Autobytel is at a crossroads. So far, it has survived the dot-com crash that has knocked several competitors out of the online-auto space, including CarOrder.com and Greenlight, in which Amazon.com Inc. (AMZN ) owned a small stake. On Apr. 11, Autobytel agreed to buy rival Autoweb.com Inc. for $15.6 million in stock, which will bump its network of dealerships from 4,700 to 7,000 and its sales from $66.5 million in 2000 to an estimated $100 million this year. The deal is expected to close in the third quarter. With 2.6 million visitors in May, Autobytel and Autoweb together boasted the second-most traffic among new-car buying sites, behind Microsoft Corp.'s (MSFT ) Carpoint.com, according to Jupiter Media Metrix. Lorimer insists Autoweb--which lost $38.4 million on $52.3 million in sales last year--won't delay Autobytel's profitability. Although he won't reveal specifics, it's clear he will send pink slips to most Autoweb employees. Meanwhile, Autobytel has $75 million in cash, enough to last through the first quarter of next year.
Even if Autobytel makes it into the black, the company will not survive without radically overhauling its business model. It operates by giving dealers sales leads from car shoppers who log onto the site and indicate what they're looking for in their next set of wheels. The service is free for consumers, but it costs auto dealers signing fees of up to $5,000 and average monthly charges of $900. These days, dealers are finding the fees hard to justify: In the past six months, 527 dealers have dropped Autobytel, and Autoweb lost 49% of its dealers in 2000 alone. Ultimately, it will be impossible for Autobytel to thrive in the face of increasing competition from carmakers such as Ford Motor Co. (F ) and Toyota Motor Corp. (TM ), which are teaming with dealers to develop their own sites to pass along sales leads at a fraction of what Autobytel charges.
GM says it's too early to gauge the response to the new site. The test, launched on May 1, involves customers in the Washington (D.C.) area who log onto Autobytel and note that they want to buy a Chevrolet. Under the standard Autobytel system, the buyer could choose from only one dealer's selection of cars. But the GM site pools data from 22 Chevy dealers, giving buyers more choices.
Autobytel needs GM--badly. If Autobytel is going to embrace a new business model that pools information on cars from dozens of dealers, it has to have the support of car manufacturers such as GM because they provide the most detailed data on exactly which cars are available at which dealerships. They also wield the most power in persuading dealers to participate. But GM isn't making any promises about sticking with Autobytel after the test. "As manufacturers and dealers come together to take control, there's going to be an awful lot of blood on the floor," says David E. Cole, an auto researcher at the Environmental Research Institute of Michigan. "Autobytel has good technology, and it offers a key benefit--impartiality. But it has to find a way to fit in."
Autobytel's edge is more than impartiality. Lorimer is certain that not every buyer knows when they first start looking that they want a Saturn or a Camry. That's where Autobytel can provide a valuable service to auto makers. By using Autobytel, GM is reaching customers who are weighing their options by looking at several brands--and capturing consumers early in the buying process. "Customers prefer independents three to one over manufacturers' sites, so we need to have a presence there," says Michael Devereux, a director at eGM.
Autobytel is no stranger to breaking new ground in auto sales. The company was the first Internet enterprise to advertise on the Super Bowl, shelling out $1.2 million for a 30-second spot in 1997. But in a slowing economy, Autobytel has had a gas-guzzling marketing budget. Last year, marketing costs were over 85% of sales--just as investors did an about-face and were demanding profitability over growth. Brokerage UBS Warburg estimates that Autobytel has to bring those expenses to 60% of sales to turn a profit.
Lorimer has vowed that this year, he'll cut back on pricey TV spots and print ads, which cost $14.1 million last year, according to market researcher LNA/Mediawatch. Thanks to a tough online ad market, Lorimer has been able to renegotiate Web ad deals, saving $5 million this year.
He is also slowing plans to expand Autobytel's consumer offerings. Lorimer axed a membership program launched in April, 1998, that awarded customers points they could redeem against new cars when they used a special Visa card. Last year, he deep-sixedy a used-car auction service started in October, 1999, that was slow to catch on with consumers. "Will there be new products?" says Lorimer. "Yeah. There just won't be four a year."
As manufacturers ally with dealers, Autobytel will have to prove its value as an independent source of information for harried buyers. Pooling data from several dealers, says Lorimer, "is the ideal way to sell cars on the Internet." GM has turned that key. Now, it's up to Lorimer to ensure that Autobytel doesn't stall.
By Arlene Weintraub