A Speed Demon Called eBay Motors

You get a good deal, and it's safer, says Simon Rothman, general manager of the auction giant's fastest-growing category

In April, 2000, when eBay (EBAY ) started selling used cars, skeptics thought the online auction giant had gone too far. Buying collectibles sight unseen was one thing, but purchasing an automobile on the Web? That would never work.

It turns out people are just as willing to bid for used cars as they are for Beanie Babies. In fact, last month, eBay Motors sold its 1 millionth car. And with 12 million auto shoppers daily, eBay is the most-trafficked site of its kind, beating out Yahoo Autos (YHOO ), AOL Autos (TWX ), Cars.com, and AutoTrader.com.

The used-cars channel is also where eBay has seen its biggest growth. And Simon Rothman, global vice-president and general manager of eBay Motors, says this is just the beginning. "We've evolved into a mass market where everyday people are buying everyday cars," Rothman says.

On July 16, Rothman sat down with BusinessWeek Online reporter Amy Tsao to talk about driving growth at eBay Motors. Edited excerpts of their conversation follow:

Q: How does eBay Motors work? Is it like anything else on eBay -- you put your product on, people bid, and that's that?


It's very similar. The searching and browsing process is exactly the same as you'd find on the rest of eBay. The thing that we added on eBay Motors that's different is extra protection. [In addition to feedback rating] -- a big measure of trust -- we also offer a used-vehicle warranty as well as vehicle purchase protection up to $20,000, both paid for by eBay.

Q: Still, isn't it risky to buy a car on eBay?


It's safer than most ways you can buy or sell your car. Imagine if you bought a car through the classifieds. You would meet a seller that you don't know. You shake his hand and you try to assess him. You take the car away from his driveway and that's that. There is no significant recourse, no warranty, no protection, there's no mechanic. You get a good deal on eBay, and it's safer.

Q: What are the latest trends in how people are using eBay Motors?


There has been an evolution that in retrospect seems pretty obvious and clear. We were hoping it would evolve this way, but we weren't sure. Our clientele started primarily as people who bought and sold collectible cars. Then it evolved to exotics like Lamborghinis and high-line vehicles like BMWs. It was still primarily individual to individual.

Then over the next year or two small independent dealers started embracing it as a distribution channel to get national reach. It turned the corner this past year to become a mass-market business. Right now the three top-selling vehicles on the site are the Honda Accord, Honda Civic, and [Ford] F-150 pickup truck.

Q: So how much of the business is between individuals vs. through dealers?


About half the people who list cars on the site are individuals. The other half are dealers, with the majority of the dealers being small mom-and-pop shops. That market is growing very, very rapidly.

Q: Are bigger used-car dealers getting involved?


Yes. Some dealer groups are utilizing the channel, which is exciting for everybody involved. The numbers are too big to ignore. We embrace them as they come on, though smaller dealers already know how to use eBay really well.

What's exciting is how the site levels the playing field. As a dealer you can offer financing, warranties, vehicle purchase protection. And the only distinction between individual and independent dealers vs. a franchise dealer is your reputation.

Q: Is there any resistance from dealers? I could see some people in the industry not liking eBay.


It's a really attractive market for dealers. If you're a dealer in rural Pennsylvania or Alabama, your marketplace is inherently very local. And you don't necessarily get the national market rate for your vehicles. We bring [together] millions of potential buyers daily, and 75% of them people aren't in your area. You wouldn't have had access to them otherwise.

It costs $40 for a listing, but about $500 in advertising to get a local buyer to buy a car at a local dealer. You get on average eight different buyers who bid. So, cars aren't sitting on the lot as long.

Q: How much car financing is going on now through eBay?


Right now, it's still in the early stage. We haven't released the numbers. We'll probably start talking about that business more publicly next year. But we're off to a great start.

Q: What about expansion outside of the U.S.?


We're putting a very large push into expanding internationally. So what you'll see going forward is not only increased momentum, but you'll see us building infrastructure, exporting our knowhow from the U.S. into the international markets. We're now in most major countries in Europe. We're looking at Asia. We have a business in China, we have Korea, we're in Australia and that region. We're just starting to sell cars in all of those countries.

Q: So the eBay Motors model translate abroad?


If you look at the used vehicles that are on the road in the U.S., it's a little over 200 million this year. Internationally, not including the U.S., the market it's 500 million.

And here's the fascinating thing: The U.S. marketplace is relatively efficient compared to overseas. eBay Motors is probably going to end up being twice [as big] abroad. It will take a while, and we're just starting to gain some traction there, but the potential is there.

Q: What kind of growth is eBay Motors contributing to the top and bottom lines of eBay overall?


At the end of last year, we had volume of about $7.5 billion in goods sold on eBay Motors. [In 2003, eBay sold some $23 billion worth of merchandise.] It's the largest category in sales on the site by a long shot, despite that it's still one of the fastest-growing. And it's a very profitable business for the company.

Q: Where do you see that $7.5 billion figure growing to?


Right now, we have 1% of the U.S. used-car market and far less internationally. We've proven that buyers and sellers will use the online medium for cars -- that people will buy cars sight unseen. We don't know how big it will be. But if we continue on this trajectory, this will end up being a very large opportunity.

Edited by Patricia O'Connell

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