Last summer, Maryann Keller took down her shingle as an automotive analyst and moved over to Priceline.com Inc. as president of the company's automotive services unit. Now she is helping the Stamford, Conn., firm chart a course into the automotive retail world with a 'name your price' Web shopping service.
Everyone, it seems, is getting into the act. But selling cars and trucks on the Web isn't like selling books, flowers or CDs. And Keller knows why. She recently spoke with Staff Reporter John Couretas about her new life in cyberspace. Edited excerpts follow.
How important is it to have someone running an automotive dot-com business who has real automotive experience? You hired Mike Seergy from Nissan to be your general manager, for example.
I actually think it's very important. Let me put it in a very personal way, in terms of our promise. Priceline is not about disintermediating the dealer.
A lot of the dot-com companies are out there making noise about the dealer as the consummate evil, and we've got to get rid of the dealer so everything can be wonderful.
I look at it and say, 'This is crazy. The car dealer has been the foundation of automotive distribution for 80 years, and he isn't going away.'
You met a lot of dealers and field salespeople during your career as an analyst. Has that been an asset in your new job?
I hope that my knowledge and reputation in this industry have provided Priceline with some credibility. And I think they have. Our goal is to have dealers as supplier partners, rather than to try to disintermediate them.
Bringing Seergy on was another good thing because Mike knows a lot of car dealers. He knows how their businesses work and can, in one quick phone call, educate them about Priceline.
In your travels in the Internet world, you must have met many of these so-called Web visionaries who have announced plans to revolutionize the automotive retail business. Or the service business. Or parts. You name it.
There are a lot of self-styled techno gurus running around out there who hop around on a stage and declare the dealer dead. It's very disturbing to me. They know nothing about the car business. They know absolutely nothing about the economics of automobile manufacture. And the economics virtually dictate the existence of a large network of dealers who are the prime customers of the automakers.
I talked to a Web entrepreneur recently who told me he was setting up a vehicle build-to-order system. He finally admitted that he would have to source the cars from dealer inventory.
There's a lot of naivete in this area. Maybe in the next 10 years the distribution system will change. But it isn't going to change in the next five years. Not unless the economics of the auto assembly business undergoes a great change.
It's about high fixed costs. Automakers have to operate their factories at 80 to 85 percent capacity to make money. Every dealer gets a truckload of vehicles, some of which may be desirable and some of which may not be. The dealer is constantly managing a balancing act, between stuff he makes a profit on and stuff he takes a loss on. And he is managing to a local market.
But these Web entrepreneurs are forever claiming to simplify the car-buying process.
They've minimized the complexity of the car-buying process, in many cases. Nobody knows how to do a trade-in over the Internet. There's not a whole lot of benefit in electronically facilitating a new-car purchase and then leaving the customer to do - what? - with the trade-in. So you go visit a dealer anyway to try to sell it. What sort of benefit is that?
So what makes Priceline any different?
It's very different. We say all dealers are automatically participants. Our Web site is a proposition that says: If we find your car at your price, you bought it. We don't really have shoppers. We're not offering reviews, comparison shopping or any of the things that occur early in the customer's buying process. You're making the assumption that you know what you want to buy by the time you come to Priceline.
Do you have any problem getting dealers to participate?
What we have to do is go out and explain it. There is a little confusion about what Priceline stands for. In airline tickets, Priceline conveys the impression of going from New York to Los Angeles for $150. But you have to understand that the airline ticket proposition is that you, as the consumer, are making a lot of trade-offs. We are essentially selling tickets to leisure and discretionary travelers who can accept the lack of flexibility that they have in that ticket. In the car side, it is exactly what the customer wants. The only trade-off the customer makes is naming the dealer. Because they tell us how far they will travel to pick up a car. Theoretically, they will list their own ZIP code and that will pretty well narrow it down.
Maybe you could have William Shatner deliver vehicles direct from the dealer.
When dealers hear we've come into their state, their first thought is about William Shatner advertising cheap airline tickets. They think, 'These Priceline guys are going to try to take away our gross profit.' But we don't force a dealer to sell a car. It is his choice. We can actually demonstrate that people on the Internet probably rank fair price as a high priority. But lowest possible price? No.
What exactly is the lowest possible price for a vehicle?
I'm not sure that there is such a thing as the lowest possible price. I don't know that it exists in the car industry. There is an enormous fluidity in the market. And the price of any vehicle can change from day to day. Go to any auto auction. The price of a used vehicle could be $900 different from the morning to the same afternoon. It's just a question, in some cases, of how many dealers showed up to bid on it. Prices change because manufacturers change production plans, rebate structures. Or cars get hot and cold. There is no absolute. And anytime anyone tries to apply an absolute, static price to a vehicle, it doesn't work.
So if price isn't the big draw, what is?
Internet shoppers are looking for other things. They are looking to save time. If somebody, for example, tells us they want a Ford Expedition in the New York metro market and they tick off all the counties, we'll send out their request to 134 dealers. We will more likely find the vehicle for them. Once they've spec'd it out, and they tell us how far they're willing to go search for it, the chances of us finding it are probably much greater than they would have on their own.
How do you handle the deal?
The Priceline system, behind the scenes, matches the dealers in the customer's chosen area with their offer. The customer sets the price. We fax to all the dealers, whether they want it or not. It's up to them to play or not. But when dealers understand it, most want to play because it's five minutes of their time.
The best of all possible worlds is that they've got a car that matches exactly the customer's specifications and they're willing to sell it at that price. And bingo. The first dealer to fax us back wins.
Can a dealer negotiate? Or is that a Web taboo?
I will tell you that two-thirds of our business is actually done on counteroffers from the dealer. The customer may ask for a white car and the dealer might not have that, but he's got a gold one. Maybe it has a sunroof and the customer didn't ask for a sunroof. Most often, they try to come as close as they can to what the customer is looking for. And then they'll put in the price at what they're willing to sell it at.
But aren't Web shoppers averse to speaking with dealer salespeople?
For customers getting counteroffers, we send them an e-mail saying we'd like to explain them. The dealer doesn't know the customer's name - that's the beauty of this. It's a completely anonymous service. We tell customers, simply, 'You have five counteroffers.' And we tell the customers what the prices are.
How does Priceline make money on the transaction?
We don't get any money unless, and until, the customer actually picks up the car. Then we bill them on their credit card for $50. And we will invoice the dealer for $200.
What percentages of these inquiries are you closing? And doesn't it get expensive for Priceline if you get a lot of tire kickers seeking dealer bids?
In markets like New York, where we've been established and dealers understand us, we have a fairly high closing rate. What we would say is: Of distributed offers from shoppers, our objective is right around 50 percent. In the New York metro market, we've come close to that. A certain percentage are going to be hard-to-find cars where people are looking at us as a vehicle locator service. We're going to have a very hard time finding a Honda Odyssey at list. It doesn't exist. But then you go into a new market like Michigan, where we're just starting. We're going to have a very low close rate until we get out to the dealers and explain how this works.
So how do dealer owners and managers evaluate all these Web shopping services? Some of these Web sites simply broker leads. Most dealers seem to have two or three services going at the same time.
I would call it Internet fatigue among dealers. The most obvious thing they're going to do is evaluate which services are producing, either the number of leads or the number of sales, and stick with those. That's definitely going to happen.
Do you see a shakeout coming?
I think we've already begun to see a consolidation of the business with the recent acquisition of CarSmart by Autobytel. It's very difficult to have a critical mass. Right now, I think the business is too fragmented. It's too easy to enter. And I think dealers, from what I've been able to ascertain, are past this 'I've got to get on the bandwagon' phase. They've had a little experience with them, and they're evaluating each one they use. And they want actual bona fide customers, not just leads.