Internet companies that want to buy dealerships face substantial roadblocks.
Opposition from manufacturers, along with strict state licensing and franchise laws, will make it difficult for dot-com companies to buy stores.
Beating the odds could bring a hollow victory, though. Internet companies generally want to make big bucks on an initial public offering, but public car dealerships have failed to excite Wall Street.
However, some dot-com companies, such as startup carOrder.com, don't want to operate like a traditional dealership chain. So their business models could score on Wall Street.
So far, no dot-com auto retailer holds a franchise to sell vehicles. CarOrder.com says it wants to acquire up to 100 dealerships. (See story on Page 18.)
An executive at CarsDirect.com of Culver City, Calif., backed by computer billionaire Michael Dell, said: 'Buying dealerships is not part of our business model, but we would not rule the idea out if that's the only way we could function.' The executive declined to be identified.
Many dot-com auto retailers do not plan to acquire stores. They want to work in partnership with existing dealerships.
'We have been following those companies' that are trying to acquire dealerships, said Lindsay Sparks, CEO of MSN CarPoint, an Internet referral and information service owned by Microsoft Corp. of Redmond, Wash. 'We have been forging deep ties with dealers. In the end, there is no way to deliver the car but the dealer.'
State licensing and franchise laws will make online auto sales an expensive proposition. In many states, auto retailers need a dealer's license and franchises to sell new vehicles. So direct-to-consumer Web sites that want to operate nationwide may need to have a dealership in almost every state. They would also have to hold franchises for each make they want to sell.
Manufacturers are critical gatekeepers in any dealership acquisition. Dealer franchise agreements give automakers significant influence over the transfer of a franchise. Two manufacturers, Ford Motor Co. and General Motors, have said they do not want to grant franchises to dot-com companies.
But the franchise agreements don't give automakers veto power. State franchise laws grant dealers significant protection to sell to qualified buyers.
'We have been talking to some of the factories,' said Mary Ellen West, spokeswoman for carOrder.com 'We realize the challenge is there.'
WALL STREET SKEPTICISM
Even if the dot-com companies get past the factories, they will find that dealerships are complex operations with stiff competition. Internet companies will need to hire away automotive experts from dealerships and factories to succeed.
And the dot-com companies could have a difficult time luring talent with stock options, very common in the go-go world of dot-coms. Public auto-retail stocks are suffering on Wall Street.
The last dealership chain to complete an initial public offering of stock, Hometown Auto Retailers Inc., barely squeaked by. The stock price sank below the offering price, and the chain did not sell all the shares offered to the public.