Kenichi Hatori took a big gamble. When the Japanese auto veteran, then 55, drafted a new business model for his venture five years ago, it won little support from his employees. Retailing used cars online, without giving a buyer a chance to kick the tires, seemed risky.
Now, his idea is a winner for Gulliver International Co., one of Japan's biggest retailers of used cars. 'Internet shopping is a normal part of everyday life,' said Hatori, Gulliver's founder and president.
Eventually he might even extend his gamble abroad, by exporting Gulliver's approach to the United States. For now, though, Hatori is concentrating on his home market in Japan, where used cars are one of the few segments of the auto market that has grown consistently over the last eight years.
In early 1998, the Tokyo company installed its proprietary Dolphinet computer terminals at gas stations. Later, it added terminals at other retail locations. Since then, the company has sold more than 32,000 used cars online. Those sales generated 20 percent of Gulliver's profits. Gulliver still sells more vehicles through conventional on-site auctions. But Hatori expects his online operations will generate more than half of his sales and profits within a couple of years.
Over nearly two years, Hatori expanded the number of outlets using his Dolphinet terminals. Then in November 1999, he linked his satellite network to the Internet when he launched Gulliver's e-Cars Web site. The home page continuously updates an inventory of about 2,000 vehicles at a time, or about 10,000 units every month. Shoppers can study a vehicle's profile, including its age, color, mileage, condition, price and accident history, if any. Gulliver also rates the vehicle's condition with a brief commentary and appraisal score. For example, it recently described a 1999 Mercedes as follows: '95 points. Excellent condition, almost as good as the new car.' The lowest rating, for vehicles with major scratches or dents, would be 30 points.
CLOSING THE SALE
The Web system has one major drawback: Customers cannot complete their purchases over the Web, even if they find a vehicle they like. To place an order, they must visit a nearby outlet with a Dolphinet terminal. A trained salesperson will ensure that there are no misunderstandings. Gulliver wants its salespeople to be on hand to help buyers when they make their final decisions.
Hatori believes that Gulliver's combination of online and face-to-face information makes bargain hunters feel more comfortable than just giving them a chance to start an engine. Besides, he thinks many used-car buyers feel no need to test drive the car. 'We know well what they want to know about the car,' he said.
For Gulliver, online marketing saves money. Displaying thousands of vehicles on a computer eliminates the need to set up large dealerships. It also eliminates the cost of shipping vehicles to auction sites throughout Japan. After buying a used car, Gulliver registers it for sale online for a week to 10 days to give consumers a chance to buy it. If the car remains unsold online after 10 days, Gulliver sells it through a traditional auction.
The online approach has helped fatten Gulliver's profits. In the fiscal year ending last February, sales soared 66 percent to 42.4 billion ($392 million). Meanwhile, the company's net profit rose 88 percent to $9.6 million. This year, the company expects profits to grow 26 percent. The company expects profits to rise in part because of a marketing twist it introduced last November. Gulliver now offers to buy used cars from consumers after a free online evaluation of the vehicle. The actual transaction takes place at a Gulliver outlet.
Hatori thinks that consumers who sell a used car to Gulliver are more likely to buy a used car, too. Industry observers agree. 'They're headed in the right direction,' said Takeshi Irisawa, an analyst at Marusan Securities Co. 'Their buy-back could have a great impact on sales.' Gulliver's buy-and-sell Internet strategy has generated 3.4 million consumer contacts a month for its Web home page. The company expects online sales will jump to 28,000 vehicles in this fiscal year, up from 15,051 in the previous year. By comparison, Gulliver expects to sell 160,000 vehicles this year through auctions.
DEALS FOR DEALERS
The company plans to extend its online strategy to handle dealer auctions, too. Gulliver has formed a partnership with Aucnet Inc., a Japanese online auction organizer for used-car dealers. Gulliver plans to auction 10,000 vehicles online this fiscal year and 50,000 next year. As Gulliver reaches a broader audience through online sales, it will reduce the cost of transporting vehicles to traditional auction sites.
But Gulliver's rivals are adopting some of its tactics. In April, Toyota Motor Corp. launched a service to allow its dealers to buy back used cars using an online network. It now plans to double the number of dealers joining the 'T-up' network.
By the end of this year, Toyota expects 800 dealers to participate. Like Gulliver, the 'T-up' network lets would-be car sellers obtain free vehicle appraisals over the Web. The company aims to buy 100,000 vehicles a year online, 70 percent of which are to be retailed by those same dealers. The remaining 30 percent are likely to be sold through auctions. 'Our main business is new-car sales, but we want to take some share (of the used-car market) in these hard times,' said Ririko Takeuchi, a Toyota spokeswoman.
Toyota's entry confirms what Gulliver already knows: Selling used cars is a growth business in Japan. 'The (used-car) market is huge,' Hatori says.
Used-car sales have outpaced those of new cars in Japan every year since 1993. Significantly, that was the same year that household spending in Japan began to shrink in the wake of the 1990 collapse of Japan's 'bubble' economy, according to data compiled by the Prime Minister's Office.
Pinched by recession, Japanese consumers began to consider used cars as a low-priced alternative to new cars. Deregulation gave the market a second boost. Changes in Japan's expensive 'shaken' inspection system made it far less costly to keep an older car.
Before, annual inspections were required for all cars more than 3 years old. It was almost cheaper to buy a new car than to keep paying for the inspections. Then the U.S. government pushed for looser inspection rules, in hopes of building a market for U.S.-made replacement auto parts. When the Japanese government agreed, shaken inspections became less frequent and inspection fees plummeted.
Japanese consumers started keeping their cars longer. They also became more willing to buy a 2-year-old vehicle because now it might last another five years, not just three.
Japan's used-car market totaled a record-high 7.2 million cars last year, up 22 percent from 1997. Used-car sales are poised to grow to nearly 9 million by 2005, according to a report by the research arm of Sanwa Bank Ltd. In contrast, new-car sales fell 12.9 percent between 1997 and 1999.
While Gulliver expands in its home market, Hatori is considering a plan to expand in the U.S. market. But that could be a daunting task. Aucnet pulled out of the United States in 1998, four years after it entered. Hatori may try it himself: 'I'm excited about it.'
You can e-mail Automotive News Staff Reporter Yuzo Yamaguchi at [email protected]