The future of the third-party online auto-buying model appeared darker after top executives at two high-profile Web sites resigned last week.
The departures add strain to dot-coms battling for survival in an Internet shakeout. Forced cutbacks and paltry stock prices are killing morale for the automotive industry's Internet champions.
Maryann Keller, president of the automotive division at Priceline.com, and Sam Hedgepeth, CEO of Autoweb.com, bailed out of their jobs last week, soon after both companies announced third-quarter losses.
Keller, who spent a year and a half at Priceline.com, said she has concluded there is little future for third-party buying services such as Priceline.com. But Keller has not written off the Internet as a research and sales tool for shoppers. She says dealers and manufacturers are in the best position to tap the Internet's potential.
'In the long run, the Internet will play a greater role in the car-buying process, but it will be controlled by the auto company and the dealer,' said Keller, a former Wall Street analyst who has written two books about the auto industry.
'The role of the third-party buying services is a challenging one. It's challenging to find enough people who want to buy a car that way, and challenging to get enough revenues to make an economically viable business.'
Third-party buying services do not sell vehicles. They derive most of their revenue from dealer referrals or by receiving a percentage of the sale price.
Information sites, such as Edmunds.com and kbb.com, are used by consumers to research vehicles. They make money through advertising and partnerships with dealers and other clients.
Dealership groups such as AutoNation Inc. sell online. AutoNation's advantage is that it has access to a large inventory and can sell vehicles directly. Such sites can attract large numbers of shoppers because of agreements with popular Internet portals.
Automakers also have sites, but sell vehicles through individual dealerships. General Motors and Ford Motor Co. have announced plans to sell vehicles through joint Web sites with dealers. Dawn McGreevey, an auto analyst at Gomez.com, said the Priceline.com form of bid and counteroffer is not very popular. Gomez surveys Internet shoppers and rates Internet sites for marketers and consumers.
CONVENIENCE IS IMPORTANT
'It's not as convenient (as a fixed price), and convenience is the No. 1 thing people want on the Internet, especially women,' McGreevey said. 'I don't think you're going to see that (name your price) going on for a long time.'
Though Priceline.com's third-quarter net loss declined to $2 million, from $12 million in the same quarter last year, the automotive division had to make substantial cuts.
Keller said the Norwalk, Conn., company ordered her to lay off half of her 22-member staff. She said restructuring would have robbed her of resources needed to make the name-your-own-price service work, so 'I put my name at the top of the list of the people to let go.'
Autoweb.com has been losing money, too. In October, the company reported that its third quarter loss was $11.2 million, more than double the $5.1 million loss for the same quarter last year.
Hedgepeth declined to comment on his resignation from the Santa Clara, Calif., company, which refers online shoppers to dealers and provides research and Web site content to automotive clients.
SHARE PRICES TANK
Autoweb.com's stock price has been trading below $1 per share since mid-October, although the price was more than $40 per share when the Santa Clara, Calif., company went public in March 1999. Priceline.com's stock topped $162 in April 1999, but it is now trading just over $3.
The sea of red ink is having a ripple effect on dot-coms.
The stock prices have been so pitiful that AutoTrader.com, an Atlanta-based used-car classifieds site owned by media conglomerate Cox Enterprises Inc., has decided to yank plans for an initial public offering, said President Chip Perry.
'We have complete confidence in our ability to go public,' Perry said. 'We have decided to postpone the whole thing until the stock market recovers. Wall Street is not receptive to any IPO from a dot-com company.'
Mark Lorimer, CEO of Autobytel.com, a third-party service that is a major competitor of Autoweb.com, said he has always believed dealers were best poised to take advantage of the Internet. He said his company provides the tools to help dealers communicate with customers.
Autobytel.com, which doesn't expect to turn a profit until 2001, refers online shoppers to dealers, but Lorimer does not see his company as a middleman that is being squeezed out of the auto sales business by dealers and factories.
'There is a shakeout,' said Lorimer. 'But we are going to be the winner.'
Staff Reporter Jim Henry contributed to this report