This is a cautionary tale about the lofty aims - and sad reality - of e-commerce.
The story unfolds in a tiny car dealership in the village of Kaikohe, deep in the farming country of New Zealand's rural North Island. Until recently, Toyota dealer Peter Petersen regularly would pack his bags, drive 250 kilometers to Auckland and fly to Japan to buy used cars for his dealership.
It was an exhausting routine, but Petersen has found an alternative. Now he spends a large portion of each day in a cluttered office behind his tiny two-car showroom, staring at a computer screen. Petersen is a customer of Aucsat, an Internet auction site that gives New Zealand dealers a weekly choice of 80,000 used cars in Japan. The service combines the inventories of 23 Japanese auction sites. Onscreen prices show not only the vehicle's cost but also the estimated cost of freight, customs clearance, cleaning, repairs and delivery to New Zealand.
If he wished, Petersen could have bought his used cars from Toyota's Signature program, which gives Toyota dealers a supply of high-quality used cars. But that is high-end stuff and he needs cheaper cars to sell locally. 'This area is mainly into a price bracket which Signature doesn't really address,' Petersen said with a tactful smile.
So far, so good. There is just one problem: Despite its popularity with dealers, the Internet auction is losing money. 'The original e-commerce concept has not worked - as with them all,' admits David Vinsen, Aucsat chief executive. If the company does not start making money this year, financial backer Sumitomo may pull the plug.
Events have conspired to work against Aucsat. First, the New Zealand dollar suffered a sharp decline, from 78 yen at launch to a low of 42 in mid-2000. The currency fluctuations have increased sharply the cost of Japanese used cars. Second, there are signs of a backlash among consumers against the idea of Japanese imports. ' 'New Zealand-new' is becoming an issue; there is a groundswell' against the imports, says Nigel Harris, Ford New Zealand managing director.
Since the mid-1980s, New Zealand's consumers have bought an ever-increasing number of used cars as the government slashed tariffs. The government's uncompromising support of free trade benefited consumers but crippled local auto manufacturers. As a direct consequence, there is no car production anymore in the country. Holden led the trend toward ending local assembly. The General Motors subsidiary once employed as many as 2,200 workers. But it halted production in 1990, and it has trimmed its New Zealand work force to just 31 employees today. All other automakers did the same.
Now the new-car market, which peaked in the late 1980s at 120,000 units, is worth around 70,000 units a year. Nearly twice as many vehicles are imported secondhand, mainly cars shipped from Japan.
Automakers are lobbying the New Zealand government to slap tighter controls on imports, Harris admits. The auto industry has called for stricter emissions regulations and an age limit of 7 years on imported used cars. Since September's rains in Japan, local newspapers have been filled with tales of flood-damaged Japanese imports. 'Wet cars too risky for parts, say testers,' blared one headline in the Auckland Herald. 'Vehicle certifiers fear that dismantling flood-damaged Japanese imports for spares will spread their danger by introducing unreliable components to other cars.'
Controversies over flood damage were the last thing Aucsat's investors had in mind when they created the business. Top Japanese trading house Sumitomo wanted to introduce e-business to the used-car market. So its business systems division decided to link supplier, product and market. The result: an auction Web site dedicated to dealers in New Zealand. A Singapore firm known as SCS created the software; it now is considering a plan to introduce a similar system in the United Kingdom.
Anyone using Aucsat is presented with a picture of a vehicle, summary of condition, age and mileage, starting price and a history of recent auction prices. A dealer has the option of entering his budgeted price for a specific vehicle. The system will accept the highest bid from the country, then automatically bid on that dealer's behalf for the next available example of that vehicle.
This system has an obvious appeal to dealers such as Petersen. Not only does he not have to trek to Japan - a prospect he never relished - but he no longer has to buy as many as 30 cars at a time. A car bought via Aucsat takes about four weeks to arrive. That gives Petersen time to pre-sell it using a printout with a picture and specifications. Previously, several dozen used vehicles would arrive at the same time, cluttering the dealership lot and driving up Petersen's costs.
But purchasing cars through Aucsat is costly. There is a $710 agent's fee, a $133 fee for shipping inside Japan, a $64 system charge and a $107 commission. Late last year, Aucsat signed up another 100 dealers, raising its total to 215 members. That still is just 10 percent of the total membership of New Zealand's dealer association. Without more dealers, the future looks bleak.
'It would be quite an inconvenience if Aucsat went,' Petersen reckons. 'The used-car business stands or falls on taking the time to find cars. I'm quite relaxed about buying over the Internet, but Aucsat is something you need to work hard at. The buyer has to spend time at the computer.'
One of the drawbacks of Aucsat's e-business is, ironically, the lack of human interfaces. The company had to hire employees in Japan to assess the used-car inventories. Then the company had to hire five consultants in New Zealand to encourage nervous dealers to bid more actively.
The result, Vinsen admits, is a company that has a 'facade of e-commerce, but the reality is business as usual.' You cannot, it seems, design a system without the customer's advice. Aucsat was launched before its creators looked for a customer to use it. Had it been designed the other way round, Vinsen claims, it could be making money by now.
A recent slight recovery of the New Zealand dollar against the yen has brightened prospects for Aucsat, which Vinsen says now accounts for 3 percent of the wholesale used-car market. To be profitable, Aucsat must capture at least 5 percent of the market, and it will have to do so within the next 12 months.
Even though profits are elusive, Aucsat's backers already want to expand to other countries. Singapore Computer Systems is looking at the United Kingdom, where car retailers face a likely market shakeup after the block exemption is revised.
'In the United Kingdom, it is likely to be difficult at the beginning, but we should be able to find interest,' says Fong Khai Yin, SCS e-commerce general manager. 'If we could sign up 50 dealers inside the first year I think that would be good.'
Vinsen says retailing conditions 'in the United Kingdom are an exact copy of what happened 10 to 12 years ago here.' SCS also is examining prospects in Latin America, which imports many used cars from the United States. It is e-commerce, pure and simple. The question is: Will they ever make any money?
You can e-mail writer John Boley at [email protected]