RealTime IT News

Car Manufacturers Will Squeeze Out Web Middlemen

A month ago I wrote that online "middlemen" such as Autoweb.com and Autobytel.com would not be able to compete with car manufacturers, "all of whom one day will sell cars directly through the Internet at factory prices."

That day got closer Monday when Ford Motor Co. (F) and Microsoft Corp. (MSFT) announced a joint venture that would enable customers to custom-order cars from the automaker through Microsoft's CarPoint Web site.

The announcement comes six weeks after General Motors Corp. (GM) unveiled an Internet business unit that will coordinate the auto giant's e-business efforts, including its BuyPower Web site, which allows customers to research and buy GM vehicles online.

These moves leave both Autoweb.com (AWEB) and Autobytel.com (ATBL) with only two choices: Find their own major car manufacturers to ally with, dramatically alter their business strategies, or slowly perish. As standalone Web auto sites, I don't believe they have a chance.

And not because the market isn't growing. Indeed, more and more car buyers are turning to the Internet to research and shop for vehicles. A recent J.D. Power survey reveals that 40 percent of new car buyers are actively using the Web in their search.

This inevitable trend that has given rise to the popularity - if not the profitability - of Autoweb.com and Autobytel.com, both of which went public earlier this year. But the same technology that provided a market for these information providers and facilitators in the auto transaction process will squeeze them out of the equation as the manufacturers streamline their e-commerce efforts.

Investors seem to recognize this. Since their IPOs last spring, both companies' stock prices have fallen drastically. Autobytel.com was trading Tuesday afternoon at $15.13, down 62% from its March 26 closing price of $40.25 and 34% below the $23 per share offer amount.

AutoWeb.com has fared even worse. Shares of AWEB were trading at $9.06 Tuesday afternoon, a whopping 77% below the March 23 first-day close of $40 and 35% below the $14 offer price.

Autoweb.com, for its part, is trying to adapt. This month the company began testing a new direct-to-consumer auto buying service in several states, with plans to roll it out over the next few months. The company also is considering an auction model for car sales. Autobytel.com has yet to announce similar plans.

But unless a Web site can offer lower prices (especially) or better service than the manufacturer's site, it provides no added value to the customer. Investors should be able to figure out the rest of the equation.

ALL NEW! internet.com's HotWatch a monthly e-mail subscription for $99, featuring Internet Stock Report's top 10 noteworthy Internet stocks for the month. Each month you will receive in-depth analysis on the top 10 Internet stocks to watch with the information you need to assess the fast-paced nature of Internet stocks. Staying on top of market changes in the Internet Stock market is what counts. For $99 per year, you receive 12 timely issues sent to you by e-mail. Don't wait, our next issue will be out before you know it with a whole new perspective on the market. Sign up today at: e-newsletters