Auto Business – America’s Largest Retail Market

Auto Business – America’s Largest Retail Market

At 30, Scott Painter is already a serial entrepreneur in the auto business. His first startup, a car-detailing business he launched at age 12 in his rural hometown of Loomis, Calif., was really just a sneaky excuse to drive the local Mercedes-Benzes and Porsches down the family’s driveway. In college, he created an auto referral service called AutoAccess which linked individual shoppers to some 175 dealerships in Northern California.

Today, Painter wants to turn the $500 billion auto industry on its head, transforming the frequently grueling and “slimy” car-buying experience into a mouse-clicking joyride. Painter, along with idealab!’s Bill Gross (see “Free Style,” May ’99, p125), has founded CarsDirect.com, an online startup that lets customers not only research and configure a car online but lets them buy it, finance it, insure it, and arrange to have it delivered to their home or office.

It has heavyweight industry supporters, including personal-computer revolutionary Michael Dell, who has poured some $10 million into CarsDirect.com through his personal investment firm MSD Capital. CarsDirect.com, based in Sherman Oaks, Calif., has rounded up another $20 million from other investors, including Goldman Sachs Group, Foundation Capital, idealab! Capital Partners, and Primedia Ventures, a subsidiary of Primedia, the United State’s largest automotive publisher.

The allure? The auto industry remains the largest retail sector in the nation — last year, it accounted for $508 billion in sales, according to the National Automobile Dealers Association (NADA) in McLean, Va. Thanks to the booming economy, auto sales are expected to reach record numbers this year. NADA projects more than 16 million new vehicles will be sold this year, up from 15.8 million last year.

Despite those sunny projections, the industry is undergoing a crunching reformation, thanks largely to oversupply from dealers that has hampered prices and shaved margins that may already hover as low as 3 percent. Dealers, sandwiched between automakers that give them little price flexibility and consumers demanding lower prices, have been forced to consolidate, and some have sold out to automakers. Some 22,600 dealerships existed at the start of 1998. By year’s end, 200 had disappeared, according to NADA. That’s double the attrition rate of 100 in each of the previous two years.

The Internet has accelerated that trend toward consolidation, with players such as CarsDirect.com taking aim at the bulging, costly auto distribution channel. “We’re not trying to capture all 15 or 16 million units. Even a piece of that would be nice,” says Mark Miller, vice president of dealer and industry relations at CarsDirect.com.


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