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Virtual Showroom

December 29, 1997 at 12:00 AM EST
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TRANSCRIPT

COMMERCIAL SPOKESPERSON: This is without any question the greatest Cadillac car of all time.

PAUL SOLMAN: The old American dream: cruisin’ down the highway, hand on the wheel of a supercharged new automobile. The new American dream: cruisin down the information highway, hand on the mouse of a new supercharged computer. This story is about the intersection of two giant industries–cars and computers–and how information can, in theory at least, eliminate the dark side of the old American dream: the car dealer, who could take you for a ride–literally and figuratively–and still can, says author and consumer advocate Remar Sutton.

PAUL SOLMAN: How bad can it be for a consumer like me coming into a dealership like this?

REMAR SUTTON: If you don’t know what you’re doing, even at the best dealership, it can be your worst nightmare.

PAUL SOLMAN: How come?

REMAR SUTTON: Because this is real free enterprise at work, and the truth is defined by what they can do to you here, I’m afraid.

PAUL SOLMAN: What they can do to you, of course, is what has made Americans say in surveys that they actually prefer root canals to car buying. But at Jerry’s Ford in Annandale, Virginia, owner Jerry Cohen insists the times are changing.

JERRY COHEN, Car Dealer: That’s baloney. Those days are gone. Today, people can go anywhere they want. They can go to two dealerships and get a basic price and then go buy where they want.

PAUL SOLMAN: What’s happened to make the business better or more legit?

JERRY COHEN: Information. You have more people who have more information. There’s too much available knowledge in the marketplace today for you to come in and pay an extreme amount of money. You can go buy any kind or book, you can find out exactly what my car cost. If you have computers you can get on the Internet.

PAUL SOLMAN: Ah yes, the information-rich Internet. That gets us back to computers, and to a cyberspace entrepreneur named Peter Ellis, who says the Net is changing car buying forever.

PETER ELLIS: We say you don’t need a car salesman. The Internet is a car salesman.

PAUL SOLMAN: Here we go ’97 taurus.

PETER ELLIS: Is that thing cooking? Just go as a glance. You can actually build a window sticker with this program that will tell you retail and the wholesale on the car.

PAUL SOLMAN: Peter Ellis is a former car dealer. By the time he went bankrupt in 1994, he hated the business and was looking for a way, he says, to reform it.

AD SPOKESMAN: From the beginning of time people have wondered why does car buying have to be such a pain. (Lightning strikes) Then car buying pain relief was invented. It’s free, it’s easy, it’s Auto-By-Tel.

PAUL SOLMAN: Ellis created Auto-By-Tel in 1995, ran this ad during the Superbowl in 1996; He’s been pushing Internet commerce ever since.

PETER ELLIS: Let’s take a 4-door LX that you are interested in. The base price is $21,600 and the dealer paid $19,673, and let’s go optional equipment with dealer invoice, let’s go do that one.

PAUL SOLMAN: So this is a package that has speed control, floor mats, front and rear filtration, I see. Okay.

PAUL SOLMAN: Auto-By-Tel acts like a funnel, bringing to the dealer by phone customers ready to buy. The dealer pays Ellis and company a fee to be on the system. Almost one million people–about 10 percent of the car-buying public–have logged onto Autobytel.com, making it one of the first profitable businesses on the Internet. And it already has several rivals in cyberspace, notably Autovantage and Microsoft’s Carpoint.

PETER ELLIS: We have contracts that provide information to our customers with all of the original source aggregators, and Kelly Blue Book is one, Autosite, they have terrific information that’s very accurate, Edmonds, Intellichoice which many people have heard of.

PAUL SOLMAN: To Ellis, the ability to access so much Independent data in seconds represents a historic shift in the information balance: to the consumer, away from the dealer. Martin Anderson, however, a longtime analyst of the auto industry, thinks it’s the culmination of a more gradual process.

MARTIN ANDERSON: In the 1960′s, two things began to happen: We began to get specialty automotive magazines that provided objective third-party the information to customers. We had the safety wars where the government began to provide additional objective information. The industry has not been the same since that time, and what we re seeing today with all this Internet stuff is merely an extension of that separate information industry that gives customers power.

PAUL SOLMAN: To Internet enthusiasts, digital information gives customers enough power to eliminate the middleman–the costly salesman intermediary who, in business jargon, intermediates between an automaker and an auto buyer. Eliminating him is actually called disintermediation, and Harvard’s Jeffrey Rayport thinks it’s happening in cyberspace commerce on the Internet’s World Wide Web.

JEFFREY RAYPORT: You think about the Web being a vast shopping mall. Well, the fact is it’s a vast shopping mall that’s built out of information, rather than out of bricks and mortar, and because information connects two points very easily, it’s a vast mall where we’ve disintermediated a lot of the wholesalers, distributors, and retailers who would otherwise be serving that space. But it’s also the ability to use information to connect directly to brand marketers and conduct more efficient transactions.

PAUL SOLMAN: Information and efficiency–both are key features of computer commerce, from cars to kayaks.

MARTIN ANDERSON: I had people lined up between Albany, Buffalo, and Boston last November for one of the boats I had in my basement. I’ve been trying to sell that thing for three years, and people queued up.

PAUL SOLMAN: Right now, only a fraction of the population buys by computer. But already, these happy few can eliminate the stockbroker and buy stock online, eliminate the supermarket clerk and have their groceries delivered by ordering on the Internet, purchase books, computers, airline tickets, even houses. And if it’s too hard for some of us at the moment–

MARTIN ANDERSON: The value of this information business is so high that companies all over the world will figure out ease of use. They’ll figure out easy appliances to make it okay for someone else to use it. The telephone was scary as heck when it first came out. We don’t worry about it at all right now.

PAUL SOLMAN: According to Peter Ellis, the Internet can eliminate most of the cost of selling a new car, which he estimates at around $1,000–what with inventory, personnel and advertising. Selling a car his way should cost a dealer no more than $150, he says. Ellis expects his Auto-By-Tel dealers to pass along the savings to consumers, or he’ll drop the dealers, he says, from his program. So, does the Internet lead inevitably to disintermediation, the death of a salesman? Well, Jerry Cohen sure doesn’t think so.

JERRY COHEN: But what happens when you have a trade? The guy is going to tell you I’ll give you a thousand bucks for your car, that’s it? Baloney. You’re going to negotiate on the trade.

PAUL SOLMAN: In fact, Cohen thinks the Internet is mainly suited to a small portion of the population: namely introverts.

JERRY COHEN: I have people on the Internet who when they send us e-mail it says right on there do not call me; mail it back. Those people don’t want to be bothered.

PAUL SOLMAN: So you mean loners, people who don’t like to mix it up with other people?

JERRY COHEN: That’s my personal opinion.

PAUL SOLMAN: And if an Internet shopper gets 26 different e-mail quotes, Cohen insists:

JERRY COHEN: He’s going to take my price, compare it to the 26, and see how much more, less, or whatever I am, and if I’m close, he’ll come in here and buy the car.

PAUL SOLMAN: Even though he does not like other people, in your view.

JERRY COHEN: Well, he has to. You can’t buy it. The Internet does not sell cars; dealerships do. He’s got to come into the dealership to take delivery.

PAUL SOLMAN: But how’s a consumer to know if a dealer will be less scrupulous than Jerry Cohen seemingly is? Remar Sutton, a former car dealer himself, says the online buyer should also beware.

REMAR SUTTON: Auto-By-Tel does a great thing for dealerships. It delivers unwary prospects, and that can be an expensive thing for your pocketbook.

PAUL SOLMAN: But how can the dealer take us for a ride, if we have already settled on a price?

REMAR SUTTON: Because we got a good price on the car, we are happy and our guard goes down. The dealership then gives us $3,000 for our trade-in when it’s worth $5,000. The dealership then puts us on a financing plan that will cost you two or three thousand more than financing at a bank or at a credit union.

PAUL SOLMAN: Remar Sutton says it’s an old truth in the car business: the unsophisticated pay more. We ran into would-be car buyer Ralph Hall and his grandkids at a suburban Boston shopping mall.

RALPH HALL: I don’t enjoy the games that dealers play. You go back and forth five times–well if you don’t like this, we’ll give you this. It’s very difficult. I don’t enjoy that, no.

PAUL SOLMAN: Like many of us, Hall is another frustrated car buyer, ready to trade in the showroom for the Internet, except for one small problem.

QUESTIONER: Do you have a computer?

RALPH HALL: No, I don’t.

QUESTIONER: Have you looked at anything on the Internet?

RALPH HALL: No, I haven’t.

QUESTIONER: Has anybody in your family?

RALPH HALL: No, no. I guess I’m a computer idiot.

PAUL SOLMAN: Again, Harvard’s Jeffrey Rayport.

JEFFREY RAYPORT: And a lot of people are going to want to buy in the digital world, and they are probably going to be the people who are best educated, most technology-savvy, and who spend the most money. So, will the center of gravity in the market shift, yes. Will everyone buy that way in the future? No.

PAUL SOLMAN: So compared to consumers like Ralph Hall, Internet buyers may be more introverted but also better equipped to take advantage of the information revolution–a revolution that’s moving the auto industry to no-haggle shopping, as popularized by Saturn dealers, to the rise of efficient car superstores like Carmax and Autonation that are buying up local dealerships around the country, and, of course, to car-buying on the Internet.

PETER ELLIS: You’re actually ordering one.

PAUL SOLMAN: I’m ordering one?

PETER ELLIS: You’re ordering one from us.

PAUL SOLMAN: I’m not obliged to do this to do this–follow through, though?

PETER ELLIS: No, no.

PAUL SOLMAN: Oh, I see.

PETER ELLIS: You’re ordering the car from us.

PAUL SOLMAN: So now a model.

PETER ELLIS: You’re still cooking there. You’re filling out stuff, and you’re now placing an order with us.

PAUL SOLMAN: Well, I really didn’t buy a car on the Internet after all, and many of us may not be ready to. Some of us are bound to remain intimidated, or just plain unseduced by cutting edge technology. And finally, when it comes to buying cars, others of us actually enjoy bargaining, like our very own sound man, extrovert John Hyater.

JOHN HYATER: It’s the thrill of the game. It’s a challenge, you know. Maybe it just goes back to all that old testosterone laden genes in the past, you know, going out and hunting for something, and bagging it and bringing it home.

PAUL SOLMAN: But, after listening to John, it occurred to me that for those of us with a bit less testosterone, the computer might turn out to be a better bargain in the long run. A monopoly on information, after all, is what tilted the balance toward car dealers in the old days. Now, via the Internet, we consumers can get information quick as a mouse. And in businesses across the board that shift is threatening the middleman and the power he or she once monopolized.