disintermediation in the u.s auto industry craig lizotte

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Disintermediation Disintermediation in the U.S Auto in the U.S Auto Industry Industry Craig Lizotte Craig Lizotte

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Disintermediation in the Disintermediation in the U.S Auto Industry U.S Auto Industry

Craig LizotteCraig Lizotte

GM Mission statementGM Mission statement

"G.M. is a multinational corporation "G.M. is a multinational corporation engaged in socially responsible engaged in socially responsible operations, worldwide. It is dedicated operations, worldwide. It is dedicated to provide products and services of to provide products and services of such quality that our customers will such quality that our customers will receive superior value while our receive superior value while our employees and business partners will employees and business partners will share in our success and our stock-share in our success and our stock-holders will receive a sustained holders will receive a sustained superior return on their investment."superior return on their investment."

GM Management TeamGM Management Team

G. Richard Wagoner, Jr.G. Richard Wagoner, Jr.

Chairman and CEOChairman and CEO

Frederick A. HendersonFrederick A. Henderson

Vice chairman and CFOVice chairman and CFO

Robert A. LutzRobert A. Lutz

Vice chairman, Global Vice chairman, Global Product DevelopmentProduct Development

Autobytel.com’s Mission StatementAutobytel.com’s Mission Statement

To empower automotive consumers with To empower automotive consumers with the tools and information they need to the tools and information they need to make smart, well-informed vehicle make smart, well-informed vehicle purchasing and ownership decisions.purchasing and ownership decisions.

Autobytel.com’s HistoryAutobytel.com’s History

Established in 1995.Established in 1995.

Referral service approach.Referral service approach.

Registered dealers that paid Online. Registered dealers that paid Online. Buying Service (OBS) a fee/transaction.Buying Service (OBS) a fee/transaction.

1998 registered 1,800 users.1998 registered 1,800 users.

1999 registered 3,000 users.1999 registered 3,000 users.

Autobytel.com’s Management TeamAutobytel.com’s Management Team

Mark W. Lorimer, President and CEO. Mark W. Lorimer, President and CEO.

Charles Ramsay, Vice President of Dealer Charles Ramsay, Vice President of Dealer and Manufacturer Relations. and Manufacturer Relations.

History of the Auto IndustryHistory of the Auto Industry

In the early 1900’s vehicle manufactures In the early 1900’s vehicle manufactures employed dealerships to sell their cars for employed dealerships to sell their cars for them.them.

1949 due to city influx New car dealers 1949 due to city influx New car dealers shut down or merged which reduced car shut down or merged which reduced car dealers from 49,123 to 22,100.dealers from 49,123 to 22,100.

Industry and Market DiscussionIndustry and Market Discussion

Market Share Market Share

OBS Market SharesOBS Market Shares

In 1998 1.1% of vehicles sold were threw the internet channel.In 1998 1.1% of vehicles sold were threw the internet channel.

In 1999 market share grew to 2.7%In 1999 market share grew to 2.7%

JD Power and Associated projected market share to jump to 5% in JD Power and Associated projected market share to jump to 5% in 2000.2000.

Consumers used the internet to gather information about vehicles.Consumers used the internet to gather information about vehicles.1997 17%1997 17%1998 25%1998 25%1999 40%1999 40%2000 66% was predicted2000 66% was predicted2003 Forrester Research predicted the internet would influence 8 2003 Forrester Research predicted the internet would influence 8 million new-car purchases and 470,000 sold online.million new-car purchases and 470,000 sold online.

Market and IndustryMarket and Industry

One price selling 1999 5% of dealers had one price One price selling 1999 5% of dealers had one price stores since 62% customers preferred to negotiate stores since 62% customers preferred to negotiate prices. This strategy also reduced competition among prices. This strategy also reduced competition among car companies due to pricing.car companies due to pricing.

It was though that the online channel would eliminate It was though that the online channel would eliminate traditional dealers. State franchise laws protected traditional dealers. State franchise laws protected dealerships from manufactures and Online buying dealerships from manufactures and Online buying services.services.

In the early 1990’s vehicles broke down frequently when In the early 1990’s vehicles broke down frequently when they became more reliable dealerships could consolidate they became more reliable dealerships could consolidate there stores. there stores.

Supply ChainSupply ChainAuto manufacturing involves a Auto manufacturing involves a complex supply chain and complex supply chain and production infrastructure production infrastructure involving 1000’s of companies; involving 1000’s of companies; steel, rubber, plastic, glass, steel, rubber, plastic, glass, electronics, oil, chemicals and electronics, oil, chemicals and many other materials. many other materials.

A car uses about 2,000 to A car uses about 2,000 to 3,000 parts so companies 3,000 parts so companies outsourced some of their outsourced some of their operations and fabricated operations and fabricated some of their own parts with some of their own parts with raw material from suppliers.raw material from suppliers.

To differentiate them from To differentiate them from other companies carefully other companies carefully engineered their engines and engineered their engines and transmissions. transmissions.

Disintermediation Disintermediation

Law prevented manufactures from selling Law prevented manufactures from selling directly to buyers. directly to buyers. Ford and GM tried selling cars online directly to Ford and GM tried selling cars online directly to consumers in Huston. consumers in Huston. Texas franchise laws shut it down because the Texas franchise laws shut it down because the unlicensed site was acting like a retailer. They unlicensed site was acting like a retailer. They would not allow the manufactures to become would not allow the manufactures to become licensed because 20% of state tax revenue licensed because 20% of state tax revenue came from auto sales. came from auto sales.

Custom ordersCustom orders

ECommerce initiativeECommerce initiative

Manufactures attempted to leverage internet technology in four Manufactures attempted to leverage internet technology in four areas. areas.

Moving direct procurement and supply chain operations to the Moving direct procurement and supply chain operations to the internet.internet.

Auto manufactures integrated Internet services into vehicles.Auto manufactures integrated Internet services into vehicles.

Auto manufactures were creating or extending Internet-based Auto manufactures were creating or extending Internet-based systems to tie together their entire sales, marketing and distribution systems to tie together their entire sales, marketing and distribution systems.systems.

Manufactures were boosting their efforts to attract online customers Manufactures were boosting their efforts to attract online customers some manufacturing websites emulated the OBS and enables some manufacturing websites emulated the OBS and enables shoppers to initiate a purchase online by referring request to shoppers to initiate a purchase online by referring request to dealers. dealers.

OBS ModelOBS Model

Referral servicesReferral services Autobytel signed up 3000 dealers in 1999Autobytel signed up 3000 dealers in 1999

Classified listingsClassified listings

Auction and reverse auctionAuction and reverse auction

BrokerBroker

Direct sales (auto “e-tailers”)Direct sales (auto “e-tailers”)

Primary StakeholdersPrimary Stakeholders

Franchise dealersFranchise dealers

InvestorsInvestors

SuppliersSuppliers

Public PolicyPublic Policy

State Franchise LawsState Franchise Laws

Creating Value for the Consumer Creating Value for the Consumer

In the 1980s consumers had access to consumers reports which assessed In the 1980s consumers had access to consumers reports which assessed the value of vehicles. This offered consumers value so they could get their the value of vehicles. This offered consumers value so they could get their monies worth and negotiate better prices since they know the market price.monies worth and negotiate better prices since they know the market price.

When the internet came along websites helped consumers research When the internet came along websites helped consumers research vehicles and find Manufactures suggested retail price. vehicles and find Manufactures suggested retail price.

Dealerships were plentiful for repairs, because cars frequently broke down. Dealerships were plentiful for repairs, because cars frequently broke down. When they became reliable it was ok to consolidate dealerships because, When they became reliable it was ok to consolidate dealerships because, Consumers were willing to pay search cost for a car. Since it was an Consumers were willing to pay search cost for a car. Since it was an infrequent purchase and it would be worth it for the consumer if they could infrequent purchase and it would be worth it for the consumer if they could negotiate a cheaper price. negotiate a cheaper price.

Consumer reports Consumer reports

www.Kbb.comwww.Kbb.comwww.Edmunds.comwww.Edmunds.com

Capturing valueCapturing value

The Internet allowed manufactures to communicate and The Internet allowed manufactures to communicate and gather information from buyers, which was originally only gather information from buyers, which was originally only done by local dealers. done by local dealers.

Manufactures Created Franchises for independent Manufactures Created Franchises for independent business people. In doing so they didn’t tie up capital business people. In doing so they didn’t tie up capital with administrative resources, retail and service with administrative resources, retail and service operations. This leveraged the capital of private operations. This leveraged the capital of private investors and local dealers who had a better knowledge investors and local dealers who had a better knowledge of what sells in their geographic location.of what sells in their geographic location.

Competitive Risk Competitive Risk

OBS saw Finance and Insurance (F&I) as a way to diversify their OBS saw Finance and Insurance (F&I) as a way to diversify their revenue since 94% of new car buyers finance their purchases this revenue since 94% of new car buyers finance their purchases this scared traditional dealers because F&I services was part of their scared traditional dealers because F&I services was part of their revenue.revenue.www.Giggo.comwww.Giggo.com was one of the online loan companies. was one of the online loan companies.

Autonation.com hit 1 Billion in sales 1999.Autonation.com hit 1 Billion in sales 1999.Carorder.comCarorder.comCarsDirect.comCarsDirect.comGreenlight.comGreenlight.comAuctionsAuctionsDisintermediationDisintermediationGM and Ford set up ecommerce units in 1999.GM and Ford set up ecommerce units in 1999.

DSIR DSIR

If consumers have trust in one company If consumers have trust in one company due to reliability then other people may due to reliability then other people may purchase from that manufacturer. This purchase from that manufacturer. This was important because a vehicle is a large was important because a vehicle is a large infrequent purchase.infrequent purchase.

Different manufacturers make similar but Different manufacturers make similar but different types of vehicles in a segmented different types of vehicles in a segmented market. market.

Missed Opportunities Missed Opportunities

The industry had an over supply of dealers which The industry had an over supply of dealers which created a high pressure sales environment. It cost created a high pressure sales environment. It cost insurance and interest ($60 daily/vehicle) to keep insurance and interest ($60 daily/vehicle) to keep inventory on the lot so dealers aimed for a high inventory inventory on the lot so dealers aimed for a high inventory turnover. In order to do this dealers were unethical in turnover. In order to do this dealers were unethical in their sales tactics to extract the maximum a customer their sales tactics to extract the maximum a customer was willing to pay, which lowered customer loyalty. This was willing to pay, which lowered customer loyalty. This didn’t help make car shopping a positive experience as didn’t help make car shopping a positive experience as the auto companies had excepted them to resulting in the auto companies had excepted them to resulting in 20% returning. The Customer loyalty problem could 20% returning. The Customer loyalty problem could have been solved by the attitude of the sales staff. have been solved by the attitude of the sales staff.

Short supply of popular models Short supply of popular models

http://www.gm.com/corporate/about/comphttp://www.gm.com/corporate/about/company.jspany.jsp

http://www.samples-help.org.uk/mission-sthttp://www.samples-help.org.uk/mission-statements/general-motors-mission-statemeatements/general-motors-mission-statement.htmnt.htm