Carsdirect.Com - Survived Dot.com Shakeout Of 2000

By the time Brisco took over as CEO, CarsDirect.com had figured out how to price its vehicles without losing money on every sale. Initially, its policy was to price vehicles at invoice plus one percent. That resulted in under-pricing by about $1,500 per vehicle. CarsDirect then changed its policy to make deals at market prices. The company found that some high-demand vehicles could be sold at a much larger premium over invoice, while other vehicles could be sold below invoice price. By the end of 1999 the company was breaking even on its vehicle sales. It expected much of its revenue would come from the finance, leasing, insurance, and warranty products it could sell along with each vehicle. Dealers would participate by earning incremental income and handling trade-ins.

In early 2000 CarsDirect.com began offering extended service contracts, which added $800 to $900 to the cost of a vehicle. The company also improved its Web site by adding live online customer service technology that helped shoppers fill out forms and complete the purchase process. In March 2000 Cars-Direct forged an alliance with competitor Autoweb.com in an effort to capture a larger share of online automotive buyers. The two companies planned to jointly develop a direct new car buying service on Autoweb.com which would enable consumers to receive a fixed price on vehicles and conduct the entire purchase process online.

CarsDirect.com, as well as the entire online auto business, suffered through several speed bumps in 2000, some more serious than others. At least two consumer-based studies offered negative assessments of the online auto business. They included one by CNW Marketing/Research, which showed that eight different Web sites, including CarsDirect.com, routinely published inaccurate pricing information. An evaluation of five sites by Consumer Reports found that in many cases potential customers did not receive requested price quotes within two days. Oftentimes, the quotes were for vehicles other than those consumers requested. Meanwhile, established brick-and-mortar dealers were lobbying state legislatures to further restrict online auto sales, which already were prohibited in 11 states. Additional opposition was coming from the Big Three automakers, which warned their dealers not to sell cars to online brokers. For its part, CarsDirect.com noted that it was not a broker, did not intend to buy dealerships, and was not violating any dealer franchise agreements with the automakers.

CarsDirect.com planned to go public in 2000 and filed for an initial public offering (IPO) in May 2000. It planned to raise $175.2 million through its IPO. However, as the market for Internet IPOs shriveled during the year, CarsDirect.com scrapped its IPO plans in December. It was one of 27 companies that withdrew their registration statements for IPOs. Although CarsDirect.com lost $144 million in the previous 15 months, the company announced it had developed plans to be a profitable, long-term player. As a private company, it had raised more than $300 million in private equity financing since its inception. That included a mid-2000 investment from the Penske Automotive Group, which bought a 10-percent interest in CarsDirect.com for $17 million. As a result, all 117 Penske-owned dealerships would display their inventory on CarsDirect.com 's Web site. By this time CarsDirect.com had 2,500 licensed franchised dealers in its network. Following the investment by Penske, Roger Penske replaced Scott Painter on CarsDirect.com 's board of directors, and Painter subsequently left the company to start a new company called Direct Ventures.

The end of 2000 and early 2001 saw an industry downturn for online auto sales. CarsDirect.com reduced its workforce by 12 percent in November, laying off about 90 of its 750 employees. On February 15, 2001, Microsoft CarPoint shut down its DriveOff.com subsidiary. The direct selling segment of the online auto business further consolidated in February 2001 when CarsDirect.com acquired competitor Greenlight.com, which enjoyed exclusive arrangements with Amazon.com and Autotrader.com. Following the acquisition, CarsDirect.com CEO Robert Brisco noted three immediate benefits. First, CarsDirect.com experienced a 25-percent increase in sales and traffic, much of which came from Greenlight.com 's relationships with Amazon.com and Autotrader.com. Second, the acquisition brought in three more top dealer groups to the company's network of dealer partners, giving CarsDirect.com four of the top six automotive dealership groups in the United States. Finally, CarsDirect.com gained customer relationship management (CRM) technology in the acquisition. As a result of the acquisition of Greenlight.com, CarsDirect.com became the exclusive automotive partner of Amazon.com and had a "car tab" on its site. The company also gained direct mail access to Amazon.com 's huge customer base of 29 million people, representing one in 10 U.S. households.

By 2001 CarsDirect.com had increased the size of its affiliated dealer network to nearly 3,000 dealers. Brisco noted that the industry was in the midst of a shakeout, where only the strongest, best-capitalized companies would survive. He predicted that there would be another year or two of industry consolidation. Meanwhile, CarsDirect.com would offer consumers the largest multi-brand automotive shopping experience in the marketplace.