Internet putting car buyers in driver's seat

WASHINGTON -- When Peter Manchester, a self-avowed ''details person,'' set out to buy a new car last year, the first place he went was his computer. Manchester used the Internet to check out everything -- price, availability, options and financing.

After weeks of intensive research, the retired Mobil Corp. executive from Great Falls, Va., was able to walk into a dealership, say exactly what he wanted and get a 2000 fully equipped Cadillac DeVille DTS sedan for $4,000 less than its listed price of $49,000. He said his sleuthing made a potentially unpleasant buying experience fun, mostly because the salesman couldn't tell him anything he didn't already know.

''I like going in informed,'' he said.

Manchester's purchase was a double coup because the DeVille DTS is a popular new car that seldom sells for less than list price.

But what Manchester views as fun, auto dealers view as a threat to their very existence.

Dealers have successfully lobbied state legislatures nationwide to strengthen laws that restrict new-vehicle pricing and sales to franchised dealerships. Their muscle in state capitals has effectively prevented automakers from selling directly to consumers online.

While the carmakers' online threat has been muted, the larger online world continues to circle traditional dealers, which have an average $2 million tied up in buildings and equipment. Some Web sites, such as www.Autobytel.com, link consumers to dealers. Other sites, such as www.Edmunds.com, give information on prices, equipment and consumer experience.

The most visible and aggressively advertised sites, such as www.CarsDirect.com, www.CarOrder.com and www.Greenlight.com are more ambitious, seeking to give consumers the ability to ''build to order,'' that is, to customize their vehicles and complete all sales and financing transactions online.

Because of state laws requiring that new vehicles be sold exclusively by franchised new-car dealers, the online auto companies still must buy their cars from free-standing dealerships, artificially preserving the dealer system.

The pressure for fundamental change in how new cars are sold will continue to mount. Analysts say that for now, the Peter Manchesters of the world are a minority, but their ranks will grow significantly as people realize the Internet can turn a Byzantine buying process into something as simple as click and point.

The big automakers saw this potential early on. With car buyers such as Manchester in mind, General Motors Corp. and Ford Motor Co., the world's largest car companies, began trying about two years ago to set up factory-owned stores that would be able to sell directly to consumers via the Internet.

The dealers went to war, descending on state legislatures nationwide to strengthen dealer protection laws. Forty-eight states and the District of Columbia have such laws, all of which remain on the books. The dealers, showing their political clout, succeeded in toughening pro-dealer rules in 22 states, including Maryland and Virginia.

''The car companies came in with their paid, outside lobbyists, who stayed in expensive hotels and who didn't know anybody,'' said auto dealer Lou N. Kairys of Woodbridge, Va., a board member of the National Automobile Dealers Association who led the fight against factory-direct sales. ''But we went to school with those guys in the state legislatures. 3/8 Some of them are neighbors. Heck, we might've played on the same football teams with them.''

States also had a fiscal interest in protecting dealers, who contribute 20 percent of all state sales taxes, though taxes on Internet sales have proven difficult to collect.

At the 83rd annual meeting of the National Automobile Dealers Association in Orlando, Fla., in January, carmakers and dealers announced a truce. The dealers agreed to become more Internet savvy and to eliminate some practices, such as high-pressure salesmanship and concealing prices, that have long angered consumers. They also agreed to work with the manufacturers to identify consumer preferences, which would eliminate the high cost of building huge inventories of cars and trucks that consumers may not want.

In return, the car companies abandoned their efforts to bypass dealers in automotive retail.

It was a peace of convenience, said Fred Wallace, vice president of marketing for Newgen Results Corp. of San Diego, a company specializing in helping automakers and car dealers use electronic communications to improve sales and to build customer loyalty.

''Both sides finally realized that the consumer is in control, and that if they couldn't please the consumer, somebody else would, dealer laws or no dealer laws,'' he said.

The automakers and dealers also realized that the ''somebody else'' included the dot-com companies, which have been seeking to take away those portions of the auto retail business that are not protected by state laws. The dealers changed tactics and trained their fire on the new enemy.

The car dealers won a big battle in Texas, where this year the state motor vehicles department implemented rules effectively preventing CarsDirect.com and similar companies, from doing business in the state. Such rules prevent Internet companies from charging a fee to dealers and from setting prices and require that any new vehicles must be sold through dealers. The dot-coms are fighting back, arguing in court and in the legislature that the state's rules restrict trade.

Rick Green, a Republican and second-term Texas state representative, is backing the dot-com challenge. ''I don't favor stripping dealers of protections, but this is crazy,'' he said of the Texas anti-broker rules.

''This restricts competition, and competition is always better for consumers,'' said Green, who helped to form the political action committee NetPac, a high-tech lobbying group that wants to bring more electronic commerce to the state.

A consumer rebellion could change all of that.

Politically, dealers may decide that it is not worth the risk to be seen as restricting Internet trade, said Jordan Hymowitz, an e-commerce auto industry analyst for the investment banking firm of Roberston Stephens Co., a subsidiary of Fleet Boston Financial Services.

Ending the fight with the automakers was a ''matter of common sense,'' Kairys said. The real threat are the ''third parties,'' he said, referring to the dot-com companies.

For example, though the dot-com companies cannot yet sell new vehicles directly to consumers, there are no state or federal laws stopping them from competing with dealers for finance and insurance revenue, auto industry analysts and dealers said.

That is big money. According to the Hymowitz/Hughes report, nearly 94 percent of new-vehicle buyers finance or lease their cars or trucks. Finance and insurance accounted for 27.6 percent of the typical franchised new-vehicle dealership's profits in 1990. That share rose to 33 percent in 1999.

The average new-vehicle dealership had an annual pre-tax profit of $403,000 in 1998, a figure that is expected to rise when accounting is completed for 1999, National Automobile Dealers Association officials said.