EXCLUSIVE REPORTS
From the January 21, 2005 cover article print edition
Used-car Web sales revving up
Sandra Zaragoza
Staff Writer

When Len Critcher and Brett Stacy look around North Texas, they see a good number of luxury auto dealerships and parking lots clogged with Jaguars, Land Rovers and Mercedes-Benzes.

Dallas-Fort Worth's vibrant upscale auto scene is one of several factors driving Internet sales at the duo's online used-car dealership.

In 2001 Critcher and Stacy started eCarLink.com, a used-car dealership that's selling about 100 high-end vehicles over the Internet every month. That adds up to about $3.5 million in monthly revenue.

eCarLink is just one of a growing number of successful online used-car dealers in the Metroplex that owe at least part of their success to the favorable auto-industry climate in North Texas.

"Dallas as a whole makes a lot of sense for this business," Critcher said. "There are a lot of issues that go into Dallas being exceptionally good."

In 2004, eCarLink was ranked 13th by Auto Dealer Monthly magazine in its ranking of the top 50 Internet used-car dealers nationwide, according to the number of cars sold in 2003.

The magazine ranked Dallas-based TexasCarsDirect.com 10th; Texas Auto Group in Fort Worth was 26th; Classic Chevrolet in Grapevine was 35th; Texas Vehicle Exchange in Carrollton was 46th; and Burleson-based Lynn Smith Chevrolet came in 50th.

Peter Bulban, president of TexasCarsDirect Ltd., says his traditional dealership, also called TexasCarsDirect.com, has a growing Internet presence. It sold 1,496 used cars through the Internet in 2004, up from 1,339 vehicles in 2003.

Like Bulban, many online auto dealers are traditional dealers selling cars primarily at brick-and- mortar lots. Now many are grabbing a piece of the online business through in-house Internet divisions.

For Bulban, the Internet was "an evolution. The Internet is such a good business application," he said. "Before it used to be faxes; now our inventory is online 24 hours a day."

Others, like eCarLink, take it further by offering most of the car-buying process online. Unlike traditional dealerships, eCarLink doesn't offer direct financing.

Critcher says that keeping the car sale online -- from e-mails to contracts -- helps keep overhead low and staffing minimal, which in turn allows him to offer cars at lower prices than used-car dealers with traditional operations.

His markup, Critcher adds, can be 40% to 50% less than the markup at a full-service dealership.

There are two salespeople at eCarLink including Critcher, who personally sells about 50 to 60 cars monthly. In addition, Critcher has developed propriety software that facilitates the online car-buying process.

eCarLink and other used-car dealers have one thing in common: selling and marketing their inventory via the three largest online car sites: eBay Motors (Nasdaq: EBAY), AutoTrader.com.

These sites, which charge firms like Critcher's a fee of about $100 to post each of their offerings, typically draw savvy buyers who browse through Web pages containing multiple pictures and other car information.

When it comes time to make a purchase, inventory -- the precise make, model and year -- and price are two of the most important factors for online car shoppers, said Tom Swickard, CEO of Columbus, Ohio-based Auto Dealer Traffic, a marketing and consulting firm.

But if you have the same model of 2004 Mercedes, for example, "someone might be more prone to buy from the South than to buy from someone who lives in Michigan," Swickard said. That's because with Texas' mild weather, the car wasn't likely subjected to harsh climate conditions, he said.

The Metroplex does "seem to be a little hub," said Harlene Doane, editor and director of operations for Auto Dealer Monthly.

In the last few years the online used-car business has heated up throughout the country, not just in the Dallas area, Doane said.

Those in the trenches say the Metroplex has several key advantages making it a natural fit for the online car trade.

Dallas' central location is a key weapon when selling to out-of-state buyers, Critcher and Bulban agree.

Typically, the online buyer covers 100% of the shipping costs, which is why some buyers opt to fly in and pick up their cars directly. "It is so easy for us (in Dallas) to ship to any part of the country, especially compared to a dealer in California or Florida," Bulban said.

Critcher concurs. "I don't see a lot of businesses having the reach that we can because of our location," he said. "It's the same cost to either coast."

Low shipping costs are critical to online buying, Critcher says. A spike in shipping costs could "negate the savings."

Another advantage for local online used-car dealers is the high concentration of upper-end new-car dealerships in the Metroplex.

For example, eCarLink snags most of its inventory from local dealerships, while 10% to 15% comes from online trade-ins.

Stacy, eCarLink's CEO and inventory manager, has cultivated relationships with a variety of local dealers who, he says, are happy to have the business.

"I buy from them and sell to an out-of-state market," Stacy said. "We don't compete with any of their customers."

But compete is exactly what Jerry Griffin, president of Sewell Lexus on Lemmon Avenue, says that all online -- even local -- used-car dealers do.

"Everybody in the used-car business competes," Griffin said. "But we (authorized dealers) are more selective about what we sell than those people can be. Are they cheaper? Probably."

Griffin says his online division sold about 300 to 400 used cars last year.

Murray Schwartz, general manager at Millennium Jaguar in Plano, says online used-car dealers are both buyers and competition.

Those dealers can sell "edgier" cars with higher mileage, Schwartz said. "We back our used cars with a 100,000-mile warranty from the factory."

Critcher says about five of every 100 cars eCarLink sells is shipped internationally to countries such as Africa and Australia.

Virtual growth
Online virtual growth has led to real growth for eCarLink, whose location at Frank Luke Drive at Addison Airport isn't large enough to meet the swelling demand. At the moment, a trio of airplane hangars serves as cramped storage for about 100 cars.

Critcher says the company is scouting locations for a 30,000-square-foot facility it will build from the ground up. It will serve as a showroom -- with Internet-ready monitors in lieu of salespeople -- and a warehouse that will accommodate 150 to 200 cars.

Critcher said his company also is looking to grow its total sales through "add-on" services like warranties, which now account for less than 10% of eCarLink's total sales.

The Web is equally important to TexasCarsDirect, which anticipates a 10% increase in Internet car sales in 2005. Says Bulban: "If we turned the Web site off for a month ... our sales would be half what they are now."

OutFront
Wheels of Fortune
Jonathan Fahey, 01.06.03
The biggest used-car lot in the world is right there on your computer, courtesy of Ebay.

Len W. Critcher, 28, is a used-car dealer who doesn't have to buy balloons. He doesn't even have to wear a plaid suit. Instead, every month he sells 45 cars worth $1 million out of a pair of airplane hangars at a private Dallas airport--all on Ebay. "I get to run a dealership but not be that guy, the dealer," crows Critcher, an entrepreneur who gets his cars from a local franchise dealerships.

Critcher is one of legions of dealers--including big full-service dealers--who are now routinely using Ebay Motors to sell used vehicles. The rapid growth has surprised even Ebay (nasdaq: EBAY - news - people ), known more for its tchotchkes than cars. Ebay figures that it will close 2002 with $3 billion of vehicles and parts auctioned on its site, double the 2001 volume. Dealers account for about half of Ebay Motors' listings, individual sellers the rest. The big surprise: People are happy to buy an expensive product online that traditionally they liked to inspect firsthand. "We never thought it would take off like this,"says Stephanie Tilenius, general manager of Ebay Motors.

For all of Ebay's growth, it has just 0.6% of the $363 billion used car market, selling 300,000 of an estimated 42 million used cars in 2002. But those listings are especially lucrative for Ebay. The company gets an average of $60 per car listed compared with $1.62 for other items. A seller pays $40 to list a car and another $40 if it is sold. Steven Weinstein, an analyst at Pacific Crest Securities, predicts Ebay Motors will contribute $91 million (including revenue from motorcycles, parts and listings that don't sell) to Ebay's 2002 sales of $1.2 billion, rising to $151 million in 2003.

It's sufficiently lucrative that Ebay is about to draw its first serious competitor. AutoTrader.com, the online classified site owned by Cox Enterprises, announced a Jan. 1 launch of its own auction. AutoTrader ended a marketing agreement with Ebay to get into the business by itself, but neither side is talking about the breakup. AutoTrader, well known for its extensive advertising, won't charge a sell fee and will allow some winning bidders to see the car in person before buying.

For dealers, Ebay is a simple proposition: a cheap way to reach throngs of buyers. Normally dealers have to spend $500 in marketing money to get someone to walk into a showroom. For that $40 listing fee, they get an average of eight people bidding. Dealers don't have to spend hours haggling their way to a profit, and they can turn over inventory faster.

All of this, presumably, should lower costs for buyers, while giving them convenience they don't get driving from lot to lot looking. At any given moment you can find 20,000 cars listed. You can use an advanced search to paw through the list, specifying, for example, that you want to see all 1996 Pontiac Trans-Ams for less than $10,000 offered by sellers in your region.

At BMW of Peoria, Ill., one of seven dealerships owned by Sam Leman Automotive, Internet Sales Manager Kenneth Reardon says he can sell top-end trade-ins for higher prices to buyers on the coasts than he can off his lots in the Midwest. In December he shipped cars to Arizona, California, Maine, Maryland and Utah. "Snow's getting ready to fly here, so you can't move a convertible," he says. "But we get them for cheap and sell them somewhere warm."

Ebay stops working well for Reardon on big-volume cars like Fords, Pontiacs and Jeeps. "There's just too many on the site for us to distinguish ourselves," he says. One Friday in December there were 194 Jeep Grand Cherokees for sale. Shipping ($1,000 coast to coast) is prohibitive for humdrum models. But the buyer can always drive the vehicle home. Sellers, especially dealers, often offer to help get license plates and meet a buyer at an airport.

Either side can pay $100 to have an independent agent drive the car a few miles and verify the condition. Best, buyers can look at uncensored feedback from people who have bought from the seller in the past. As Critcher notes, "Could you just imagine if you walked into a dealership and could see their feedback posted on the wall?" s