Autobytel Inc. History

Address:

18872 MacArthur Boulevard
Irvine, California 92612-1400
U.S.A.

Telephone: (949) 225-4500
Fax: (949) 225-4541

Public Company
Incorporated: 1995 as Auto-By-Tel LLC
Employees: 276
Sales: $71.1 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: ABTL
NAIC: 541519 Other Computer Related Services

Company Perspectives:

Whether buying, owning, or selling a vehicle, Autobytel.com offers a comprehensive and positive consumer experience.

Key Dates:

1995:: Auto-By-Tel is founded by Peter Ellis.
1997:: Auto-By-Tel becomes first Internet-based company to advertise on the Super Bowl.
1998:: Ellis resigns as president and CEO.
1999:: The company goes public.
2001:: Autoweb.com is acquired and company changes its name to Autobytel Inc.

Company History:

Autobytel Inc., an Irvine, California company, bills itself as the world's largest Internet automotive marketing services company that helps dealers sell cars and manufacturers build brands through efficient marketing and customer relationships management tools and programs. Since its inception in 1995 as a referral service, linking prospective car buyers with participating dealers, Autobytel, due to the evolution of online automotive services, has been forced by increased competition from auto manufacturers, dealership web sites, and other third party ventures to adjust its game plan. While many online rivals have gone out of business, Autobytel has been able to take advantage of its brand recognition to remain a viable concern. The company owns and operates four web sites: Autobytel.com, Autoweb.com, CarSmart.com, and AutoSite.com. It has relationships with some 8,800 automobile dealers and 30 international automotive manufacturers. According to company statistics, it is responsible for generating $17 billion in annual sales of new cars in the United States in 2001, or 4 percent of all domestic new vehicle sales. Autobytel also has branded licensed web sites and partners around the world, including Canada, Europe, Asia, and Australia. In addition to its referral service for new cars, Autobytel also provides car insurance services and automotive marketing data and technology, operates a "Pre-Owned CyberStore" for the sale of used cars, and offers a program to help car owners with the maintenance of their vehicles by providing a wealth of online information as well as by emailing service reminders. Moreover, the company's lead management system provides tools to car dealers, allowing them to make better use of the Internet.

Recession of Early 1990s and Bankruptcy of Autobytel's Founder

The man responsible for the creation of Autobytel was California businessman Peter Ellis, whose father had been a car dealer. As soon as he was old enough to drive, Ellis sold his first car, and he owned his first dealership by the age of 24. During the 1980s, he built a southern California and Arizona empire of new and used car dealerships, at one point operating the largest Jeep, Eagle, Chrysler dealership in the country. Ellis also gained a reputation as an innovator, pioneering the concepts of no-haggle selling and the used-car superstore. At his peak, Ellis owned 16 dealerships and related businesses, then a downturn in the economy in the early 1990s proved devastating. One by one, he sold off or closed down his dealerships. By 1994, he was forced to file for personal bankruptcy, in the process losing $15 million, a private prop jet, and houses in Bel Air, Aspen, and Palm Springs. To make ends meet, his wife went to work as a spa consultant, while Ellis stayed at home, searching for a way to forge a comeback in his business career.

Rather than seek a new line of endeavor, however, Ellis looked for a new way to sell cars. He toyed with the idea of selling cars over a television shopping network via a toll-free line, originally coining the business name "Auto-by-Tel" with the telephone in mind. Then Ellis became aware of the Internet, and "telephone" soon evolved into "telecom." At first he was hardly comfortable with a computer, the only one at home belonging to his wife. Nevertheless, he began to investigate cyberspace. "It seemed to me that a lot of people were using the online services and I had to check them out," he told a reporter in a 1996 interview. "What I saw was kind of like the wild, wild West and I thought I saw an opportunity."

Drawing on his many years of selling cars, Ellis looked for a way to improve the car-buying experience for the public, which had been the motivation for his earlier no-haggle price policy. He knew all too well the adversarial relationship that existed between customers and salespeople. Traditionally, automobile manufacturers licensed too many dealerships, over-saturating markets in order to stimulate the sale of cars. After a boom period following World War II, dealerships increasingly fought with one another over a limited number of customers and in turn fought with customers over every dollar. In addition to footing the bill for inventory and shipping, dealers spent a great deal of money on advertising, much of it the bait-and-switch variety, and salespeople tried every possible ploy to sell more expensive models to customers, who in many cases had been lured onto the lot by low-priced cars that were not even in inventory. The buyer was at a further disadvantage because the actual cost of the car to the dealership was withheld from him.

Ellis's plan for Auto-by-Tel was to empower the car buyer while providing dealers with a more efficient sales process. The company would offer the buyer, at no charge, pertinent information, such as the dealer's true cost, and an online request form detailing the car and desired options. A local participating car dealer, which would pay a fee to Auto-by-Tel, would then contact the buyer with a no-haggle price, and offer an opportunity for a test drive. Dealers would benefit because Auto-by-Tel sales were essentially found business. Moreover, these leads would be less expensive than the cost of generating customers through traditional advertising, as well as resulting in a reduction in labor costs. Because advertising and labor account for about 60 percent of most dealers' operating expenses, these savings were large enough that a significant discount could be passed on to the buyer. In theory, Auto-by-Tel was a win-win situation that promised to redress the longstanding animosity between car salespeople and buyers. Ellis saw Auto-by-Tel as a revolutionary concept that might eliminate the commissioned salesperson altogether, replaced instead by a salaried employee who was no longer placed in an adversarial relationship with customers. Furthermore, Internet-channeled business would result in the weeding out of marginal, noncompetitive dealerships.

Birth of Auto-by-Tel: 1995

Needing a partner with money, Ellis teamed with John Bedrosian, cofounder of National Medical Enterprises. Together they officially founded Auto-by-Tel in January 1995. Ellis traveled to New York to meet with executives of Prodigy, an online service, and very quickly convinced them to put Auto-by-Tel to the test. It debuted on Prodigy in March 1995 and, although Ellis projected that at the outset Auto-by-Tel would likely generate 50 purchase requests per week, on the fourth day it received more than 1,300. Three months later, Auto-by-Tel launched its own web site. By the end of the year the company also signed up more than 350 car dealerships to subscribe to the service and received financing from such prominent investors as GE Capital Services, insurer American International Group (AIG), and Michael Fuchs, the former head of HBO and Warner Music Group.

Revenues of just $274,000 in 1995 grew to $5 million in 1996, and Ellis was predicting that number would increase tenfold by the end of the following year. Hardly the only one to view the Internet as a tool for selling cars, he was anxious to gain market share in the new field. In April 1996, Auto-by-Tel entered the Canadian market, and Ellis was already talking about overseas expansion. Although the number of participating auto dealers grew rapidly, most of them were not yet online. Instead of email, at this stage Auto-by-Tel generally relied on the fax machine to communicate with its clients.

Early in 1997, Auto-by-Tel became the first of the new Internet-based companies to advertise on the Super Bowl, paying $1.2 million for a 30-second spot. Although a steep price, Ellis considered it a smart buy because of the surrounding publicity that helped in his efforts to transform Auto-by-Tel into a national brand. A few months after the Super Bowl, the company launched a used-car service through a network of participating dealers, essentially emulating its new car business model. All used vehicles would be subjected to a 135-point certification process and further backed by a 72-hour, money-back guarantee and a three-month/3,000-mile warranty. Also in the early months of 1997, Auto-by-Tel began to offer low-cost car insurance through a partnership with AIG, financing through Chase Manhattan Bank and leasing through GE Capital. To support the growth of Auto-by-Tel, which was heavily dependent on marketing, Ellis planned to take the company public in 1997. When the stock market soured, however, he elected to postpone the offering. Instead, the company raised $13 million in a private placement of preferred stock, the third such sale in little more than a year. Despite Ellis's enthusiasm and bold predictions, Auto-by-Tel was beginning to face some difficult realities. Not only did revenues not reach $50 million for 1997, they totaled just $15.3 million.

Auto-by-Tel launched its first overseas operation in 1998, entering the United Kingdom. It also announced plans to expand into Scandinavia, teaming with Sweden's Bilia AB, which sold Volvo and Renault vehicles in ten European countries. By June 1998, however, Ellis stepped down from his leadership role in the company. He was replaced as president and chief executive officer by Mark Lorimer, the company's chief operating officer. In addition, Michael Fuchs became the chairman of the board, and the company soon changed its name to autobytel.com in order to emphasize its Internet base. The purpose of the personnel changes was to enhance Auto-by-Tel's credibility in the market and take it to the next level. Although the company increased revenues it also saw losses mount. In 1998, the company generated sales of $23.8 million while losing $19.4 million, after having lost $16.8 million in 1997.

Going Public: 1999

Lorimer took the company public in March 1999, netting more than $80 million. The money was earmarked for sales and marketing in order to support efforts to build brand awareness for Autobytel, which was a common goal for dot-com companies at this time. The ability to actually turn a profit seemed of little importance to investors. Nor did they reveal any concern over the changing dynamics in the relationship between car buying and the Internet. Aside from a number of third-party rivals, Autobytel faced increased competition from auto makers

In 1999, the company continued to aggressively pursue plans for expansion. It announced an initiative to establish an auction-based program so that dealers could sell used vehicles to one another, with the hope of eventually adding related products such as stereos and auto parts to the mix. The company then acquired rival CarSmart.com in a $32 million cash-and-stock deal, adding a further 1,000 dealerships, although management decided to maintain CarSmart as a separate brand. In addition, the company participated in the creation of Autobytel Japan, launched in October 1999. By the end of the year, Autobytel saw its revenues grow to $40.3 million and losses grow to $23.3 million.

In 2000, Autobytel searched for a more diversified source of revenue. It expanded its referral service in Europe and tried to make its web site more friendly towards women, introducing "For Her" features. Less than a quarter of the company's Internet traffic came from women, who were regarded as strong candidates for Autobytel services because they had been traditionally intimidated by car salespeople and on average paid more for a car than men. The auto dot-com sector was also entering a period of consolidation. Because of its high name recognition, Autobytel held an advantage over its competitors. Despite the company's dominant position, however, the price of Autobytel stock fell steadily in 2000. For the year, revenues increased to $66.5 million, while the company posted a $29 million loss. Nevertheless, the company still had more than $80 million in cash and remained better positioned than most of its rivals.

Early in 2001, Lorimer attempted to boost investor confidence by promising that the company was on track to post its first quarterly profit later in the year. Prospects appeared even brighter when in February 2001 General Motors Corporation hired Autobytel to be involved in a 90-day pilot program of an improved system for car shopping on the Internet. Shoppers in the Washington, D.C., area were able to view dealers' available inventory and prices online. The press speculated that if the test program proved successful, GM might take an equity position in Autobytel. In the meantime, Autobytel used $9.4 million in stock to acquire Autoweb.com, further increasing its network of dealerships. It also elected to change its name from Autobytel.com to Autobytel Inc. to reflect that the company now owned four branded web sites. GM extended the test program with Autobytel from three to six months before ending it. In the end, GM decided to incorporate its e-business unit into the corporate structure. Although both GM and Autobytel characterized the test program as a success, some in the press portrayed its termination as a serious defeat for Autobytel.

In December 2001, Lorimer stepped down as Autobytel's president and chief executive, replaced by Jeffrey Schwartz, who had been Autoweb's president and CEO. By cutting back on marketing and other cost-saving measures, the company was able to post its first operating profit in the fourth quarter of 2001, fulfilling Lorimer's earlier pledge. Early in 2002, Schwartz announced his intention to broaden Autobytel's marketing services to better support car dealerships and manufacturers. On the consumer side, Autobytel faced increased competition from manufacturer and dealer sites. Third party companies such as Autobytel, however, were still preferred because of their independence. Autobytel also had more than $30 million left in the bank and was better positioned than most of the other survivors among the car referral companies. In the ongoing shakeout, there was an excellent chance that Autobytel would be the last one standing, emerging finally as a very profitable business.

Principal Subsidiaries: Autoweb.com; Carsmart.com; Autosite.com.

Principal Competitors: Auto Channel; AutoNation; AutoTrader; CarsDirect.com; Trader.com.

Autobytel Inc. History

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Company History:

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