After putting a bullet through the brain of P.R. Ellis Corp., in 1994, Ellis filed for Chapter 7 bankruptcy. He lost two houses and $15 million. He was out of the car trade.
But the car trade was not out of him.
"God gave me a life in the car business. This is all I know how to do. Why torch that and walk away?" Ellis explained recently. His father had been a car dealer; Ellis had sold his first car at 16 and owned his first dealership at 24.
So when he went into exile, it was not on some sun-washed island but in the bedroom of his condominium, where he started fiddling with his wife's personal computer. "I know there's some kind of trick pony in here," Ellis recalls thinking. Translation: There must be a way to sell cars on the Internet.
He flew to New York to speak with executives at Prodigy, the on-line service, having prepared to give an hour's presentation. After five minutes his listener interrupted him. "Let's try it," the Prodigy executive said.
Ellis launched his program on Prodigy in March 1995. He figured it would generate 500 purchase requests a week. On the fourth day it received 1,348. The pony had been found.
Today, ABT occupies the second and fourth floors of a squat brown building across the street from the airport in Orange County, Calif. The elevator opens into a lobby dominated by a six-foot-long aquarium luminous with tropical fish. Hawaiian shirts and shorts seem to be the favored mode of dress among the 105 employees here; the sockless look is big, too. Walk into ABT and you'd think you were in a travel agency booking cruises on the next boat out of Long Beach.
The company's leisured air neatly disguises its headlong rush to blow up one of the biggest and most traditional of American industries, the car business, in which annual sales of new and used autos exceed $650 billion. Throw in service, rentals, and assorted miscellany, and you're talking $1 trillion worth of business. Each and every year.
ABT's business model attacks that market in a novel way. The company spends heavily on marketing (40% of this year's sales), mainly to promote and support a prominent Web site that is designed to attract educated, serious car buyers looking for a specific make and model of car. That buyer fills out a purchase request, which then gets routed to the nearest ABT-accredited car dealer of that make. In return, the dealer must contact the customer within 24 to 48 hours with a low, firm price.
Since February 1995, when ABT started, the monthly flow of purchase requests has risen from 5,000 to more than 60,000, which means ABT has become a giant funnel for market share. It sucks in a desirable demographic--affluent, educated, motivated buyers--and makes its money not by taking commissions on the cars bought by ABT users but by charging for access to those users. Who wants access? First, car dealers, who pay monthly and annual fees in return for exclusive ABT franchise rights in their area. (There are 2,000 such dealers so far.) And second, providers of auto-related financial services looking to ride the deal flow. ABT has forged strategic partnerships with Chase Manhattan Bank, one of the largest auto lenders in the United States; American International Group (AIG), the multinational insurer; and General Electric Auto Financial Services, a major force in auto leasing. Some of these players invested $15 million in ABT last August. In January they ponied up another $9 million.
"Aside from the tremendous growth in volume, they have one of the few business models where you can actually make money on the Internet," says Jeff Coats, managing director of the GE Equity Capital Group. "They had a great idea first, and they're leaps and bounds ahead of nascent competitors. One of their biggest advantages is that they have a strong network of key dealers who are early adopters." Nine out of 10 of the country's largest "megadealers" participate in the ABT program.
The ABT model is unusual, believes Matt Ericksen, a vice-president in the Chicago office of Boston Consulting Group who specializes in Internet commerce. He contends that ABT does more than merely adapt an existing business model to the Net. "Wal-Mart may team up with select auto dealers that will offer special prices to Wal-Mart customers, but it doesn't ask the dealers to make tangible changes in the way they conduct business," says Ericksen.
ABT changes the way that companies that do business with it operate. It drives manufacturers to streamline distribution by guiding volume away from marginal, expensive-to-serve dealerships, where customer loyalty has languished. It slashes dealers' costs, notably in advertising and labor, which together account for 63% of the typical dealer's operating expenses. It steers the customer--and the industry--toward a low, "no haggle" price, free from the dread and intimidation that have typically poisoned the car-buying experience.
At the same time, the ABT model will inflict change on those who try to steer clear of its new approach. "The losers will be traditional finance and insurance companies, including auto-company finance subsidiaries," says Ericksen. "Their customers are no longer captive. With a click of the mouse, the car buyer can pick and choose among an array of financing alternatives."
Newspapers, too, stand to lose big, as ABT dealers will no longer be enslaved by the process of spending huge sums on advertising to lure buyers. ABT will deliver those (motivated) buyers at low cost, meaning that dealers can forgo spending the more than $3 billion (almost one-tenth of all newspaper ad revenues) they paid for newspaper ads last year.
Commissioned salespeople will disappear in favor of those earning a flat salary and a bonus for each car sold under the ABT model. Says Ellis, "We tell a lot of our dealers they've got the wrong salespeople."
