It’s no secret that carmakers need to change their business models to regain their profitability. It’s also no secret that many consumers are delaying major purchases like cars and other big-ticket items due to uncertainty and risk-aversion.  It may just take a ‘crazy’ idea like selling cars via online auction to get these ‘delayers’ across the purchasing line.

Enter the co-branded General Motors (GM) and eBay experiment.  For those of you not familiar with it, the ‘nutshell’ version is that the two companies have teamed up for a trial program in California.  It became operational in August 2009 and the car industry is watching with baited breath.

Although sales have initially been somewhat slow on eBay for GM, this trial may just mark the beginning of a new sales and distribution model.  Under the current distribution model each dealer must own significant real-estate to store vehicles (which they have had to finance until a buyer has been found). 

The eBay model, when taken to its final conclusion, may do away with much of the cost in the above model.  If consumers are willing to buy over the internet via eBay then dealers do not need huge tracts of land to store their vehicles.  Instead, a single ‘warehouse’ shared by all dealers in a region can be used to house vehicles, which are then delivered to a much smaller dealership when sold.  This would allow dealers to focus more on after sales customer service – the highly profitable portion of their business.

The wildcard in this model is the consumer.  Historically, consumers have expected to visit a dealership and find their ‘perfect’ vehicle on the lot waiting for them.  Under the new eBay model, dealers may only have a handful of vehicles in a much smaller showroom, and consumers will have to wait for their vehicle to be delivered.  This is not unlike the dealership experience in much of Europe and Asia, but it is clearly a radical change for North Americans.

The again, it may simply be another way for GM to convince new and younger buyers that this is “not your fathers Oldsmobile”.

I think the idea has legs and may just be a game-changer, but only time will tell. 

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For more information, please contact Varian Igantius.