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Autobytel drops the ‘.com’ and picks up a competitor as it tries to stay ahead of the industry

Irvine-based Autobytel Inc. has seen the writing on the wall: evolve, or else.

The predicament isn’t new for dot-coms, but it has lit a fire under Autobytel, an online auto referral service. Last week the company paid $15.6 million in stock for struggling rival Autoweb.com Inc., a Santa Clara-based online service for car buyers. Autoweb also offers databases and Web site technology to automakers, including DaimlerChrysler AG, Ford Motor Co. and General Motors Corp.

The move marks a tactical shift for Autobytel. The company has lost hundreds of dealers from its network,a key source of revenue. And automakers, once missing in action on the Web, are starting to refer online shoppers to their own dealerships.

“Manufacturers are going out there and are trying to do online business,and they’re going up directly against third-party players like Autobytel,” said Paul Eisenstein, publisher of Detroit-based TheCarConnection.com, an automotive magazine.

Autobytel now is seeking to broaden its services and make inroads with automakers. It’s looking to provide information and services to dealers and automakers looking to mount their own online plays.

Enter Autoweb. The jewel of the newly acquired company, according to Autobytel chief financial officer Hoshi Printer, is its automotive information center. The unit provides research to 25 automakers as well as to dealers and consumers through software and the Web.

The information is used to come up with pricing for vehicles, view model specifications and put together advertising programs, to name a few functions.

Company officials say the information center is a boon for Autobytel, which wants to marry its research on shoppers with Autoweb’s data in a bid to wow automakers with a new software tool.

Autobytel already has a tie-in with General Motors, which tapped the company to design a Web site that lets potential GM buyers comparison shop among dealers in the Washington, D.C., area. GM has extended the 90-day test project another 30 days, or until Sept.1.

“The GM test is the best testimonial that I can give that the manufacturers are interested in us,” Printer said.

But there’s no guarantee that the test project will lead to a long-term pact with GM,or any other automaker for that matter.

Autobytel doesn’t seem worried. The company, which recently dropped the dot-com from its name to reflect its new direction, dismisses talk of tension between it and automakers and dealers.

“The fact that we’re all in competition, in a sense, is a misconception,” said Autobytel spokeswoman Melanie Webber. “We firmly believe there’s a place for the manufacturer site, the dealer site and, of course, the third-party buying service, which represents us.”

But several car sites already have disappeared, including CarOrder.com, AutoAdvantage.com and Autoconnect.com. Two sites, CarSmart.com and Autoweb, now are under Autobytel’s umbrella.

But like Autobytel, Autoweb is losing money and commanded little respect on Wall Street. For the three months ended June 30, Autobytel reported sales of $15.7 million, down 8% from the year-ago period. It lost $3 million before charges, roughly the same as its operating loss a year earlier.

Still, Eisenstein isn’t ruling Autobytel out yet: “They’ve shown flexibility, and there have been signs that manufacturers need a third-party partnering in one form of another.”

Ford is an example. The company uses AutoTrader.com to maintain its Internet database of used cars offered by dealers participating in its purchasing portal, FordDirect.com.

Plus, Eisenstein added, among consumers and even some dealers “there’s generally a slightly higher level of trust given to an Autobytel or third-party company than a manufacturer. That’s typical because people want outside validation.”

But Autobytel can’t rely solely on fees dealers pay to get referrals. One reason: dealers are being terminated or are bolting from Autobytel. Dealer fees are the majority of Autobytel’s revenue; automotive services such as financing, insurance and warranties make up about 27%.

As of June 30, the company reported 4,200 participating dealers, down 17% (or about 700) from the year-ago period. In the second quarter, dealer fees were $11.5 million, down from $13.9 million in the year-ago quarter. With Autoweb,which has had its own trouble retaining dealers,Autobytel’s dealer count jumps to 6,000.

Why aren’t dealers renewing?

“This is a marriage,” said Autobytel’s Printer. “When we divorce, which side decided to leave is always uncertain.”

Printer said that dealers must go through training programs and can be terminated if they “do not provide the treatment and courtesy and responsiveness to the customers we demand.”

“The reason is very simple: when consumers come to our site they expect a certain level of experience,” Printer said. “If they don’t get it, they’ll go elsewhere and won’t come back.”

David Wilson, owner of Toyota of Orange, paints a different picture. He said he got fed up paying fees,from $1,000 to $1,500 a month,when Autobytel’s leads didn’t translate into sales.

Wilson,who owns 12 dealerships, seven in OC,has tried other referral sites. But he said the “the results were very disappointing,no real return on investment.”

Online-generated sales account for 1% to 3% of Wilson’s business, he said.

“Online car sales have been a bust like the rest of the dot-com business,” he said.

On the other hand, Tom Vann, who owns three dealerships in South Central Michigan, has used Autobytel for five years,and said he has is happy with the results.

Vann said he pays Autobytel about $6,200 a month, and said he gets anywhere from 350 to 650 purchase requests per month. He closes about 10% to 18% of those requests, he said.

“I’ve tried everybody in the world as far as third-party referral services, and I’ve dumped them all except for Autobytel,” Vann said.

Complicating matters is the soft economy, in which “companies like Autobytel are trying to come in and generate revenue at a time when all the traditional sources of revenue are under incredible pressure,” Eisenstein said.

“Certainly our dealers are feeling some of the pressures of the economy,” Autobytel’s Printer said. “But I think we’ll get past that in the next one or two quarters.”

The question is whether Autobytel has time on its side. The company projects profitability by year’s end, and, as of June 30, had $67 million in cash and equivalents. n

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