By Roland Jones
ABCNEWS.com from TheStreet.com
Aug. 14
— A legal battle brewing in Arizona over the sale of cars on the Web may augur a coming battle between bricks-and-mortar companies and the world of Internet commerce.
At issue is a law introduced by the Arizona legislature that restricts how car manufacturers market or sell their vehicles to consumers via the Internet. Arizona’s car dealerships say the law, which was passed in April, is needed to protect their livelihood, but car companies have complained that the law is needlessly restrictive.
The scuffle is significant because with the growth in Internet use, the road ahead for car dealerships has become unclear. Car dealerships, whose primary interface with consumers is in the car showroom, are starting to feel left by the side of the road, as car makers and dot-coms launch Web initiatives designed to reach out to consumers, and ultimately let them buy a new car from the comfort of their home PC.
Dealer-Backed Law in Tug of War
Now the dealerships are fighting back. Backed by the Arizona Automobile Dealers Association, an organization that represents car dealers across the state, the Arizona initiative is thought to be one of the nation’s most rigid dealer franchise laws, which govern the business relationships between car manufacturers and individual car dealers.
“We support the law because it keeps the way we do business as of today,” says Bobbi Sparrow, a spokesperson for the association. “It makes sure that there are no sudden changes by
manufacturers.”
The law was initially to have taken effect in mid-July, but has since been blocked by a lawsuit filed with the Arizona legislature by the Alliance of Automobile Manufacturers, a coalition of the nation’s largest automobile manufacturers, including Ford General Motors and DaimlerChrysler.
The car makers alliance argued that that the law is flawed because it would hurt consumers, and bars manufacturers from business practices such as posting car prices on their Web sites, offering regional rebates and selling parts, accessories and services online. Under the law, manufacturers would not even be allowed to contact customers about special financing deals on vehicles or offer 24-hour roadside assistance, the alliance maintains.
According to Gloria Bergquist, a spokeswoman for the Washington, D.C.,-based alliance, manufacturers are not challenging the role of dealerships. “We acknowledge that dealers are trying to strengthen their position in the Internet age, but we think this legislation went too far,” she says.
Similar legislation to strengthen franchise laws have been introduced by dealers in 30 U.S. states so far this year, Bergquist adds, noting that about 40 states have laws that prohibit car manufacturers from selling vehicles directly to consumers. Meanwhile, in Arizona, a hearing date is pending the filing of briefs in the case by both sides.
Getting Your Car Via the Net
Still, as car manufacturers launch new Web initiatives and car-selling Web companies spring up, the idea of buying a car online without the help of a dealer is coming closer to reality.
Recently, General Motors, the nation’s largest maker of cars and trucks, launched gmtickettoride.com, a Web site offering cash rebates on selected cars and sport utility vehicles to Web surfers. The Web site’s focus is to gain information about customers likes and dislikes in order to more effectively manufacture and market cars, and to target consumers with new
brands.
Other car makers have launched similar initiatives, and Web companies, like CarsDirect.com, are moving toward allowing consumers to select and purchase a car entirely online.
Indeed, the Web is gaining ground in the car-selling business. According to Jupiter Communications, an Internet research firm New York, the direct sale of cars over the Internet is nationwide set to grow over the next few years.
In 1999, direct Internet sales accounted for around 0.1 percent of new car shipments, or 17,000 vehicles, according to Jupiter’s calculations. And the number is expected to grow to 8 percent, or 1.3 million vehicles, by 2004.
At present, car sales are mostly handled offline. A customer will research a purchase on a Web site, enter their information and a sales person from a network of registered dealers will then contact them to close the sale.
Dealers Wary of Web
Dealers need to work harder to embrace the potential of Internet commerce, says Rob Leathern, an analyst at Jupiter. “There’s a lack of knowledge out there and that has created uncertainty and
fear,” explains Leathern.
Dealerships remain part of the online car-buying network, he says, but they have a distrust of manufacturers and see any online initiatives as cutting them out of the equation. “The reality is
that this is not going to happen that easily,” adds Leathem.
For car manufacturers, meanwhile, of greatest concern is continuing to “own the customer.” That’s according to Scott Crompton, vice president of the global automotive practice at SeraNova, Inc., an Edison, N.J., company that builds Web sites for large auto makers like Ford and General Motors.
Car manufacturers want to use the Web to own and manage their relationships with customers, but so does the dealer, says Crompton. “Dealers are a very powerful lobby in their communities,” Crompton says, arguing that dealers will aim to slow down the growth of the online buying experience because they want the customer face time, and the Internet takes that away from them.
But the battle between car manufacturers and dealerships over customer ownership could be symptomatic of a larger issue. The law in Arizona could be seen as part of a greater movement on the part of “bricks” to bite back at “clicks,” suggests Jack Staff, chief Internet economist at Zona Research in Redwood City, Calif.
Taken in the light of a recent report from the General Accounting Office, which estimates that U.S. states will lose between $300 million and $3.8 billion in tax revenue this year because of untaxed purchases made on the Internet, the movement to curb car makers’ Internet initiatives in Arizona shows “we’re not in the go-go days of the Internet anymore,” believes Staff.
“The Internet industry has been telling regulators not to kill the goose that lays golden eggs with taxation, but now we might be seeing a movement to cut its legs out from under it before can fly,” says Staff. “In the absence of guidance on Internet taxation, lobbying groups in the states
could be taking matters into their own hands.” 
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