Does Adam Simms Have a Sale?

The CEO of iMotors.com wants to use the Web to sell his customers exactly the used car they want at a no-haggle price. But first, in a brutally harsh climate for dotcom retailers, he has to sell his strategy. Do you buy his model?

"No scratches, no dings, no dents," Adam Simms promises. "No scuffs, no spots, no smells. Anything that needs to be repaired or replaced within the next 12 months or 12,000 miles, we're going to take care of." He sounds a lot like a used-car salesman. And several years ago, that's exactly what he was. But now the 38-year-old Simms is chief executive officer of iMotors.com, an Internet-based retailer that has huge ambitions for changing the ways that Americans buy secondhand cars. Simms also faces huge challenges: specifically, selling his business model in a difficult climate for online retailers in general — and for Web-based automobile retailers in particular.

Not that he has any doubts about how things will turn out. "There are two things to know about me," he says. "I understand how to create something with potential, and I always have an incredible impact on whatever I'm focused on."

First, the vision. In Simms's world, there is no reason anymore for shoppers to visit a classic used-car lot, where they might see a selection of 150 or so cars that forces them to figure out what comes closest to their desires — and then to dicker over price. Instead, he wants shoppers to go to his company's Web site and request whatever they want. A white 1998 Chevy Prizm with a CD player? No problem. A 1997 BMW 540i with fewer than 41,000 miles on it? All a customer has to do is ask. Instantly, iMotors will quote a no-haggling price for that model. At that moment, the company won't have the specific car in stock. In fact, it carries essentially no inventory whatsoever. But it does have a pipeline into tens of thousands of sources of late-model used cars. Within minutes after customers place a request, iMotors can start tracking down an exact match. Once it finds the right car, iMotors can take possession of that car, refurbish it, and then deliver it to an iMotors storefront located near the customer's home.

Each step, Simms believes, is a major improvement over the ways the used-car market traditionally works. And as much as he champions the virtual virtues of the Internet, he contends that his biggest breakthroughs are iMotors's physical refurbishing plants. They are behemoths, starting with a 90,000-square-foot operation in Elk Grove, California, just outside Sacramento. Situated amid a sea of flattened wheat fields, two propane tanks, and a rusty railroad track, the facility houses nearly 200 employees who filter in and out to wash cars, to replace tires, and to operate high-tech paint booths.

On a recent afternoon, the company's Elk Grove facility had just accepted delivery of a green 1997 Subaru Legacy and a cranberry-colored, 1999 six-speed Camaro Z28. John Draper, 41, a technician who previously worked at a Precision Auto garage in northern California, has already bent his attention toward the Camaro. "The passenger-side window squeaks, but the interior looks really good," he tells Simms, who has begun nosing through an inspection log in which Draper has been writing his findings.

Satisfied, Simms visits the upholstery corner of the plant, where four men labor over a Plymouth minivan. Two employees stitch a spot of fabric into the minivan's backseat, mending a cigarette burn. Looking at their handiwork, Simms beams. "A lot of body shops use sprays to fill those gaps," he says. But this seat's fabric looks seamless.

Now, for the reality check. This has been a brutal year for almost every type of Internet-based retailing, and the online car business is no exception. Nervous investors have slashed by more than two-thirds the stock prices of publicly traded companies such as AutoWeb.com and autobytel.com Inc., which sell new and used cars. Meanwhile, in a wave of consolidation, autobytel bought CarSmart.com, and DriveOff.com Inc. drove itself straight into the arms of MSN CarPoint. Industry analysts have begun questioning whether newly minted Internet car retailers will ever be able to achieve profitability — or whether, even if profitable, they can possibly eke out decent returns as traditional dealers and car companies get savvy about using the Web as a business tool. In the most immediate jolt to Simms's own ambitions, he was forced this summer to lay off 100 employees at the Elk Grove facility.

Even one of Simms's former bosses, used-car executive Ken Hall, questions how many buyers will rely on a company like iMotors. "Adam has a nice niche business," says Hall, president of Hall Auto World Inc. in Hampton Roads, Virginia. "But most folks don't have the car of their dreams firmly in mind, nor do they want to order it online."

Plentiful as skeptics may be, Simms says, they're just plain wrong. Although privately held iMotors doesn't disclose financial results, he says his business model ultimately should translate into better profit margins than those enjoyed by traditional used-car dealerships. That's partly because iMotors doesn't need expensive showrooms: It buys cars from such major auction houses as ADESA Corp., ADT Automotive Inc., and Manheim Auctions; from lessors including Bank of America, Bank One, GE Capital, Wells Fargo, and World Omni; and from Enterprise Rent-A-Car. Simms doesn't dispute industry talk that iMotors has been incurring losses since its founding in July 1999, but he says that's to be expected for a startup.

He even portrays the Elk Grove layoffs as part of his plan, saying that iMotors was opening two other refurbishing centers at the time and wanted to balance its workforce more appropriately. While it costs $10 million to build each refurbishing center — and he hopes someday to have as many as 15 centers in operation — he expects that their costs will be tied appropriately into the price of each car that iMotors sells.

Simms also contends that he has a dramatically better approach to used-car warranties. iMotors backs every car it sells with a seven-day, 700-mile fully refundable return policy, plus a three-month, 3,000-mile bumper-to-bumper warranty. At most used-car dealerships, customers must buy cars "as is" or with tiered periods of coverage, during which customers and dealers split the cost of whatever breaks or falls off.

Born to Sell

It takes a tough man to shake up an entrenched business. Simms, a sandy-haired man with eyes that widen visibly when he's trying to make a point, seems to have the background for the job. Born in Brunswick, Maine, he didn't experience a traditional upbringing. As he tells it, his "home" was an 8-foot-by-30-foot trailer, which carried the Simms family to a new town every four to six weeks — a consequence of his father's job surveying streets for the federal government. His mother was 15 years old when he was born. By the time he reached driving age, the family had lived in every state east of the Mississippi except Vermont.

After high school, Simms bounced around for a few years, working briefly at a chemical plant and later on an oil rig in Lafayette, Louisiana. When he was 20, his mother parted ways with his father and then moved to Jacksonville, Florida. There, she stopped working as a waitress and tried her hand at selling cars for a local Chevrolet-Oldsmobile dealership. Realizing that she could make good money, she invited Simms to join her.

"The thought of approaching perfect strangers was nerve-racking at first," Simms recalls. One afternoon, however, a young woman, who for weeks had been eyeing a new burgundy Oldsmobile '88, approached Simms and bought it point-blank. That first sale was "too easy," he recalls. It brought him $200 in commission — and a rush in seeing his customer drive off satisfied. "I was hooked," he says.

By age 32, he had become head of sales for two massive dealer franchises, first in Minneapolis and later in northern Virginia. At each job he supervised more than 200 people. Married years earlier, he bought a sprawling house along the Chesapeake Bay for his wife and their young son.

Simms developed a few principles of smart selling that he still uses today: offer fixed pricing, deliver great service, and listen to customers. Indeed, Ken Hall, who hired him as operations manager of his 25-dealership franchise in Hampton Roads, Virginia, credits Simms with helping to implement fixed pricing at his organization when few dealerships wanted to do so. Former coworker Mike Schrank, 43, recalls Simms's insistence on giving his customers a toll-free number through which they could obtain price information. As Schrank tells it, few dealers were doing the same thing — or wanted to. "The conventional thinking is, get the customer down to the lot. Period," says Schrank. "It was a little defiant on Adam's part to give them an option."

Yet Simms was restless. In 1996, he moved to Elk Grove, where he had been asked to run a new automotive superstore called AutoChoice. Conceived and then funded by the venture capitalists at Oak Investment Partners, AutoChoice was to sell a statistically driven inventory of the fastest-selling 75 cars on the market. It felt like a good idea, and business was brisk. But then Internet startups like autobytel, AutoWeb, and CarPoint.com came along with what appeared like an even better idea: offer customers comparison-shopping information online. And Simms began to forfeit customers whom he wouldn't have lost before. Armed with precise data on car choices, shoppers were no longer as willing to settle for whatever cars were in stock.

So Simms started thinking about selling cars sight unseen over the Internet. He told his friends. They told him customers wouldn't go for it. He discussed it with his wife. Her immediate answer: "Have you lost your mind?" He barreled ahead anyway. One year into AutoChoice's launch, Simms issued a directive to his sales staff to use the Web to locate cars that customers wanted but couldn't get at AutoChoice. Within a few months, the Internet was providing him with one-third of the store's volume.

Meanwhile, Simms noted that more leased cars than ever were streaming back into the market. (Last year, they numbered 3 million, up from 200,000 in 1990.) Simms reasoned that if he could electronically tie into a lessor like GE Capital, he'd know when and where their fleet of cars would be coming off lease. Next, auction houses like Manheim were beginning to aggregate listings of their inventory on the Internet, making it far easier for wholesale buyers to find what they wanted. Finally, consumers were beginning to demonstrate far greater faith in e-commerce.

Simms decided to liquidate AutoChoice's inventory and to turn entirely to Web searches. Suddenly, his company could offer its customers the 11,000-plus 5-year-old-or-younger used cars available in this country at any given time. The superstore, empty of its inventory, would take second seat to a refurbishing center where cars matching each customer's order — down to engine type, year, and color — would be thoroughly serviced, both mechanically and cosmetically. Next came a move to San Francisco as well as a name change to "iMotors.com."

"It's been a little scary over the past few years," says Dee, Simms's wife. "We had left a secure environment in Virginia; I was pregnant at the time" with a daughter, their second child. "But I thought that this was Adam's chance to do something really big, that so few opportunities like this come around; he had to take the risk."

The Hard Sell

Simms wanted $10 million in venture-capital funding, and one of his early calls was to Trinity Ventures in Menlo Park, California. "When we first sat down," says Gus Tai, 35, a general partner at Trinity, "I thought, 'Do we really want to do business with a used-car guy? Are these people really trustworthy?' " But Tai decided that he liked Simms's rapidly evolving sense of how to harness the Internet. "We pushed him on what we wanted," says Tai. "Adam would take it in and then come back to us with even better, richer ideas."

Still, people in the used-car business are legendary for reshaping the truth a bit — and Simms, for all his eagerness to turn his industry upside down, still can't resist the salesman's chance to make a good story better. On one occasion, Simms boasted that his wife handpicked presents for every employee's child at the company's last Christmas party — a total nearing 1,000, he said. When reminded that, according to his own account, iMotors employed just 150 people in January, Simms, ignoring the math, offers simply: "Okay, maybe there were 850 kids." He also claims to have won three state wrestling championships at Tuscaloosa County High School, a record that the state's high-school athletic association is unable to verify. When confronted with the discrepancy, Simms says only, "I may be able to pull out some medals from those days, but it's doubtful. We may need to give up the ghost on this one."

Yet Simms's energy and optimism has helped him build his company rapidly. Eli Halliwell, iMotors's unlikely cofounder and chief strategy officer, is among his believers. A 29-year-old Princeton grad who mountain bikes and who sports funky, black-framed glasses, Halliwell met Simms several years ago through a mutual acquaintance at Oak Investment Partners. Despite their having different backgrounds, Halliwell says that he was immediately drawn into friendship with Simms. "I'd been at school, spent some time on Wall Street, and Adam was unlike anyone I'd ever met before. He is 100% raw willpower."

IMotors has designed its Web site so that visitors can obtain a price quote on whatever used car they want within about 15 seconds. Users enter basic information such as "make," "model," and "year" before being given an opportunity to customize their order further by specifying colors or options like cruise control. All this is standard fare for Internet shopping, but so far it has proven popular for Web-based car shopping as well. Each month, according to iMotors officials, the site gets more than 600,000 unique visitors and more than 50,000 inquiries by people who indicate at the site that they would like iMotors to provide them with more information.

Shopping from iMotors.com isn't the cheapest way to buy a used car. Recently, the Web site was offering a 1999 Ford Contour lx Sedan 4D with cruise control, power windows, and 22,000 miles for $11,401, while the same make, model, and year, with the same options and with 3,000 fewer miles, was available for $9,988 from traditional retailer Hayward Ford in northern California. Simms nevertheless contends that his inspection, repair service, and warranties make his company the better choice.

Simms won't disclose how many cars his company has been selling, but a customer-service representative claims that the center has refurbished nearly 10,000 cars since it opened. With its two newer plants now up and running, one can safely estimate that iMotors's monthly volume is nearly 500 cars, with growth that has been expanding by 20% to 30% monthly, according to Simms.

The challenge for iMotors, naturally, is to make money — and right now, the company is spending it as fast, if not faster, than it's making it. Atop any unforeseen expenses, the company has contracted with the Bechtel Group to build a dozen more refurbishing plants around the country, on an as-needed basis, each costing $10 million. By year's end, iMotors will have rented more than 50 storefronts around the country — delivery centers, akin to rental-car counters, where customers pick up their cars. Those storefronts each cost several thousands of dollars per month to run. Tack on a growing number of workers (it has nearly 650 already), a $20 million-plus marketing campaign, and the investment iMotors makes to fully restore every car that it sells (often at a cost upward of $1,000), and even the biggest proponents of iMotors might be left scratching their heads.

Recently, iMotors began rolling out its iMotors Xpress, in which the company scours auction sites for cars that are recently off lease and that are due to arrive at auction on a predetermined day. By seizing on oversupply at the wholesale level, Simms can offer cars before their actual availability — and presumably at a steep discount. The company also plans to exploit more fully its customer relationships by selling insurance and providing leases to customers, he explains, although those plans are at varying stages.

Is Simms overreaching? Perhaps, says Schrank, who is president of Denny Hecker's Automotive Group in Minneapolis. "I appreciate Adam's model, but out of our annual sales of 12,000 to 15,000 cars a year, maybe 1,000 come from online referrals. People visit the Net to glean the information they need. Then they come to the dealership to buy."

IMotors faces lots of competitors too, including major car manufacturers like Ford, which has already laid open a build-to-order online-sales program in two Canadian markets and like AutoNation Inc., an established used-car retailer that preceded iMotors's idea of consolidating all makes and models of used cars under one brand. AutoNation ultimately shuttered its reconditioning centers and superstores because they weren't profitable, but it now allows shoppers to search its inventory of 400 dealerships online and sells to those customers directly. Finally, iMotors has local car dealers to contend with. Such dealers might not be as Web-savvy as Simms, but they know their market well and have been selling cars for an awfully long time.

No matter. Simms believes in his own idea enough to be driving a champagne-colored 1997 Honda Accord that he bought through iMotors.com. On a recent freeway drive, he peeks at nearly every car on the road, looking for an iMotors license frame, which gets affixed to every car that his company sells. When he veers his Honda behind a truckload of used cars to get a better view, he laments that the shipment hasn't come from iMotors.

Undaunted, he declares that "the 1-year-old to 5-year-old used-car business is a $170 billion-plus industry. If we sell 4 out of every 100 of those cars, we can be a $7 billion company in revenue."

Constance Loizos (c_loizos@ msn.com) is a freelance writer based in San Francisco. Contact Adam Simms by email (adam@imotors.com).

Sidebar: Is IMotors on Course?

"Absolutely. We're talking about creating the next great consumer proposition, on the same order of magnitude as Dell revolutionizing the PC-buying experience. Right now, when you survey consumers about their used-car buying experience, it's hard to find many people who enjoy it. They can't find the cars that they want, and there's a quality of nervousness involved because they have little or no recourse. IMotors will succeed because it maintains a high quality of service, both when things go right and when they go wrong. It might not be the least expensive way to purchase a car, but price isn't everything. Most people have demonstrated, via the profitability of companies like Dell, that they are willing to pay for top quality from a trusted partner."

— Gus Tai, general partner, Trinity Ventures, an IMotors investor

"A big question for iMotors is whether consumers are willing to pay a premium for its service. New-car buyers tend to be more specific about the make, model, and color of the car that they plan to buy. Used-car shoppers tend to be more price sensitive. Another key will be how quickly and how effectively iMotors can create a brand that stands for the best quality of used vehicles possible — one of the few things that might compel a consumer to purchase a vehicle sight unseen. How much time the company has to build that brand is hard to say. But it is easy to say that iMotors has a lot less time today than it would have had earlier this year, before the bloom fell off the Internet rose."

— Chris Denove, partner, J.D. Power and Associates

"I would guess that the segment of our population that knows specifically what type of used car it wants is probably bigger than most people estimate. But I also think that the percentage of those people desiring to go through a concierge service like what iMotors offers, as opposed to a classified service, is still small. It's a niche model. And while there is certainly room on the Internet for a lot of niche models, iMotors will need to find that niche quickly and then exploit it."

— Josh McCarter, VP, international, autobytel.com

"If Adam is able to sell used cars to the masses, I will be as happy as anyone for him. But frankly, I don't think that the business of selling cars is going to change in the ways that dotcom-ers think it will. After all, traditional dealers live in their customers' community; they become a part of it. And they know their customers in a way that no Internet company can. I believe that people will continue to pull information off the Internet but that they'll come in and shop from the local dealer. At the end of the day, customers prefer to see a car before they make a decision to buy it."

— Ken Hall, president of Hall Auto World Inc., a 25-dealer franchise based in Hampton Roads, Virginia

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