Back when Dennis Berry, 56, was publisher of the “Atlanta Journal-Constitution,” he spent a lot of time thinking about where to find them, how to get accurate information about them, how to persuade them to advertise in his newspaper. Yet he was a bit nervous five years ago, when he moved from selling ad space to dealers to working with them directly — as president and CEO of Manheim Auctions Inc., a used-car auctioning service and a sister company to the “AJC.” The job seemed like a radical departure, and he wondered how long it would take to learn his new business. But when he attended his first auction — and he saw 1,500-plus dealers who turned up every week to buy cars — Berry had a flash of insight that came directly from his newspaper background. “Someone,” he said to himself, “could sell a lot of classified advertising here.”
That “someone” turned out to be Manheim. Berry’s observation led his company, the world’s largest used-car auctioning service, to become the leading wholesale seller of used cars on the Net. In 1996, Manheim’s effort to connect its customer base of about 80,000 dealers and manufacturers to each other resulted in only 62 cars sold. In 1999, the company’s wholesale Web site moved more than $615 million worth of cars — and predictions for 2000 are north of $1.5 billion.
Part of the success of Manheim’s Web initiatives can be credited to easy-to-use technology and good educational programs, which Manheim built for used-car dealers. But two key ingredients behind its online success were imported directly from its position in the physical marketplace. One was its enduring relationships with dealers: Roughly 90% of all used-car dealers attend Manheim auctions. The other was its vast physical resources — specifically, Manheim’s 65 auction locations across North America.
Sure, doing business on the Web can mean a sharp break from the past, in terms of strategy or style. Often it requires an assault on existing channels of distribution. But sometimes it pays to be a 55-year-old company with a proud business tradition. And it’s almost always better to work with folks who are already selling your products — even if you have to teach them how to change — than it is to provoke a backlash from them.
“Anyone can build a Web site to sell cars,” says Rob Leathern, an analyst with Jupiter Communications Inc. in New York. “But the notion of a zero-gravity player in this market — a pure dotcom with no physical infrastructure or preexisting relationships — is naïve. Manheim already owns the sweet spot. It’s got loyal customers as well as the infrastructure that’s needed to store, ship, repair, and recondition used cars. That will be a difficult edge for others to replicate.”
Berry puts it another way: “Our mission has always been to help used-car dealers succeed. Everything we do is focused on helping them win,” he says. “A lot of dotcoms say, ‘We’re going to bypass dealers. Consumers don’t like doing business with dealers.’ We knew that wouldn’t happen — because used cars are sold one car at a time, and every used car is unique. We felt confident that if we built our online business on helping dealers succeed, we would win.”
Have You Hugged a Car Dealer Today?
It’s just after 10 on a warm spring morning, and the pace at the Atlanta Auto Auction is already frenetic. More than 4,500 cars will be sold today, and the last of the same-day entries are being washed and then checked in by lane supervisors using shortwave radios to relay the information. A digital camera is used to photograph every car, in case dealers want to resell a newly purchased car on Manheim’s consumer Web site, AutoTrader.com. Hundreds of car dealers mill around 13 auction lanes, a series of long, connected garages with entryways at both ends.
Once the auction starts, pandemonium ensues. Cars are driven down the lanes, rolling along as dealers open car doors, sniff interiors, slam trunks, and inspect paint. Red, green, or yellow lights behind the auctioneers indicate whether a car is being sold “as is,” whether it has a quality guarantee, or whether it comes with specific damages or features that will be announced. Auctioneers, who sit on a platform next to a car’s owner, chant in a rapid-fire tempo over the noise of idling engines. Meanwhile, a “ring man” on the floor among the dealers scans the crowd for the winks, waves, nods, and shrugs that signal a bid. It takes about 30 seconds or so to auction off each car, and Manheim receives transaction fees from both the buyers and the sellers.
A used-car auction is more than a marketplace — it’s a cultural ritual that has remained virtually unchanged for decades. Car dealers come here to buy and sell, but they also come here to meet and socialize. More importantly, they come here because Manheim has built services around its auctions that make it easier for dealers to do business. Do the five cars that you’re selling need engine repairs or body work? Manheim will do it. Want to store 1,000 cars for the next auction? Manheim will hold them. That approach has done more than offer convenience — it has built relationships with thousands of dealers that trust the company to stand behind the cars.
“There aren’t many businesses out there that are in love with auto dealers the way that Manheim is,” Berry says. “We sometimes describe our company as ‘Mother Manheim.’ And Mother Manheim loves car dealers. You know that your mother takes care of you, that your mother looks out for you, and that your mother won’t lie to you. That’s how we think about ourselves and about dealers.”
A New Deal for Dealers
Even Berry notes the irony in Manheim’s relationship with used-car dealers, which is based on trust. Dealers might sound like customers that only a mother could love, yet they make up a major chunk of the $375 billion used-car industry. As a result, for Manheim to take that industry online successfully, the move had to be based on a relationship with dealers.
On its dealers-only Web site, Manheim Interactive’s customers can purchase cars at a flat rate from the site’s “CyberLot” section; search Manheim’s nationwide auction inventory for specific makes and models; find a going wholesale rate for a specific car model based on actual sales; and register for an auction, which includes being able to pick specific lane positions. While all of those features make it easier to sell cars, none of them take dealers (or auctions-as-service-providers) out of the picture.
“It’s all about making life easier for dealers,” says Hal Logan, 49, president and CEO of Manheim Interactive Inc., one of two Internet spinoffs from Manheim Auctions. “If you know that the people who come to your store are looking for late-model Camrys or Acuras, what happens if it’s Thursday and you’re sold out? The last thing that you want to do is face a weekend in which you’ve got no inventory. It’s one thing to hop on a plane, fly across the country to an auction, stand in a lane, buy cars, and ship them back to your store. It’s another thing to sit in your office, look at a larger number of cars than you would have an opportunity to see by visiting any single brick-and-mortar auction, order the cars that fit your needs, and have them shipped to your store in time for the weekend.”
Manheim Interactive has signed up more than 13,000 dealers for Manheim Online, its Web site, which charges a subscription rate of $50 per month. Posting a listing on Manheim Online is free, and all of the listings come through the auctions, whether the cars are lease returns from Ford or fleet returns from Avis. Manheim Interactive also is testing real-time online auctions for limited audiences and plans to link its site to all of its brick-and-mortar auctions. Those changes would allow dealers to bid by computer from anywhere.
Dealers who want to sell to consumers can post listings for free on Auto-Trader.com — Manheim’s joint venture with ADP, Kleiner Perkins, and Trader Publishing Co., among others — which announced its initial public offering in April. One page of the auction-purchase invoice is a form that requires only a price before it can be entered onto the AutoTrader.com site. Within 24 hours, that car is listed for sale.
Mike Motter, used-car manager for Lehman Motors, in Mechanicsburg, Pennsylvania, buys about 80% of his used-car inventory from Manheim Online through its “CyberLots” section. He also uses the site to track down specific requests by customers. “If I have a customer who asks me whether I have a red 1999 Toyota Camry, I can find that car online and pull it up on my computer screen for them without showing them the price,” Motter says. “Manheim’s service allows me to offer cars to customers without having to keep those cars in stock.”
The road to getting 13,000 dealers online was long and bumpy. When Manheim launched its Web site in 1996, few dealers were on the Internet; many didn’t even own computers. The first part of helping dealers succeed was educating them. So, at all of its locations, Manheim Auctions set up kiosks and hired technology managers. Their mission? Teach dealers how to use the Web and show them how it could make their lives easier. Brian Stanley, 26, a technology manager, notes that dealers were not initially technophiles. “When I first started this job, I would instruct a dealer to point and click somewhere on the screen and he’d do this,” Stanley says, picking up a mouse off the desk and clicking it at the monitor as if it were a TV remote control. “We had a long way to go.”
Once dealers were more familiar with the Net and realized how it could streamline their interaction with Manheim, interest boomed. Between 1997 and 1998, Manheim’s Web sales jumped from $58 million worth of cars to $216 million. Last year, Manheim topped $650 million; this year, it may top $1.5 billion.
Click-and-Mortar: Let’s Get Physical
At Manheim’s Atlanta Auto Auction, bulldozers are scraping away red Georgia clay to clear space for more parking lot. The site already includes 160 acres of asphalt and holds more than 15,000 cars. That asphalt is what divides Manheim from the rest of the dotcom players in the used-car industry.
“Our physical infrastructure is integral to the process of buying and selling used cars,” Berry says. “You can’t just pluck those sales from the Internet without having the capacity to back them up. You want to sell the 10,000 cars that I, as a manufacturer, have coming off lease agreements? Great. Do you have a place where I can store those cars? If I’m a small dealer and you sell my car, can you get it off my property right away? Used cars depreciate every day, and you have to be able to move them quickly. Dotcoms can’t do that.”
But that same dependence on physical assets raises questions about the future of Manheim’s online businesses. Right now, AutoTrader.com and Manheim Interactive both pay fees to Manheim Auctions for access to its inventory information and to its services. Will the parent company be so eager to share its resources once Manheim Interactive starts stealing away transaction fees that would have gone to offline auctions, or once AutoTrader.com starts cutting into Manheim’s inventory of late-model, low-mileage cars?
“To some extent, we are doing work that is contrary to the message that Manheim has been sending to dealers,” Logan admits. “For 55 years, it’s been telling dealers that the best place to sell their cars is at the auction. Manheim Interactive is now saying, ‘Hey, if you want to sell cars without bringing them to the auction, we’re here to help you do that.’ Sooner or later, there will be some contention between the two companies. Our job is to structure the relationship so that we’re making decisions that are best for customers.”
Perhaps the biggest opportunity for both Manheim Interactive and AutoTrader.com lies outside that parking lot of assets that the parent company offers, Logan says. “Only 30% of the cars sitting on a used-car lot at any given moment came from auctions like ours. The other 70% came from transactions with other dealers, with wholesalers, from consumer trade-ins, from banks, or from manufacturers. We want a piece of that 70%. And we have an opportunity to develop Internet-based services that can bring value to buyers and sellers. For example, typically, you find that dealers often do business only with a limited number of other dealers with whom they have long-standing relationships. By introducing Manheim into that dealer-to-dealer transaction, we will be able to offer dealers access to a wider range of potential buyers — with the Manheim brand supporting that transaction.”
And how would Manheim prevent dealers from swindling each other? “We would hope that sellers represent vehicles accurately. They won’t be in business long-term if they get a bad reputation. But if we find out that there are people who consistently behave badly, we do have a hammer that we can introduce, which is to bar them from our physical auctions.” In other words, Mother never promised that she wouldn’t deliver a well-deserved spanking once in a while.
Ultimately, Logan believes that Manheim has the opportunity — and the resources — to reinvent the way that people buy used cars. He believes this so strongly that he turned down several hefty dotcom-CEO job offers and relocated his family to Atlanta from the West Coast. “This is almost a canonical example of business-to-business electronic commerce that is in play and that has the potential to transform a major sector of the American economy,” Logan explains. “That sounded like fun to me.”
Cheryl Dahle (email@example.com) is a Fast Company senior writer. Learn more about Manheim Interactive on the Web (www.manheim.com), or contact Hal Logan by email (firstname.lastname@example.org).
Sidebar: Desktop Dealers
Manheim Interactive wants to do more than help dealers sell cars more efficiently. It wants to help them run their businesses more intelligently. To that end, the company has created a set of desktop services that bring it even closer to its customers.
For example, more than 7,000 dealers cough up an additional $30 per month to use the company’s Tracker software, which helps users manage inventory, calculate deals and commissions, and secure financing for customers.
Tracker attends to several needs that dealers have. The software’s “FundHere” feature allows a dealer to get financing for a customer, even if that customer has a bad credit rating. That’s because Manheim pools the financing business that it offers to banks. “The banks and credit institutions that we’ve lined up have the opportunity to write more than a billion dollars per month in loans for cars,” says Hal Logan, president and CEO of Manheim Interactive. “And when they accept a loan, we get a fee.”
The software also allows dealers to track buying patterns to discern which kinds of cars are hot sellers for them. And because Tracker becomes a dealer’s primary deal-making tool, Manheim gets a window into customer behavior that it can use to develop new products and services. “We want to create a world-class database so that we will know our customers better than anyone else,” says Beverly Shepard, 40, director of marketing for Manheim Interactive. “There’s no reason why we can’t be the Lands’ End of the auto industry.”