Common Sense
By Sheldon Sandler
Wow! What a difference a year makes. The 2000 NADA convention in Orlando hosted 26 dot-com car brokers and the like exhibiting on the convention floor. Only 9 struggling veterans returned to the 2001 convention in Las Vegas. We just heard that highly touted Greenlight.com threw in the towel and combined with CarsDirect. I'm not convinced that putting two troubled deals together will make one strong one. This time the addition of one plus two might equal zero.
Before we get to that, let's hop on the bandwagon and take another shot at GM.
Here's the latest conspiracy theory on why Oldsmobile was deep-sixed. It's no secret that GM has been trying to rationalize its 8,100 dealers into something more efficient. As GM's market share has shriveled, it was left with too many retailers for the demand for its products. This created a weakened, hyper-competitive dealer body as the same number of dealers fought over fewer customers.
Every GM dealer knows that their market is over-dealered. If GM would only terminate a neighboring dealer or two, everything would be all right, just as long as it's not them. After getting its nose bloodied in its initial attempt to eliminate dealers, GM knew that it had to find a quick and dirty way out. Otherwise it would be mired in a long and futile fight to reduce its dealers by onesies and twosies. The solution: kill off a whole division. Take the cars, put new hood ornaments on them and call them Buicks and Cadillacs. Abra Cadabra! Twenty-eight hundred fewer GM dealers. Common sense, right?
Back to our topic.
There can no longer be any doubt that e-commerce is changing the process of buying and financing automobiles, but dot-com brokers appear to be headed to the land of eight tracks and rustproofing. Just what happened to those dot-coms that were promising to revolutionize all of retailing, not to mention replace car salespeople and even-dealers? Where did they go wrong?
I have decided that it is important to get behind the "see, I told you sos" and try to understand why so many talented people ultimately made such poor career choices. Why did such otherwise brilliant financial people invest so much in these pipe dreams? In yet another attempt to uncover the reasons for the abrupt collapse of the many of the new ventures, we decided to revisit our friend and Ivy League graduate Penelope Misbegotten. She is now a wizened veteran of 26 years, and the past president of IGIFT.com. IGIFT is the acronym for Icangetitforyoucheaperthantheotheguy. IGIFT was established to make Internet car buying a fun experience for buyers. The idea was to create a virtual game show using car dealers as contestants competing for car sales in an Internet auction. It was one of the bolder, if not more bizarre, examples of the lot. IGIFT was established at the beginning of 2000, and like so many of its compatriots, has already ceased operations. Penelope merged it with that kid in Austin who raised $100 million, and you know where that went.
Our first interview with Penelope, conducted at last year's convention, formed the basis for our "Buy High, Sell Low" article in the March 2000 edition of this magazine. This time we met in her new office in downtown Detroit. Although obviously bloodied and demoralized by her experience, we were impressed with her honest and enlightened responses to our questions and wanted to share her hard-won wisdom with you. As usual, she was a bit taciturn in spots, but I think she had some important things to say.
Q. It's always a pleasure to see you. The past several months must have been quite challenging.
A. Actually, although I'm quite unhappy that IGIFT hasn't worked as planned, I believe failure is a good thing. How else do you really grow? The problem with my generation is that it has never suffered through a good depression or even a mild recession. I feel like a real trendsetter here. Many of my non dot-com friends are jealous of my good fortune in having crashed and burned.
Q. We'll ponder those remarks later, but maybe you could tell us in your own words what went wrong?
A. We wanted to be a cross between the "Psychic Hotline" and "Millionaire." We realized too late that we were actually playing "Survivor." To our horror, we were one of the first voted off the island. We didn't realize so many others wanted to stake out their own turf on what has turned out to be a much smaller patch than we first thought.
Q. So you mean that the market opportunity for selling cars over the Internet wasn't as big as everyone originally believed?
A. For sure. We found that dealers and consumers didn't really need or want some third party to get in the middle of the process. Those old-fashioned, old-economy bricks and mortar car dealers have managed to maintain control over their business after all. And the manufacturers, for all their talk about new distribution channels, didn't welcome us either. Those old farts wouldn't let us buy cars directly from them. Neither the dealers nor the manufacturers had any sense of loyalty to us and refused to play by the rules. What gall.
Q. Why would they have any loyalty to you? When you say "play by the rules" don't you mean by your rules?
A. Well, if you want to get technical, I guess you're right. We couldn't get their hot products like PT Cruisers when we had lots of bidders on our auction. All they wanted to pawn off on us were Cavaliers and Tauruses.
Q. What about the consumers?
A. Buyers are just as bad. They refused to pay the $200 fee we wanted to charge for playing our auction game. The nerve of them. What did they think? We would give it away? On top of that, those Neanderthals apparently like to go to their local dealerships. I don't get it. Do they want to get insulted and overpay? We were there to help them. Hell-lo. Don't they know any better?
Q. Come on Penelope. Hasn't it occurred to you that dealers are delivering a value proposition? That, despite common wisdom of the press and other so called experts, the car buyer understands and appreciates this?
A. Well, this car business turned out to be a lot more complicated than we thought. With the complexities of used cars, parts, and service, it's a lot more than just selling new cars. I still to this day don't know what F & M is? I thought that was a college in Pennsylvania.
Q. I think you mean F & I. Would you do this all over again given the choice?
A. In a New York heart attack. The opportunity to make so much money with so little business experience or acumen was just too good to pass up. Of course, it was a high-risk proposition. But if the scheme worked, I could have retired a multi-millionaire by now. Many others already have. How else can you do that? Look at those poor fool car dealers. It took some of them into their 40s before they became millionaires.
Q. Penelope, when did your business plan project that your company would go in the black, make money?
A. We never had a business plan. Actually, we never did any due diligence on the car business at all.
Q. How can that be? You raised millions from the best venture capitalists. Even the esteemed Venture capitalist Kinder Putz invested $40 million. How could all of you have missed the most obvious fact that this is a low margin, cyclical and dangerous business that rewards day-to-day attention to detail and punishes grandiose attempts to revolutionize it?
A. I wish you would have asked me that question a year ago. It may be all true, but let me remind you, our goal was not to make a profit. The real purpose was to go public. The VCs, financial backers, and I all knew that if we could get public, we could collect the money and, who knows, maybe even make the idea work. We just didn't have enough time before the mania evaporated and our investment bankers stopped returning our phone calls. And I thought that Silverman Bags was a reputable investment banking firm.
Q. Excuse me, but this sounds suspiciously like an old-fashioned penny stock or Ponzi scheme the idea that it was about the stock being foisted on John Q. Public and the actual business itself just an afterthought.
A. One person's Ponzi scheme is another's wealth building plan.
Q. If you were to summarize the failure of IGIFT.com, what would you say was the one missing element? Was it not enough money? Was it not enough talent? Was it a poor board of directors? Was it not enough experience? Was it just plain hubris? Just what was it?
A. That's easy. Common Sense.
Thank you Penelope and we wish you well in your new job as brand manager for Oldsmobile.
Sheldon Sandler is CEO and a founding partner of Bel Air Partners. Bel Air advises its clients on capitol market transactions including Initial Public Offerings, REITs, franchise loans, private placements and mergers and acquisitions. ssandler@dealeronline.com
