How This Aussie Tech Start-Up is Turning Car-Buying on its Head

Here’s a little practical advice.

Do you want to buy the car you want at the price you want? Don’t go into a dealership.

I should know. A few months ago, I paid up for a shiny new ‘warm hatchback’.

Well, I thought that’s what I was buying. What I really bought was several months of stress, uncertainty and frustration.

I wish I’d heeded this advice from a friend who recently met a major US car dealer. He explained:

This is how it works. The dealer doesn’t really make much by selling cars. He makes it on the add-ons. The customer comes in. He knows what he wants. But he leaves with much more. The salesman shows him the upgrades. The shiny wheels, the on-board entertainment, four-wheel drive, service contract, and so forth. You want to save money? Just figure out what you really want…and get a few dealers to bid on it. Don’t go into the dealership.

If only it were that simple!

I knew exactly what I wanted. I shopped around via email until I got a great price.

A few weeks into January, I paid my deposit to an enthusiastic young man from a reputable dealership here in Melbourne. The guy was all hair and teeth.

The dealer eagerly assured me that the vehicle was in stock. He promised I could pick it up by Australia Day.

Australia Day came and went. When I politely asked after my new car, the dealer claimed that he’d ‘accidentally’ sold it to someone else. He insisted that the next one was due to arrive via ocean liner in a few weeks.

This was annoying, but I wanted that car. So I sat tight.

Then Valentine’s Day came and went. Labour Day came and went. Still no car.

Every time I called the dealer, he pushed the delivery date out by a few more weeks. At every call, my car was aboard a later ocean liner. Sure…along with Elvis, a unicorn and Harold Holt.

In late March I told this bozo to take a hike. I pulled my deposit and took it to another dealer across town. Within days, I was driving my new car.

Now, I’m not sharing this story to garner sympathy. You see, I’m still puzzled why anyone would want to do business like that. I’m sharing the story with you to make a point…

Taking on the shonks

Like most people, you probably view new car dealers as an unavoidable intermediary. It’s been that way since shortly after Karl Benz cranked out the very first automobile in the mid-1880s.

But the rise of the internet…the same phenomenon that’s cut a swathe through dozens of old-school ‘middleman’ business models…is about to change this game in a major way.

You see, a newly launched Australian start-up is turning the car-buying process on its head.

If this little company has its way, car dealerships could eventually go the way of print classified ads, travel agents and full-service stockbrokers. That is, not completely dead…just…irrelevant.

Autogenie, the brainchild of salary packager and fleet manager Smartgroup, claims to save buyers time and deliver discounts of thousands of dollars.

It does this by bringing lots of car dealers to one place, where they bid against each other for a buyer’s business. It’s basically an online reverse auction.

As soon as I heard this idea, I was intrigued…but I was sceptical. This is a great idea at first blush, but it’s not going to work unless the car manufacturers and dealers choose to join the platform. If Big Auto and its dealers can’t share in Autogenie’s success, they won’t bother using it as a channel to solicit new business. That would sign the platform’s death warrant.

But early indications are that dealers are coming on board. Autogenie claims to work with 650 dealers around Australia.

Dealers come to the party because the leads are qualified. Autogenie makes sure of that by charging its customers a $49 service fee. Dealers aren’t wasting their time bidding for tyre-kickers here…the buyers are real.

Buyers specify to Autogenie which car they want, including any optional extras. Autogenie comes back to the customer within 24 hours with binding offers from three different dealers.

It’s a platform that lets a dealer and a buyer clinch a deal at a price that makes sense for both parties.

To round out the transaction, Autogenie charges a dealer $250 in commission for a completed deal. That’s comparable to what car-buying sites like Ltd [ASX:CRZ] charge for leads that might not go anywhere.

It’s a pretty simple concept…but then again, the best business models usually are.

It’s not far removed from how companies like Seek Ltd [ASX:SEK] and Holdings Ltd [ASX:WTF] harness the power of the internet to save people money, eating the profits of old-style businesses along the way.

I’m not highlighting Autogenie to try and drive your business to them. I’m highlighting the company as a brilliant example of entrepreneurial chutzpah.

Smartgroup are taking on an industry where shonky operators who provide lousy customer service have been allowed to prosper for decades. If Autogenie’s success means car buyers don’t have to suffer through the ordeal I described earlier, then I say more power to them.

An investable theme

This gets really interesting when you think about it as an investable theme. Imagine what your portfolio would look like now if you’d tipped a few thousand dollars into Seek back in 2005, or into in 2006.

I’m not promising that Autogenie will grow to those stratospheric levels. It’s important to remember that a major challenge of technology investing is the risk that somebody will ‘build a better mousetrap’. Indeed, Autogenie are one of several Australian companies eyeing the online car pricing market. And has owned this space in the US for several years.

It’s too early to say which player will end up dominating this market in Australia. And it’s much too early to invest in any of those players through the Australian Share Market.

But I love watching these companies grow and shake up the old ways of doing things. And as soon as I find a way for you to buy a piece of this action at a reasonable price, my readers will hear about it first in Australian Small-Cap Investigator.

Tim Dohrmann+
Small-Cap Analyst, Money Morning

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