8 Million New-Car Purchases Will be Influenced by the Internet in 2003, According to Forrester.

CAMBRIDGE, Mass.--(BUSINESS WIRE)--Feb. 9, 1999--New-car buying is racing on-line as consumers use the Internet to select a vehicle, get information on prices, and find a dealer. In 1998, more than 2 million consumers used the Internet to research their new-car purchases. A new Report from Forrester Research, Inc. (Nasdaq: FORR), predicts that by 2003 nearly 8 million new-car purchases will be influenced by the Internet and nearly half a million new cars will be purchased entirely on-line.

By delivering information on options, pricing, and availability, the Internet levels the playing field between consumers and dealers. As the number of on-line households in the United States climbs to more than 50 million and consumers grow more comfortable making purchases over the Internet, auto manufacturers and dealers will be forced to revise their relationships with consumers. Dealers will need to focus on customer service in order to build long-term relationships with buyers. Meanwhile, manufacturers will need to adapt to Internet purchasing by using market data captured from the Internet and by moving toward the build-to-order business model prevalent in the computer industry.

"The rise of on-line car buying will radically alter the automobile and retailing landscape," said James L. McQuivey, a senior analyst at Forrester. "Some of these changes will be wrenching, as manufacturers rethink their role. Other changes will come more naturally, like the increased emphasis on customer service."

Auto manufacturers and dealers both recognize the Internet as an important channel for attracting customers. Every major manufacturer in the United States offers a Web site with new-car information, a dealer locator, and other features like a configurator with prices, dealer quotes, and two-way e-mail. Likewise, the National Automobile Dealers Association reports that 61% of dealers now have Web sites, and two-thirds have a staff member dedicated to Internet sales.

Despite these efforts, on-line car selling won't happen overnight. Current obstacles include the need for fixed, no-haggle pricing and changes to franchise laws to allow manufacturer-direct sales. Another challenge comes from the nascent on-line car-buying services like CarPoint and Autobytel. These services have built sizable dealer networks and attract a large number of on-line visitors with features like reviews and side-by-side model comparisons. But once dealers and manufacturers clear the direct sales hurdle, these services will also be pressed to adapt to changes in the market.

In addition to direct sales and fixed pricing, on-line auto sellers need to address all four phases of the car-buying process. The first two phases -- research and dealer selection -- are already well-served by today's virtual showroom. The third phase -- managing financial details like car loans and insurance -- will grow as consumers become more comfortable making on-line financial transactions. The fourth phase -- closing the deal -- will be the last to arrive, as more dealers accept on-line financing and credit card down payments. Forrester predicts that by 2003, 470,000 on-line households will buy new cars entirely over the Internet, generating $12 billion in virtual sales.

For the Report "New-Car Buying Races On-line," Forrester interviewed North American automobile manufacturers, franchised car dealers, the leading on-line car-buying services, and industry players. To model consumer demand, the Report drew from the Consumers & Technographics(R) Technographics '98 Field Study of 120,000 North American households and the resurvey of 6,100 of these households to learn more about their on-line retail behavior.

Forrester Research, Inc., is a leading independent research firm offering products and services that help its clients assess the effects of technology on their businesses. Forrester provides analysis and insight into a broad range of technology areas such as new media, computing, software, networking, telecommunications, and the Internet, and it projects how technology trends will affect businesses, consumers, and society. Forrester's European Research Center, located in Amsterdam, Netherlands, brings the company's unique perspective to new media developments in Europe. Additional information about Forrester Research can be found on the Web at www.forrester.com.

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