CarOrder.com Inc. shuttered its virtual doors, but the former online vehicle broker plans to reinvent itself as a click-and-mortar automobile dealership, officials said.
After two years of slow sales, CarOrder.com discovered that "operating a car brokering business [was] not a viable path to profitability," according to a spokeswoman for the firm. The Austin, Texas, start-up ceased selling cars less than two weeks ago, but it already has a backup plan and money in the bank to fund it. However, analysts said, the company has a bumpy road ahead.
CarOrder.com now plans to operate a car dealership using its Web know-how and technology to streamline consumer car shopping and dealership management. In addition to closing its Web business, in the past month the company also completed a $25 million second round of financing from parent company Trilogy Software Inc., also in Austin, Texas, and trimmed its employee rolls from 140 to 40.
But even with a $25 million cash infusion, analysts doubt whether CarOrder.com could muscle into the well-entrenched auto retail channel.
"It's an uphill battle, especially coming off such extensive layoffs," said Robert DeSisto, an analyst at Gartner Group Inc. in Stamford, Conn.
"Fundamentally, they did not take into account the fixed costs of operating the business, which is typical of a lot of dot-coms."
DeSisto said because the margins on vehicle sales aren't enough to sustain a successful car dealership, CarOrder.com will have to offer services such as vehicle repairs in its new incarnation. "[Dealers] must adapt to services to be more profitable," DeSisto said. "So it defeats the purpose of being a pure dot-com play."
Last year, CarOrder.com attempted to acquire an auto dealership but was unsuccessful.
"One of the problems with dot-coms is that it is difficult to sell cars without a physical presence," said Rob Leathern, an analyst at Jupiter Communications Inc. in New York. "They are trying to change a convoluted system, governed by different legislation in each state. It's difficult to imagine them pulling it all together."
DeSisto noted that automakers control franchise licensing and may be reluctant to sell a license to a dot-com company.
Headed by President Brian Stafford, CarOrder.com has no plans to sell its software to dealerships, officials said.
Competing Web-based vehicle brokers have reported growing sales. For example, Autobytel.com Inc. in Irvine, Calif., reported second-quarter revenue of $17 million, an increase of 86% over the same quarter last year. Still, the start-up posted a net loss of $9.8 million, or 46 cents per share, for that quarter.