Marcos Arruda and General Motors’ Internet Strategy
Marcos Arruda, General Motor’s newly appointed Director of Internet Strategy, settled into his seat for the
long flight from Detroit to Rio. Marcos could not help but smile with delight as he recalled his first major
victory in his new position: relocating the Internet Strategy Department to the more temperate climate of
Brazil. However, his thoughts soon turned to the challenges ahead of him.
He had decided to reevaluate (and most likely revise), the company’s B2C Internet strategy, starting with
three countries: China, Brazil, and the United States. Marcos believed that the Internet would continue to
change the way people bought automobiles, and he wanted to find ways to improve GM’s existing Internet
distribution efforts. Marcos realized that his strategy would have to account for, among other things,
cultural differences in each major market.
He decided that he would start by examining some background on the auto industry in each of the
countries. Then, he planned to review existing Internet strategies to see how GM could best profit from the
Internet in its B2C marketing and distribution efforts.
Internet and B2C in China
Internet usage has been growing exponentially in China over the past 5 years. Of its 1.3 billion people, 26.5
million now have Internet access via company networks or residential connections. The number is a 57%
increase from last year. Such an exploding growth rate is expected to continue through the foreseeable
future given decreasing computer prices as well as a continuously improving digital infrastructure. Though
only 2.5% of the country’s population can currently access the Internet, it’s believed that China potentially
has the largest on-line population of any country.
With the growth in Internet usage, B2C e-commerce has grown quickly. On-line sales of books,
electronics, and gifts are becoming more popular. Younger generations are eager to learn and catch up with
new technologies. All these factors fuel B2C growth. However, thus far most of the goods sold via the
Internet are relatively inexpensive. Heavy, expensive commodities are seldom sold to consumers on-line.
For one reason, China’s commercial banking, credit card utilization by the general public, and purchasing
behavior of consumers are still in a developing stage. For instance, personal checks are not widely used in
daily life; credit cards are not easily available, though debit cards are commonly used. But, each on-line
shopping site may only accept the debit card(s) from specific bank(s) (there are over 20 banks / financial
organizations offering their customers debit cards), and cards from different banks can’t be cross-used.
With free-market business being in its early age, the concept and practice of credit hasn’t been fully
developed. These contribute to the public’s lack of confidence in on-line transactions.
The other factor that constrains B2C from offering expensive commodities—at least those for which ontime and convenient delivery is a major concern—is the under-developed transportation infrastructure.
Two commonly-used ways to fulfill on-line orders are: one, make the order on-line, then mail the personal
check, or transmit cash via the bank to the seller. The ordered goods will be shipped once payment is
received. The other approach is to make the order on-line, then the on-line store arranges delivery to the
customer’s designated place (home or work place), where the customer pays upon delivery. Delivery
service is usually provided by the on-line store, but it can also be handled by the third party.
China’s Auto Industry
Automotive production in China is expected to reach 2.35 million in 2001, up from 2.07 in year 2000, and
is expected to reach 5 million by 2010. In the past 20 years, the auto market grew by over 20 percent
annually. Richard Wagoner, chief executive officer of General Motors, forecasted that China's auto market
would grow 17 percent annually over the next 10 years and could reach the size of the current US auto
market - about 17 million units - by 2025 ( –Business Weekly, April 07, 2000)
China currently has over 300 automakers with a combined annual output of less than one fifth of that in the
US. From 1950 through the 1980s, under the central planned economic policy duplicated from the former
Soviet Union, local administration at the provincial level or city level could build an auto plant to serve its
local economy or industry. As a result, there are major automakers built by China’s central government
while there are also medium and small automakers built by local governments. To meet the WTO’s
admission requirements much competition will be introduced in China’s economy, including the auto
industry. By now, almost all major global automakers have a presence in the Chinese market. Ford and
GM, for example, are aggressively expanding their market shares.
The competitive landscape and business practice in automotive manufacturing, marketing, distribution, and
service are going to change dramatically in the near future. “It’s expected that the on-going domestic
automaker consolidation will end up with three to four full-range carmakers plus one to two niche players
in the coming decade.” ( –Business Weekly, Sept 18, 2001)
There are two different sales systems in China’s auto market. Medium to small domestic automakers sell
their products to dealers as well as directly to end customers. On the other hand, China’s major national
automakers and international automakers, GM and VW for example, can only sell their products
exclusively to the state-owned dealers (the reason for doing so is the fear of loss of price control). These
dealers operate nationwide, delivering automobiles to any places in the country.
Dealers in China have little negotiating power over major manufacturers. Competition is also being
introduced into dealership market (For instance, some state-owned dealerships are being broken up, and the
automakers are selecting their own dealer networks.)
B2C in the Auto Industry
Even with the exploding growth of China’s Internet and B2C, auto sales via the Internet don’t exist yet.
Dealers may use the Internet to share information with their customers or to do their marketing, but they
can’t complete transactions via the Internet. In other words, dealers operate on the local level to serve local
customers.
The website of a dealer usually allows a user to choose the auto make / model, customize the options, check
/ compare prices, and make an appointment with the dealer for an on-site visit. A dealer typically has a
small exhibit space for visitors to examine a car. In an ordinary case, once the purchase is made during an
on-site visit, the dealer orders the auto of the customer’s choice from one of the distribution centers, and
notifies the customer when the order arrives.
Brazil
Overview of the Auto Industry in the Last Few Years
In 2000, the Brazilian auto industry produced roughly 1.6 million vehicles. The following table shows
production by brand:
Table 1
VW
GM
FIAT
FORD
RENAULT
HONDA
DAIMLER/CHRYSLER
TOYOTA
30.51%
27.81%
27.51%
6.75%
3.64%
1.30%
1.29%
1.19%
Until 1996, only the first four brands had manufacturing operations in Brazil, though in 1991 the French
producer PSA entered the market with the brands Citroen and Peugeot.
Subsequent to the stabilization of the economy a number of established companies, in particular GM and
Ford, have built new plants. Those new plants were almost all built as all-integrated plants: most of the
main suppliers share the same site as the OEM plant.
Competition has increased among the producers, resulting in quality improvements and falling absolute
prices, especially in the entry-level cars, called “popular cars” with engines under 1,000cc.
Internet-Specific Factors
Some of the larger manufacturers, especially GM, FIAT, Volkswagen and Renault, have established an
aggressive presence on the Internet. Here are some of the reasons for this decision:

The number of Internet users has reached 23 million people, which corresponds to 19% of
the population over 14 years old. This population is younger and better educated than the
overall population, and matches the target market for the “popular” cars. Brazilian Internet
users can be considered “heavy users” spending an average of 8 hours a month on the
Internet, second only to the US. It is estimated that 2/3 of the potential car-buyers have
direct access to the Internet in Brazil, and 80% of the consumers in the target market for
“popular cars” have direct Internet access. These percentages are higher than in most other
countries.

The integrated plants allow the producers more flexibility in their relationship with the
main suppliers and provide for an information sharing process within the supply chain;

With the exception of Volkswagen, the big manufacturers are concentrating their Internet
investments on selling popular cars, which do not offer many options to the customers.
This makes it easy, not only to design the process of Internet sales, but to guarantee higher
availability of the chosen models and simplify the process of build-to-order. Usually the
models sold through the Internet allow the customer few choices, such as no more than 2
distinct motors, 4 or 5 different colors and 2 or 3 standard bundles of optional items;

The manufacturers and dealers are using sales thorough the Internet as a way to reduce
taxes. In the model adopted, the customer buys the car directly from the producer and the
dealers receive a commission. This allows dealers not only to reduce their costs of holding
inventories but also make them exempt from a sales tax, which is common in Brazil.

Given the economies in taxes and cost of inventories, the price of the cars sold through the
Internet can be from 6 to 8% lower than through the traditional channels.
As a result of those factors, in 2000 11,000 cars were sold through the Internet, and the expected sales for
2001 and 2002 are 100,000 and 250,000 respectively.
Executives of some of the big players believe that those characteristics allow the Brazilian auto-industry to
serve as an “experimental lab” for their e-commerce initiatives in other markets. In fact both GM and
Renault had developed innovative programs for e-commerce in Brazil, taking the lead on such projects for
those producers on a worldwide scale.
General Motors Brazil and the CELTA
Excerpt of an article in the Wall Street Journal – December 2000
General Motors estimates that its efforts in 2000 to boost traffic at its main Internet site have
generated nearly 50,000 additional vehicle sales in the U.S., Mark Hogan, head of the e-GM
unit, said Tuesday. That figure is at the low end of initial expectations...
…Mr. Hogan was speaking at a press conference announcing the results of what GM said is the
first high-volume online car sales system in the world, run by GM's Brazilian unit. That division
has a new small car called the Celta, which is sold primarily over the Internet, although most
buyers still go to showrooms to use computers and order the car.
The system allows GM to rationalize inventory by keeping cars at central sites, instead of dealer
lots. Consumers get a 6% discount for using the Internet and their cars are delivered to the
dealer within about a week. Dealers earn a fixed commission on each sale, but they don't have
to bear the risk of holding inventory beyond a few cars for the showroom. GM officials said the
company earns more profit from Internet sales of the car than through traditional sales.
So far, GM said it has sold 15,500 Celta cars since September and 8,679 of those have been
sold via the site. Next year, the company said it plans to sell 5,000 to 6,000 Celtas a month.
GM Brazil officials said they have no immediate plans to expand the system to other models, but
said they ultimately hope to use it to build Celtas to order, reducing inventory costs further.
CELTA is the only car produced at a brand new plant in the south of Brazil, a plant build under the concept
of an integrated consortium between GM and its suppliers. (See Exhibit 1 for a picture of a CELTA.)
In addition, GM Brazil has also entered in agreement with UOL – Universo On Line, the leading Internet
portal in Brazil to develop a common Internet strategy for the auto market.
The dealers actively participate in the program, and a substantial part of the actual sales are made through
the dealers—where the customer can see the car and proceed with the purchase under the guidance of the
dealer’s sales people. The cars are also delivered to the customer’s dealer of choice.
Renault Clio
In June 2001, Renault Brazil and Yahoo Brazil jointly conducted the launch of the first co-branded car to
be sold only through the Internet in the world. (See Exhibit 2 for a picture of the car, known as the Clio)..
The process was conducted in partnership with the Renault dealers. Renault plans to achieve the following
targets in 2001:



6% of the sales of new vehicles over the Internet in Brazil – larger than its actual market
share in conventional sales;
7% of all sales of Renault Brazil to be conducted thorough the Internet and
15% of the sales of the Clio model through the Internet
United States Auto Industry Background
For many Americans, the fundamental choice in buying a car used to be Ford or Chevy. Once that decision
was made the consumer drove down to the local dealership to either pick a vehicle off the lot, or special
order the exact car that he or she wanted from the manufacturer.
Historically, in the United States, the major auto manufacturers have maintained extensive dealer
distribution networks to deliver automobiles. While the dealers are on the front line of the manufacturer’s
customer relations, most are franchisees, and, as such, the manufacturers have incomplete control over the
customer’s shopping experience. This is of particular concern for manufacturers attempting to establish
strong relationships with customers, because the relationship between dealers and customers is at best
adversarial. One can attribute some of the acrimony in the dealer/customer relationship to the existence of
asymmetric information: the dealers had complete information while the purchaser had almost no
information, at least regarding the price of the car.
Rise of E-Business
Given the contentious nature of dealer/customer relations, there would appear to be ample room for a new
channel through which to sell automobiles. In the hey-day of the Internet revolution, many people felt that
the Internet was that channel. In fact, some predicted that traditional auto-dealers were dinosaurs doomed
to extinction. Indeed in 1999, Forrester Research Inc. predicted, “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
online.” (Naples Daily News) James L. McQuivey, a senior analyst at Forrester, remarked, “The rise of
online car buying will radically alter the automobile and retailing landscape.” (Naples Daily News) For
more information on online shopping, see exhibit 3.
Despite the hype surrounding the Internet, at this point, it seems unlikely that the Internet will completely
replace traditional dealers.
However, the Internet has significantly changed the dynamics of a customer’s relationship with the dealer;
the Internet provides information that eliminates, in large part, the information imbalance between the
customer and the dealer. The Internet is not entirely a negative for dealers; many use the Internet as a tool
to expand their marketing efforts.
While there are countless Internet sites related to auto buying, we believe that they can all be divided into
four broad categories. First, the Internet is a channel for auto manufacturers to communicate directly with
the customer. Second, existing dealers can incorporate the Internet into their marketing program. Third, a
new independent class of Internet auto referral services has emerged. Fourth, and finally, there are a
number of purportedly independent information providers.
Auto Manufacturer’s on the Net
The Internet provides manufacturers with an opportunity to communicate directly with the consumer. To
some degree, it bypasses the dealer network, allowing the manufacturer to send a message directly to the
public. To illustrate some of the Internet uses that major manufacturer’s devised, let’s examine the
Chevrolet site (www.chevrolet.com) or for those of you who do not subscribe to the buy American
philosophy, check out Toyota’s site (www.toyota.com).
On the Chevrolet site, one finds extensive information on the different models that the company offers. One
can examine the specifications of each model; if you prefer to view a paper-based description, you may
even download and print a brochure. After looking through the literature on various models, you can
configure a vehicle with the specifications that you want and view the manufacturer’s suggested retail price
for that vehicle (you can even see the suggested cost for adding or subtracting a particular accessory).
While you cannot buy a vehicle online, the website does direct you to a dealer in your area.
The website provides the customer with access to GM BuyPower, which the General Motors website touts
as a powerful tool to help the user locate a vehicle: “Connect with GM BuyPower to collect information on
your vehicles of choice. Once you’ve found the car or truck you want, you can locate a certified GM
BuyPower dealer to schedule a test drive, and even get the dealer’s best purchase price—all online.” This
tool allows the shopper to access a particular dealer’s inventory. The shopper can see a picture of a vehicle
and even view a replica of the sticker that appears on an individual vehicle’s window.
Dealers on the Net
While the individual dealer’s have websites offered through GM BuyPower, many local dealers maintain
their own websites. For example, the local Chevrolet dealer, Jim Price, has its own website separate from
the GM BuyPower website.
At this site, the consumer can browse through Jim Price’s inventory and see pictures of the different cars on
the lot. Interestingly, while the website provides information on availability, it does not offer online pricing
information—at least for new cars. However, if the buyer wants a price, he can fill out a brief questionnaire
detailing the vehicle he would like to purchase as well as some personal information; the dealer will then
contact the individual with a price quote. The website also offers a number of customer friendly tools, such
as a monthly payment calculator. As the dealer does more than just sell cars, it uses the website to allow car
owners to make appointments to service their vehicles and order spare parts.
Auto Referral Services
While the Internet is another channel for manufacturers and dealers to interact with customers, it has
allowed the creation of a new category of intermediary: referral services, such as Autobytel
(www.autobytel.com). These services assist car-buyers in researching different brands and models.
Moreover, these services allow the user to place an order for a particular car and receive a quote. The
referral service does not actually fulfill the order, though. Instead, it will pass your order through to a dealer
in your vicinity. With the quote in hand that you received from the dealer, you can walk in and pick up your
car without negotiating (source www.carbuyingtips.com).
The online referral services add value by eliminating the dealer’s asymmetric information advantage. In a
certain sense, they are adding another middleman between the customer and the manufacturer, which on
one level runs counter to everything that the Internet supposedly represents. However, they provide
significant value over the old dealer driven distribution channel, in that they provide value-added
information to the customer. These sites allow their customers to know the lowest price that the dealer is
willing to offer. In return for providing referrals to the different car dealers, the referral services receive a
fee. The following excerpt from Autobytel’s 10-K provides additional information on the firm’s business
model:
“Consumers can purchase new vehicles through our dealer referral network and our locate-toorder service, AutobytelDIRECT SM . When consumers indicate they are ready to buy a vehicle,
they can be connected to our network of over 4,800 participating dealers in North America, of
which over 3,500 are Autobytel.com® dealers and over 1,300 are CarSmart.com SM dealers, with
each dealer representing a particular vehicle make. Approximately 400 dealers subscribe to both
the Autobytel.com and CarSmart.com services. Dealers participate in our network by entering into
non-exclusive contracts with us. We expect our dealers to promptly provide a haggle-free,
competitive offer. Fees paid by our participating dealers constitute the majority of our revenues.”
(2000 10-K)
For more information, on the Autobytel’s business model view their 10-K filed with the SEC at
http://www.autobytel.com/content/framed/index.cfm?id=4;4&action=InvestorRelations.
Information Services
While a number of the auto referral services also provide information on different car models, there are a
number of independent information providers. For example, Consumer Guide offers consumers information
on different makes and models of cars. For these services, like the auto-manufacturers and dealers, the
Internet is simply another channel for reaching customers. They, too, play an important role in informing
the customer, though as a general rule, they do not provide the same pricing information.
Conclusion
As the plane touched down in Rio, Marcos made a mental list of the questions that he needed to answer.
First, what role do cultural differences play in establishing a B2C automobile Internet strategy in different
countries? What should GM’s Internet presence look like in each of these countries in five years? How
should GM use the Internet to reach consumers in other countries? Finally, Marcos hoped to determine
some of the key components of a B2C strategy regardless of industry.
Exhibit 1
GM CELTA
Exhibit 2
Renault Clio
Exhibit 3
Online Shopping Statistics
Worldwide Net commerce -- both B2B and B2C -- will hit $6.8 trillion in 2004. North America represents
a majority of this trade, but its dominance will fade, as some Asian-Pacific and Western European countries
hit hypergrowth over the next two years. (Source Forrester Research)
Worldwide eCommerce Growth