Greenlight.Com

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GREENLIGHT.COM

Greenlight.com was an online buying service for automobiles that launched in January 2000. The service was initially available in four Southern cities, then expanded to 31 states by mid-2000. The company was backed by a combination of venture capital firms, large automobile dealers, and Amazon.com. As the bear market took its toll on Internet stocks in 2000, the company laid off 25 percent of its workforce in December 2000. In February 2001, just over a year after it began, Greenlight.com was acquired by CarsDirect.com, a competing service.

HOW GREENLIGHT.COM WORKED

Like CarsDirect.com, which launched in May 1999, Greenlight.com bought cars from dealers for re-sale to online customers at a fixed price, but Green-light.com claimed that it would be more dealer-friendly than other online buying services. Greenlight.com gave dealers direct contact with customers, and customers took delivery of their vehicle from a dealer that would handle most of the post-sale customer service.

The first step in buying a car through Green-light.com was for a customer to describe the vehicle they wanted and the state in which they wanted to take delivery. Greenlight.com then provided a guaranteed, no-haggle price. If the price was right, the customer would then fill out an online order form. Green-light.com promised that a dealer would reply to the customer within 24 hours with a confirmed delivery time. The customer then took delivery of the car from the dealer.

Dealers were granted exclusive territories from Greenlight.com, but they had to respond within 24 hours or Greenlight.com would send the customer to another dealer. If the selected dealer did not have the car in stock, Greenlight.com would help arrange a dealer trade. Greenlight.com did not charge fees to the dealers; rather, it made money on each vehicle's markup. Dealers who were part of Greenlight.com 's network were free to continue their relationships with other online buying services and to receive leads from their own stand-alone Web sites.

ATTRACTED THE INTEREST OF LARGE DEALERS

Greenlight.com was formed in 1999 and launched in January 2000 by Asbury Automotive Group, based in Conshohocken, Pennsylvania, and the venture capital firm Kleiner Perkins Caulfield & Byers with about $15 million in venture capital. Kleiner Perkins Caulfield & Byers had participated in the launch of such Internet giants as Amazon.com and Netscape Communications. With more than 70 dealerships in 10 states and some $4 billion in annual revenue, Asbury Automotive Group was the largest privately held dealership chain in the United States. For the Greenlight.com service, which had its headquarters in San Mateo, California, the company was seeking to sign up more dealers that had multifranchise coverage in major markets and that were comfortable using the Internet for business.

In its first month of business Greenlight.com struck a deal with Amazon.com. For an undisclosed amount, Amazon.com took a five-percent interest in Greenlight.com. Under a marketing agreement between the two companies, Amazon.com would receive $82.5 million over five years for promoting Greenlight.com to its customers. At the time Amazon.com had about 16 million customers.

Greenlight.com gained important credibility among automobile dealers when Joel Manby, former CEO of Saab Cars USA Inc., joined the firm as its president in April 2000. Manby's immediate goals were to build a committed network of dealers and to gain the support of the major automakers. Dealers were offered the opportunity to take an equity stake in Greenlight.com. One of the first dealer groups Manby signed up was Sonic Automotive Inc. of Charlotte, North Carolina, which operated 110 dealerships and had a large presence in the Southeast, California, and Las Vegas. It would take about six months for all of the Sonic dealerships to be set up for Green-light.com referrals. Meanwhile, the large auto-makers—including Ford Motor Co.'s Ford Division and Lincoln Mercury—were opposing services like Greenlight.com 's by threatening their dealers with severe penalties if they sold new vehicles to Internet brokers for resale.

ADDED DEALERS IN 31 STATES

In July 2000 Greenlight.com added 10 dealer groups to its service. The largest was the Hendrick Automotive Group of Charlotte, North Carolina. With annual sales of more than $2.5 billion, Hendrick was ranked sixth by Automotive News among the top 100 dealer groups. Hendrick had 48 dealers with 61 franchises in nine states and the District of Columbia. Altogether, the 10 new dealer groups represented 130 dealers with 150 franchises in 14 states and D.C., bringing Greenlight.com 's total to 1,500 affiliated dealers in 31 states. None of the new dealers made any cash investments in Greenlight.com. However, they were made equity partners, which gave them the opportunity to earn equity shares in Greenlight.com based on their performance and the performance of Greenlight.com. Of Greenlight.com 's more than 1,500 affiliated dealers, nearly 900 had a "platinum" arrangement whereby they could earn stock in Green-light.com.

Manby predicted that Greenlight.com would have affiliated dealers in every state by the end of 2000. He claimed that Greenlight.com was reaching 75 percent of all e-commerce customers and about 45 percent of the total population. The company recently signed deals with e-loan.com and AutoTrader.com, both of which agreed to use Greenlight.com as their new-car partner; they provided links on their Web sites to Greenlight.com. In August 2000 Amazon.com announced it would begin selling cars on its Web site with a new link to Greenlight.com. The link, which would present automobile information in the familiar Amazon.com format, was part of Amazon's new ventures section. It gave Greenlight.com access to Amazon's growing customer base of 23 million Internet purchasers.

It was around this time that Greenlight.com received an additional $39 million in financing from investors, including Amazon.com, Techno-Venture Co., original investors Kleiner Perkins Caulfield & Byers and the Asbury Automotive Group, and others. The terms of Greenlight.com 's agreement with Amazon.com were changed. Instead of paying Amazon.com $82.5 million over five years, Greenlight.com agreed to pay $15.25 million over two years in exchange for being the exclusive new-car buying service on Amazon.com. The new terms were made in part because of the difficulty Internet firms were having in raising capital in 2000. The company's top management also changed, with CEO and co-founder Todd Collins becoming the firm's chief strategy officer. Manby replaced Collins as CEO, and Mark O'Neil, former division president of CarMax Inc., was hired as president and chief operating officer (COO). Greenlight.com also moved its headquarters from San Mateo to Livermore, California.

CUTBACKS FOLLOWED BY SALE TO CARSDIRECT.COM

In the second half of 2000 Greenlight.com was faced with a tightening capital market and increased competition from other online car buying services. The major automakers were opposed to their dealers selling to Internet brokers and were looking for an appropriate Internet model that would satisfy their dealer networks. In December 2000 the company laid off 25 percent of its staff as a cost-cutting measure. In February 2001 Greenlight.com agreed to be acquired by CarsDirect.com for an undisclosed amount. Visitors to the Greenlight.com site were referred to Cars-Direct.com, and the combined companies claimed to offer access to more than 400,000 vehicles. The acquisition gave CarsDirect a base of more than 3,000 affiliated dealers.

Analysts noted that while more Americans were using the Web to research their vehicle purchases, fewer were actually buying cars over the Internet. E-Commerce Times reported that a recent study by the Gartner Group found that while 45 percent of U.S. households used the Web as part of their car-buying process, only 3 percent actually bought their cars online. Another study by Forrester Research projected that 28 percent of all new-car buyers would visit an online auto service by 2003, three times the current level, and technology research firm IDC predicted that new car sales over the Internet would climb from 15,000 in 1999 to more than 500,000 by 2003.