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GM to Put Cars on the Auction Block -- Online


eBay's haggling-based business model could boost flagging sales.

General Motors and eBay (EBAY) have devised a plan intended to boost sales for both companies: Buy a new car online.

GM's pilot program will be limited to California, where prospective buyers will be able to bargain on about 20,000 vehicles available through 225 of the automaker's 250 dealers in the state.

It's a smart move by the struggling automaker. Online dickering might create the impression of savings and could be a good way to goose consumers sitting on their cash during the recession.

If successful, perhaps the eBay sales model should be replicated by others in the battered retail sector. Many companies sell online, but bidding might be the key to increasing sales, because customers would have some control over price.

For instance, perhaps bankrupt Circuit City could have escaped extinction if it had allowed customers to bid for home electronics gear online. It certainly would have generated buzz about price, and that could have been a key element in fighting off Best Buy (BBY) and Wal-Mart (WMT) in the cut-throat sector. If wildly successful, online auctions might reduce the need for brick-and-mortar stores, but would force distribution centers into the business of serving individuals as well as stores.

Online grocery auctions are common, but the merchandise is often blemished, dented, close to the expiration date or surplus. In any case, many buyers don't want to take the time to dicker over pennies. Durable goods with higher margins would make the process more attractive to retailers and online auctioneers.

Jos. A. Bank Clothiers (JOSB) spends heavily to advertise sales with clearly stated discounts. An online auction might allow such chains to reach new customers and, if all goes well, maybe cut advertising cost. In addition, online bidding might reduce the reliance many upscale retailers now place on discount warehouse outlets to sell leftovers from the prior season.

In GM's online venture, prospective buyers can accept a "buy it now" price or bargain online with the dealer. Consumers can check the availability of models, options, prices and financing at several dealers. However, buyers will go to the dealer to sign the papers and complete the deal.

GM says the program won't force dealers to bid simultaneously against each other and is needed because the company's market share in California is smaller than its share nationwide.

California is the nation's largest auto market. GM faces increased competition in the Golden State from Ford (F), Toyota (TM) and Honda (HMC), manufacturers known for small, fuel efficient vehicles. GM needs something to set it apart from the competition and attract prospective buyers.

Cadillac won't participate in online auctions, apparently because GM feared it would undercut the line's upscale image. This seems odd because computer usage typically increases with income and even the wealthy have felt the pinch in the economic downturn.

Used cars and auto parts account for about 27% of eBay's total sales. New car sales are rare on EBay, and only about 3,000 vehicles of the 47,000 listed on the online auction site are new.

Keep an eye on GM's eBay experiment in California. More than a few consumers are going to like going toe-to-toe with an experienced car salesman. Buyers may like the feeling that they have some control over price and online bidding might reduce the stress, attracting new customers.
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