CarsDirect Moves To Do More Business With Credit-Challenged Car Buyers

Online car-shopping service CarsDirect.com Inc., wanting a bigger piece of the market for buyers with spotty credit histories, has acquired 1-800 Communications Inc., which provides dealers with so-called "special finance" leads.

The addition of 1-800's consumer brand and dealer network positions CarsDirect to tap into a fast-growing market as lenders push more-flexible loan products into the marketplace to cater to credit-challenged car buyers. "The size of this market is significantly larger than we'd tapped into in our early stages," says Mark Miller, CarsDirect's senior VP of dealer and industry relations. He says the 1-800 purchase more than doubles the size of CarsDirect's footprint in the special finance market. Specifics of the deal were not divulged.

1-800's roots were as a toll-free number for buyers with low credit ratings, but it evolved into a Web-based service in recent years, using search-engine optimization to attract larger numbers of potential buyers, who are then referred to dealerships based on information they provide in a short credit application. World of Special Finance, an auto industry publication, estimates that 35% of dealers have some sort of special financing capabilities, but Miller suspects that only 20% have enough expertise to provide adequate special financing options. That, he says, illustrates why the purchase of 1-800 gives CarsDirect the ability to capitalize on a significant opportunity.

CarsDirect has to expand into areas such as special financing because the market for providing Web-based sales leads offers limited growth potential at this point, says Forrester Research analyst Mark BÜnger. He says that as car financing is managed more like home-buying, with buyers getting pre-approved on loans before actually shopping for a car, dealers are increasingly looking to do business with credit-challenged customers who appear to be serious buyers. "If you've gone through the trouble to get approved for a loan, you're definitely going to buy a car soon," says Bunger. "It makes things easier for the dealers because they can separate the wheat from the chaff."

Bunger expects another 18 to 24 months of consolidation in which CarsDirect and rival Autobytel snatch up niche players in the market for Web-based services that help connect car buyers and dealers.