What's That Smell, Autobytel?

Before you take Autobytel (Nasdaq: ABTLE) for a test drive, don't forget to kick the tires. At the very least, open that glove compartment to see where that dreadful smell is coming from! The online car-buying specialist warned that it won't meet its 2004 profit guidance of $0.25 a share and that it would also fall short of next year's bottom-line targets. Between accounting irregularities and the legal costs to fend off the lawsuits stemming from said miscues, Autobytel has some serious potholes to steer around right now.

The company is still sticking to its revenue projections of $123 million this year and $153 million come 2005. That may seem like the appropriate action at this time, but am I the only one worried that the fallout from fraud allegations and class action lawsuits may actually scare some prospective car shoppers away?

Autobytel's popularity has been the result of demystifying an industry that many see as shady. Instead of hard sell showroom tactics at the local dealership Autobytel is able to provide thorough research and price quotes, and that is built on a relationship of trust. I don't know whether that makes it immune from notoriety, though.

If eBay (Nasdaq: EBAY) or Amazon (Nasdaq: AMZN) were accused of flunking out of revenue recognition practices, don't you think that some of the folks that had been kicking money into the companies' coffers would grow skeptical? I do. That's why Autobytel has to make sure that it emerges out of this with its reputation as clean as possible.

Autobytel has an interesting history. As the name implies it started out as a way for car buyers to get quotes by phone. That made it a natural to cash in on the Internet's advantage of convenient information dissemination.

Another thing working in the company's favor is that it's not tied to one particular automaker. When Ford (NYSE: F) and General Motors (NYSE: GM) struggled this year as gas price weary consumers switched to smaller foreign cars, Autobytel had no problem rolling with the trend. Its virtual showroom is a catchall establishment.

That's why seeing Autobytel shed more than half of its value since its May peak might prove to be an intriguing contrarian play. Yet let's hope for those deciding to buy into the stock now while it's stuck in single digits that the company is able to maintain its brand integrity through all this. Nobody wants to be sold a lemon.

Longtime Fool contributor Rick Munarriz is in love with his car. He's got a feel for his automobile. He does not own shares in any of the companies mentioned in this story. He is a member of the Rule Breakers analytical team, seeking out tomorrow's great growth stocks a day early.