As the country turns to smaller cars with better gas mileage, auto marketer Autobytel (NASDAQ:ABTL) is turning to a smaller Autobytel to conserve greenbacks. The company is realigning its workforce in a move that will trim its headcount by 10%.
Don't be surprised. Even though one would think that the downsizing of automobiles and the interest in hybrids would drive traffic to Autobytel's various car information and quote request sites, the lead generation business has been weak in several niches.
Whether it's InsWeb (NASDAQ:INSW) in insurance or HouseValues (NASDAQ:SOLD) in real estate, companies are struggling as eyeball-acquisition costs climb and savvy consumers are bypassing the comparison sites to negotiate directly with the seller.
I was intrigued by the Autobytel model two years ago. I had interviewed then-CEO Jeffrey Schwartz and warmed to the story that the company was providing leads to the leading auto retailers in a more cost-effective manner than the car dealerships were achieving with conventional advertising.
A lot has changed since then. Dealers and auto manufacturers have grown more effective at generating their own online leads, and even travel portals like Expedia (NASDAQ:EXPE) have gotten stung. The Internet is praised as a great leveler, but it can be a business model weakness if the moat isn't strong enough.
The automobile industry has no reason to turn its back on Autobytel; a good lead is still valuable. The problem is that competition for those leads is heating up and this may never materialize into the rich margin nirvana that some investors have bought into.
Controlling costs is important. The company's loss widened in the March quarter, in part due to a spike in operating expenses despite a 13% dip in revenue. If Autobytel can accomplish more with less, so be it. I just hope that it's not the lowest paid 10% that it is being lopped off the payroll. That's like changing your oil while running on a flat tire.
Go ahead and intrigue me again, Autobytel. I'm a lot more jaded this time around.
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Longtime Fool contributor Rick Munarriz was a big fan of Boston-based rockers The Cars in his youth. He's a lot like you. The dangerous type. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
