AutoTrader.com, eBay Part Ways

AutoTrader.com and eBay (EBAY) will part ways at the beginning of next year, six months before the scheduled end of their contract.

"We have mutually agreed to terminate our relationship as of Jan. 1, 2003," said Christine Kowalczyk, a spokeswoman for AutoTrader.com. She declined to say why the partnership fell apart. A spokesman for eBay, Kevin Pursglove, separately confirmed the decision, but didn't give any details.

In recent quarters, online auctioneer eBay has played up its auto division as a key growth market. But Monday's announcement comes in the wake of an 18% drop in vehicle sales at the nation's Big Three carmakers in November. And some say eBay's strategy may be out of sync with macroeconomic trends.

"There are too many autos and not enough people buying them," said Scott Rothbort, head of LakeView Asset Management and a contributor to RealMoneyPro.com, who is short eBay. "I am looking at this from a macroeconomic perspective. The consumer is staying away from wheels."

Meanwhile, Rothbort said eBay, which closed down 1.6% at $67.47 on Monday, is overvalued at current levels. "It is trading at a price-to-book ratio of 10, compared with WalMart (WMT), which is trading at a price-to-book ratio of 6," he said.

To be sure, eBay Motors has been a successful division. According to investment bank Pacific Crest, the unit's revenue is expected to grow 66% to $151 million in 2003, or 13% of its total U.S. growth estimate.

Steven Weinstein, an analyst at Pacific Crest, said AutoTrader.com will be a significant competitor to eBay Motors. But he is not making any changes to his earnings-per-share estimates for next year. "While there is potential for lower-than-expected growth in eBay Motors, even under a worst-case scenario, we believe the impact will be minor to overall revenue and expect no impact to EPS," he said.

Weinstein noted that the decision to end the relationship, whereby AutoTrader.com was to receive 50% of the revenue for listings of cars that are 20 years old or less, might have originated with eBay. "I am not under perception that AutoTrader.com was delivering 50% of the cars," he said.

Meanwhile, others said eBay, which needed AutoTrader's help originally, could now stand on its own. "I think eBay has built enough of a brand name in autos that distribution through its own outlets will be more than sufficient," said Tom Underwood, an analyst at Legg Mason.

The question is if it will make a difference to consumers, who may spend less on cars next year.

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