More dealers bring hunt for leads in-house
Hamilton: Dealers are savvier.
A growing number of dealers say they are drifting away from the third-party Internet lead providers that have dominated online vehicle marketing for 15 years.
Partly it's because they want "cleaner" online referrals -- no duplicates or 12-year-olds with a new computer -- and they want better closing rates from leads. Also, it has become easier and cheaper for dealers to develop their own robust selling sites.
"Dealers have gotten a lot savvier about creating their own leads," said Jared Hamilton, CEO of DrivingSales.com, an online training and social networking site for dealers. "That has put some pressure on the third-party lead providers."
Some dealers say they are cutting back on buying third-party leads. Others have dropped them altogether and now rely exclusively on their own Web sites or automakers for leads.
"A lot of dealers say the closing rates are higher because there is less competition," Hamilton said. "If I get a lead, I won't sell it to the competitor."
Nashville-based Dataium Inc., which tracks car-buying habits at more than 5,000 dealership and factory Web sites, says leads from dealership sites are growing at a faster rate than other portals.
"With dealers receiving more leads off the dealership Web site organically, they have less demand for third-party leads," said Dylan Snyder, Dataium's senior manager of business intelligence.
Lead generators such as Dealix, shopautoweek, Autobytel and AutoUSA take requests for price quotes and other information and pass them on to dealerships for a fee that experts and dealers say averages about $20. Others, including Cars.com and Edmunds.com, charge a monthly subscription rate. Mitch Golub, president of Cars.com, said fees can range from $300 per month for a small dealer to $15,000 for a major metropolitan retailer.
It's a big business. Internet leads generated by third-party, dealership and carmaker sites account for as much as 30 percent of all U.S. new-vehicle sales, according to Urban Science, a Detroit consulting firm.
But it's also a changing business.
Bryan Armstrong, e-commerce director for Volkswagen SouthTowne in Salt Lake City, hasn't used third-party leads for 18 months. He said many of the referrals were for customers who had just started their search and were as long as six months away from buying a new car.
"I took that $2,000 or $4,000 I used a month on third parties and converted it into building Web resources where people can get information," he said.
Armstrong said he built microsites, added blogs, put more information on the store's Web site -- and found he got better quality leads at "a much lower price."
Robert Alvine, owner of Premier Subaru and Premier Kia in Branford, Conn., dropped third-party lead providers five years ago. He gets leads only from his store Web sites and pays for better placement on Internet search engines.
Mike Sullivan, owner of Sullivan Automotive Group in California, said he's buying less from lead generators and relying more on leads from his group Web site, LAcarGUY.com, and the manufacturers he represents.
The third-party providers "are fighting for their livelihoods more than ever, they are trying to protect their territory, every lead and every prospect," said the Santa Monica, Calif., dealer, who sells Porsche, Lexus, Toyota, Scion, Volkswagen, Audi, Subaru and Fisker.
"We won't cut them out cold turkey," he said. "But Lexus and I, for example, have a good working relationship and the two of us have all the information and all the cards. Sharing that information with third-party vendors is silly."
Brad Burlingham, head of marketing for LAcarGUY, said he's pulling business from lead providers without strong consumer-recognized brands in favor of sites such as Edmunds.com that get a lot of consumer traffic.
"A lot of them do the same marketing efforts we are doing," he said. "We would rather spend the money to generate leads ourselves and brand ourselves."
Last year, leads from the LAcarGUY Web site had a 23 percent closing ratio, compared with about 8 percent for the third-party providers, Burlingham said.
Leads from the third-party providers cost about $18 each.
"We cannot generate a lead that cheap -- it costs us $60 or $70," Burlingham said. "That sounds like a lot more money, but ours are closing at a rate three times higher, and the money being spent is branding yourself rather than another company."
Doug Waikem owns 10 stores in Canton, Ohio, and is chairman of NADA's eCommerce 20 Group, which met for the first time in late 2011.
Ten years ago, Waikem said, he got 80 percent of his leads from third-party sites. Today they provide 30 percent of his leads.
"We are doing a better job as a dealer, and our manufacturers are also doing a better job of gathering leads from the consumer," Waikem said.
"As a dealer, we are using search engine optimization, search engine marketing, pay-for-click marketing and banner ads on the Internet," he said. "The dealers and the manufacturers have caught on. A dealer in Montana can compete with Autobytel for space on the first page of Google or Yahoo."
Technology has also gotten better, easier and cheaper to use.
"When we built our first Web site in 1995, it cost $50,000," Waikem said. "Now we can build one for $1,500."
He said 37 percent of his 5,000 annual new-car sales come from Internet leads. He said he buys 1,200 leads a month and has a closing ratio of 13 percent. But the ratio on leads he gets from branded sites such as Honda.com and his own Web sites, is 17 percent.
But Waikem won't stop using the third-party providers.
"A lot of customers do not trust the manufacturer, and they do not trust the dealers," Waikem said. "They like that they can go to a third-party lead provider because they feel the information is more honest and more accurate."
Golub: Fees hit $15,000 a month.
Doing it yourself can be costly
David Kain, a Kentucky dealer and the first CEO of FordDirect, a joint venture lead generator formed in 2000 by Ford dealers and the carmaker, said it can be costly for dealers to do their own Internet marketing.
He said: "From an emotional standpoint, some dealers have been swayed by the noise in the market that third-party leads were not good business, and that you should create your own Web site because consumers will be more prone to buy."
Kain, who also runs a consulting business that trains dealers in digital marketing, said most dealers don't have the staff necessary to run consumer-facing Web sites and get leads from Internet search engines.
"They are spending more than if they bought third-party leads," he said.
Dean Evans, chief marketing officer at Subaru of America, has worked on both sides of the fence. Before coming to Subaru last year, Evans was chief marketing officer at marketing firm Dealer.com, whose business includes building dealer Web sites. Before that Evans was vice president of marketing for Dealix.
He estimates that dealers get one-third of their leads from manufacturers through carmaker sites such as Subaru.com, a third from third-party lead generators and a third from store Web sites.
Evans says manufacturers jumped in because they are "realizing all those leads are pretty important, and if you leave it to the dealer network they will buy leads when they feel like it -- one would buy 10 and the other zero.
"Consumers come where they may, and you as a manufacturer have to develop all of those eyeballs," he said.
Volkswagen of America jumped into the Internet lead referral business two years ago. Mike Sachs, general manager for consumer relationship management and owner loyalty at VW of America, said the company and many dealers believed the third-party leads "weren't real shoppers -- they were tire kickers, and they were trying to trick the dealers to get a better deal."
Meanwhile, Sachs said dealer complaints about the third-party leads increased. VW hired Urban Science to take leads from the VW.com site and dealer Web sites designed and managed by the digital marketing firm Cobalt. The company also buys leads from Edmunds.com, KBB.com, CarsDirect.com, Detroit Trading Services, Dealix and Yahooautos.com.
Urban Science scrubs the leads for duplication and assigns a priority to them based on how ready the consumer is to buy.
"It varies by product, but we are charged anywhere from $8 to $13 a lead by Urban Science, and they qualify all leads," Sachs said.
VW's closing rate for all leads is 13 percent, close to the industry average. But the closing rate for leads from the dealer sites is 20 percent. Leads from the third-party providers have a 9 percent closing rate, he said.
The independent shopping sites are beginning to adapt. Jeremy Anwyl, vice chairman of Edmunds.com, said his Web site posts dealer phone numbers and urges buyers to call the stores for more information rather than fill out a form.
"A lot of dealers like that better," he said. "I think the lead business has worked well for customers. I am not sure how well it works for dealers. Filling out forms is old hat."
About half of the consumers using Edmunds for price quotes are now calling dealers directly, Anwyl said.
"A lead is an imperfect way of doing it," he said. "We are working on how to more seamlessly connect customers to dealers."
Refunds on inferior leads
Some lead providers have reacted by becoming more liberal with refunding the cost of leads dealers deem inferior, Hamilton said. Dealers can get a refund simply because they were unable to get in touch with the potential customer, he said.
That's a radical change from several years ago, when some vendors had a firm "no money back," policy, he said. "They have become more dealer-friendly."
Waikem said he can also get a refund if he proves that another lead generator already gave him the lead.
Last November, Dealix began letting dealers determine the ZIP codes in which they want to buy leads, and to adjust their lead buying based on their stock levels.
"With inventory fluctuations, you may be short -- you may want leads only in your home turf," said Dealix General Manager Egon Smola.
If a dealer has a big inventory he can ask for leads that encompass a larger area.
Also, Smola said getting refunds for bad leads will become easier in the coming months for stores with the dealer management system offered by Dealix's new parent, Automatic Data Processing. Instead of having to contact their sales representative, dealers will be able to get refunds with one click of a computer mouse, he said.
As the first Internet lead provider in 1995, Autobytel has seen all the fads over the years, said Steve Lind, head of corporate development -- including dealers who say they don't need third-party lead providers.
"They may redirect some spending," Lind said. But he added that many will return, proclaiming, "These are customers I am not otherwise seeing -- I can't capture those customers."
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