AutoNation stepping away from third-party leads

Mike Jackson on third-party lead providers: "I can pay them to build their brands, or I can build my own brand."
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NEW YORK -- AutoNation Inc., tired of paying high prices for online leads, plans to de-emphasize third-party lead providers such as TrueCar, AutoTrader.com and Cars.com, CEO Mike Jackson says.

He says he will strengthen AutoNation’s Web site and digital presence to build traffic and sales.

Beginning in late 2012, AutoNation started spending $50 million on new dealership Web sites, tablet computers in the service drive and a so-called new digital storefront. The vision: To speed transaction time and let customers control their shopping experiences, whether online or in the store. Between the redesigned storefront and all of AutoNation's branding activities, Jackson said AutoNation will be spending $100 million.

Jackson’s decision to build a strong digital storefront reflects growing tension between dealers and lead generators. The third parties, exploiting consumers’ desire to shop on the Web, have elbowed their way between dealers and shoppers.

AutoNation won’t drop third parties immediately, though, particularly if they bend on prices.

“We’re definitely not pulling the plug. You give me more attractive pricing and we’ll do business for a long time,” Jackson said in an exclusive interview with Automotive News. “You jack the rates, I have attractive alternatives.”

Jackson was clear that this is not a price-haggling tactic. While AutoNation may never completely walk away from third-parties, he said, the priority is to expand AutoNation’s own digital presence.

“I can pay them to build their brands, or I can build my own brand,” Jackson said.

Strong Web site

By year end, AutoNation’s redesigned Web site will allow customers to select a specific vehicle in inventory, as opposed to the “phantom vehicles” of lead generators, Jackson said. Phantom vehicles are listed by dealerships on third-party sites, but may or may not be on store lots.

He said customers may also use the AutoNation Web site to choose financing and place a deposit to reserve a specific vehicle.

Third-party lead generators account for about 7 percent of AutoNation’s new-car sales by unit-volume and 5 percent of used-car sales. But Jackson said those figures over time will be “on a downward trend line.”

Jackson also does not like that third-party lead generators sell leads to multiple dealerships. That happens when a shopper on a third-party site leaves contact information, allowing the site to sell the lead to multiple stores to compete for that customer.

'Significant fee'

AutoNation pays “a significant fee” to online lead generators, Jackson said, declining to be specific.

TrueCar, for one example, charges dealerships in most states $299 for each new-car lead that they convert into a sale. Mike Maroone, AutoNation’s COO, was on TrueCar’s board in 2011 and 2012.

Many lead generators, including AutoTrader, Cars.com and Edmunds, sell subscriptions to dealerships. A source at a Midwestern dealership group, who declined to be identified, said the group pays about $2,500 per month to one third-party site for each dealership to post inventory and receive other services.

Some big dealerships pay up to $20,000 per month for subscriptions, another source said.

'Highest regard'

TrueCar CEO Scott Painter said 90 percent of AutoNation stores participate in TrueCar, a car-buying service that allows shoppers to lock in a guaranteed price on a vehicle from dealers who compete for the business.

Painter said TrueCar offers one of the best values in the industry for high-quality shoppers. The company charges dealers only when a customer buys a car, Painter said. The fee of $299 for a new car is less than half the more than $600 per car that it costs dealers in marketing to acquire a customer, he said.

He said AutoNation, like any other TrueCar-participating dealership, has to look elsewhere for shoppers if they can acquire customers for less. “We have the highest regard for AutoNation on almost every metric,” Painter said. “They could tell us to stop sending introductions, but they’re not doing that.”

Third-party sites are growing in popularity because people want to comparison-shop for vehicles, said Alex Vetter, senior vice president at Cars.com.

Cars.com received 33.8 million visits in March from shoppers researching inventory and choosing where they want to buy a car, Vetter said. That’s a year-over-year increase of 21 percent.

Those shoppers are influenced by that shopping, even if only fraction jump directly from Cars.com to a dealer Web site to narrow their shopping, Vetter said. “Consumers have chosen third-party sites as the place to decide what they buy and where they buy it,” he said.

Edmunds CEO Avi Steinlauf said in a statement:

"The value of Edmunds.com extends far beyond leads. We are the most trusted third-party car shopping website, and we foster that trust every day by connecting our 18 million monthly unique visitors to our 10,000 dealer partners. AutoNation understands this just as much as anybody, which is why we continue to enjoy a great relationship that extends well beyond a decade.”

Dave Barkholz contributed to this report.

You can reach Mark Rechtin at mrechtin@crain.com. -- Follow Mark on Twitter


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