CEO Mike Jackson put the big Internet shopping sites on notice last week: AutoNation is building Web products that will slash the number of leads the group's 229 stores get from AutoTrader, Cars.com, TrueCar and others.
And if the third-party sites keep raising prices, he'll cut them out of the mix even quicker.
In making a case to spend $50 million on AutoNation's digital storefront, Jackson laid bare the growing tension between dealers and third-party lead generators.
Each year many dealers drop third-party sites, dissatisfied with perceived high prices for leads and the limited sales they produce. But, says a source at a major Internet shopping site, the majority return within six months after their market share declines or they negotiate lower prices for less advertising.
AutoNation's size and resolve make this conflict different. Jackson is investing in Web sites that eventually will offer shoppers finance options, trade-ins and other features that will have the AutoNation brand and be under AutoNation's control.
Robust marketing, which will aim to make the Auto- Nation brand a household name in its market areas, will boost the cost to $100 million, the company says.
Todd Caputo, owner of Sun Chevrolet Inc. in Chittenango, N.Y., said he has seen no falloff in sales or leads since dropping AutoTrader in November and Cars.com a year ago and is using the savings to buy more Google ads and use more direct mail.
"I haven't looked back," he said.
Caputo said he was spending more than $15,000 per month combined for his AutoTrader and Cars.com subscriptions and advertising. The sites allow shoppers to view dealer inventories and channel prospects to stores. Sun Chevrolet averages about 50 new-car sales and 150 used-car sales per month.
Monthly subscriptions typically range from $2,500 to $20,000 per month. Dealerships post inventory on the sites and buy banner ads.
Caputo said he had an additional beef with Cars.com: He regularly lost shoppers who were looking at his cars on the site. They were lost when they clicked to other services, such as a credit application. The credit company would get the lead and sell it to other dealers in his market, Caputo said.
"Those were my customers looking at my car," Caputo said.
But some dealers leave and come back.
Brooke Hubler, general manager of Hubler Chevrolet, said the 10-store Hubler Automotive Group in Indianapolis dropped AutoTrader in 2012 for about a year.
The group was testing whether they were getting enough "bang for the buck" from its AutoTrader expense, Hubler said.
As the months went by, she said, there was a sense that some sales opportunities were being missed without AutoTrader. And the group went back to a full subscription of inventory posting and advertising as it had before the separation, she said. Hubler Chevrolet, the flagship of the group, sells about 275 new and used vehicles per month.
"We're always trying to figure out the right strategy," she said.
Alex Vetter, senior vice president at Cars.com, says online shopping sites are more relevant to today's tech-savvy shoppers than ever before.
Sites such as Cars.com allow people to comparison-shop for vehicles and dealers in a credible place where they can look at everything from inventory and product reviews to how dealerships rate with their customers, Vetter said.
"Consumers prefer shopping that way," he said.
Cars.com received 33.8 million visits in March from shoppers -- a year-over-year increase of 21 percent.
For dealers, the knock on the sites is that it's difficult to determine how much traffic they drive to showrooms.
Many shoppers will research vehicles on, say, AutoTrader.com. Then, when the consumer decides he or she wants to visit a dealership, they'll go to Google and find a store's Web site, rather than use the shopping site to link to the dealership. So, to a dealer, it looks like the shopper came from Google, not AutoTrader.com.
Meantime the shopping sites influence the sale, Vetter said. "There's a measurement gap," he said.
TrueCar was singled out by Jackson as one of the vendors affected by the new AutoNation model. That was news to TrueCar Inc. CEO Scott Painter, who contends that the car-buying service offers one of the best values in the industry.
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.
The company charges dealers only when a customer buys a car, Painter said. And the fee of $299 for a new car is less than half the $600 or more per car that it costs dealers in marketing to acquire a customer, he said.
"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."
Lots of time online
The typical car buyer spends 75 percent of his or her shopping time online and a good portion of that research is on the third-party sites, said Jim Franchi, the media division president at the AutoTrader Group.
AutoTrader has about 800 salespeople nationally calling on about 12,000 franchised dealerships and another 9,000 independents, he said.
They offer dealers insight on how best to reach the shoppers behind 28 million unique visitors monthly to AutoTrader.com and sister site KBB.com.
Said Franchi: "About 48 percent of shoppers who visit a dealership Web site also visited either AutoTrader.com or KBB."
Mark Rechtin contributed to this report.