Q&A

AutoNation swipes at third-party car sites as it builds digital footprint

Maroone: "We'd rather invest in the AutoNation brand rather than third-party brands."
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AutoNation Inc. wants to reduce its dependency on online lead generators and third-party shopping sites. The United States’ largest dealership group plans to build up the group’s Web sites to capture online shoppers, part of a multiyear, $100 million campaign to rebrand itself.

Staff Reporter Amy Wilson interviewed COO Mike Maroone by phone on April 17, before AutoNation’s earnings call with investors.

How would you redeploy the money you save as you cut back on third parties?

A year ago when we launched the AutoNation brand, it was really about finding a brand that both consumers could embrace and our associates could embrace.

One of the main reasons we launched that brand is the big opportunity in digital, and we have just seen a surge in digital traffic. Our AutoNation sites today get more traffic than all the third-party sites put together, so we have made tremendous progress.

We have amped up our spending in both broadcast [and digital] to build traffic, build consideration for the brand, make sure people understand the brand attributes, driving traffic to both the Web site and the store.

We’re also investing aggressively in technology. That investment in both brand development and in our capacities is north of $100 million over a period of several years. What it’s all about is the experience we believe customers want.

So the money you save in one spot you expect to redeploy on building those new capabilities, investing in different technologies and even increasing your advertising to drive traffic to your own sites?

Yes, that’s exactly it. The goal is to reduce the dependency on the third-party sites. It’s the most expensive traffic we have when you look at it from a holistic point of view. And we believe we’d rather invest in the AutoNation brand rather than third-party brands.

That doesn’t mean we won’t be customers. We have excellent relationships with the big players there. In most cases, we’re their biggest customer. I think in all cases, we’re their biggest customer. But certainly you’ll see a real surge in investment spending here at AutoNation on creating our own brand, which only makes sense.

In terms of that high cost of third-party traffic, have those costs been rising in the past couple of years?

Yes, there’s no question. It not only rises, but they’re looking to get into further segments of the business. The thing that’s most difficult is the leads they’re sending to us they’re also sending to four or five other dealers. And that is not a dealer-friendly model and it’s not a customer-friendly model.

It puts customers back where they don’t want to be, which is in this intense negotiating fight. Instead, they want to say: Do you have the car, what’s the price, what’s the payment, can I reserve that car and come in and pick it up without going through the rigmarole that our industry has been famous for?

Any ballpark on how much costs are rising for third parties annually?

It varies tremendously. There are three different models. There’s cost per sale, and subscription deal and cost per lead.

I can just tell you that not only have they been pushing the costs up, but there are other costs. So the consumer thinks they’re getting a certain deal; they have no idea the retailer’s got to pay a significant amount of money for that lead.

I don’t think it’s consumer-friendly. I don’t think it’s transparent. Most of those sites are selling what we call configured cars. They’re not real inventory. When a customer comes to an AutoNation site, you get a real car, a real price, full disclosure, full terms, payments, trade value, and off you go.

Can you give annual increases for any one of those types of model?

I don’t have a number in my head, but the biggest player out there has pushed their prices up for the last 5 years. As these companies get closer to going public, they’re going to have to grow their revenue. In many cases, not all cases, their traffic is flat, so you’re going to see price pressure. And it’s not just the price pressure; it’s now the entry into other areas of the business: trying to get dealers to bid on trade-ins, trying to get them to compete for service business. I just think we’re better off investing in our own brand.

What is that biggest player you’re referring to?

There are several big players, but I would say AutoTrader, Cars.com and TrueCar are the big three. Depending on where you are in the country, different people have different positions. Some have bigger positions in new, and some have bigger positions in used.

You’re big on piloting. Have you tested store performance in any market without using the third parties?

We have not. We certainly have trimmed our radius that we bought with certain providers; we continue to try to optimize them. But what it really looks like is if the third parties are going to continue to push pricing up, it will even further accelerate our efforts on digital. So we’ve committed over $100 million, and we’re aggressively going after it. But the dependence on third parties must be reduced. The amount of business we do will depend on price and, of course, effectiveness.

Are you planning to pilot anywhere without third parties?

I don’t have that plan in place today. We’re focused on building the capabilities to serve the customer. You never know what will happen around the next turn.

 

How much of your advertising budget today is digital vs. traditional? And are you getting better results from TV than the third parties do?

It’s a mix. Customers see and visit you in multiple channels. Right now, 7 percent of our new-vehicle sales are from third parties and 5 percent of used. And our marketing spend is probably relatively proportional to that.

You can reach Amy Wilson at awilson@crain.com.


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