Another hit to dealers' bottom line?
Shopping Web sites want to branch out
AutoNation Inc. and other dealers are worried about more than the rising cost of leads from third-party car-shopping sites. They see other signs that the sites want to encroach on their turf.
The big shopping sites, AutoTrader, Cars.com, Edmunds and TrueCar, are trying to branch into finance, trade-ins and service, which are big money makers for dealerships.
AutoTrader, for example, guarantees the price of trade-ins at participating dealerships. But dealers typically want to control all negotiations over used vehicles.
Also, TrueCar noted in its registration to go public that it plans to offer its shoppers new products: TrueLease, TrueLoan and TrueTrade.
"It's not just the price pressure" on new-vehicle leads, AutoNation COO Mike Maroone said last month. "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."
The third parties argue that they are making life easier for participating dealers by channeling customers to them for products that shoppers desire.
Dealers, not AutoTrader, ultimately will provide the ancillary services and products, such as trade-ins, and reap profits from them, said Dale Pollak, founder of vAuto, an inventory management tool for dealers owned by AutoTrader Group.
"We connect in-market shopper with dealers," Pollak said. "We don't sell any of those products to customers."
But dealers are still wary of the third parties' initiatives. AutoNation, the largest dealership group in the United States, with 229 stores, said last month it plans to beef up its own Web site and digital storefront to fight rising prices of leads from the third parties.
Bryan DeBoer, CEO of Lithia Motors Inc., said he also is keeping an eye on this trend. "I think they [the third-party sites] understand that we have profit engines in multiple avenues, and it's a way for them to extract some of that," he said.
Connecting, not competing
Pollak said AutoTrader's Trade-In Marketplace is an example of how the site tries to connect shoppers with dealers, not compete for them.
Trade-In Marketplace gives new-vehicle shoppers a guaranteed price on their trade-ins. If the dealer who buys the trade-in later doesn't want the vehicle, AutoTrader will buy it for the guaranteed price.
Edmunds is signing up dealers to participate in a new lease-guarantee program. Under the program, Edmunds guarantees monthly lease payment to shoppers, said President Seth Berkowitz.
But dealers provide the leases and receive the income that the lease throws off. The goal is to provide a comfortable way for people to get an up-front monthly lease payment online, Berkowitz said.
With 25 percent of U.S. vehicle sales now leases, the product will send more lease business to the 10,000 franchised dealers that pay a monthly subscription to Edmunds to list their inventories and advertise on the site, he said.
About 6,500 of the 10,000 already participate in Edmunds' Price Promise, a program that provides a guaranteed price on new vehicles. Berkowitz said he expects similarly strong participation in the new lease program. It was announced in January at the National Automobile Dealers Association convention in New Orleans.
Edmunds gets about 18 million unique visitors to its site per month, while AutoTrader and KBB.com combined attract about 28 million.
TrueCar CEO Scott Painter said the site's model is to reduce the cost of sales to dealers rather than take revenue from them.
TrueCar was the first among the large players to offer a guaranteed vehicle price to prospects from dealers. Participating dealerships pay TrueCar $299 only when a new car is sold through the TrueCar site.
Painter says that amount is less than half the more than $600 that dealers pay on average in advertising costs to sell a new vehicle.
Painter said, "TrueCar would never intrude on the dealers' revenue stream but rather we are helping dealers to sell more cars and cut operating costs."
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