How Carfax locks up car history

West-Herr Automotive Group of Blasdell, N.Y., believes vehicle history reports sell used vehicles. It chooses Carfax Inc. reports -- even though its used-car director, Jack Anderson, says they are overpriced.

That points out a marketplace reality for dealers. By making itself the brand consumers know, Carfax has become the dominant player in used-vehicle history reports. Exclusivity deals with third-party classified sites, such as Cars.com and AutoTrader.com, strengthen its position.

Such deals mean that dealers -- with few exceptions -- can only advertise vehicle history reports from Carfax on those sites.

That doesn't sit well with some dealers.

Anderson says that although Carfax offers a good product, its marketing agreements either lock dealers into buying higher-priced Carfax reports or lock them out of popular sites if they choose another provider.

"I told AutoTrader and Cars.com I don't think that's fair," Anderson says. "It should be whatever brand you carry; you should be able to put the logo there."

AutoTrader.com declined to comment on its relationship with Carfax.

Alex Vetter, senior vice president of sales at Cars.com, says Carfax's stronger brand awareness and cachet with consumers makes its 14-year partnership with his company a good one.

Vetter says his company allows the posting of Experian Automotive Inc.'s AutoCheck vehicle history reports as part of some automaker partnerships. Cars.com is caught in the middle of a battle between Carfax and AutoCheck, he says.

Carfax has about 32,000 dealer customers, more than twice as many as AutoCheck, which says it has "over 12,000." Both companies say about 60 percent of the dealer customers are franchised dealers; the rest are independent used-car dealers.

This isn't the first time Carfax, which aims its advertising squarely at consumers, has irked its dealer customers.

For example, in April 2010 Carfax angered dealers by adding vehicle value information to reports. The feature shows a used vehicle's history and advises, based on that history, whether the vehicle is worth more or less than its guide book value.

Carfax also is taking its lumps from bloggers on sites for dealers and managers.

For example, in October, Jeremy Alicandri, vice president of corporate development at Habberstad Auto Group in Huntington Station, N.Y., wrote in his blog that his company paid Carfax $2,575 for unlimited vehicle history reports in September.

That is more than twice the $1,098 that it would have paid for an unlimited number of AutoCheck reports through a discount agreement negotiated for dealers by BMW of North America, Alicandri wrote.

But, he wrote, because Cars.com and AutoTrader.com are "major online sources for my used car business," he is "forced" to pay Carfax thousands of dollars more than he thinks he should.

In later entries, Alicandri wrote that Carfax dropped its price by $300 a month and that he had overlooked in his first blog that the first two months of AutoCheck reports would have been free.

Larry Gamache, a Carfax spokesman, says three months after the company's "Show me the Carfax" advertising campaign debuted in April 2009, Carfax -- in deference to dealers -- dropped language that said "reputable dealers" supply Carfax reports. The ads now urge consumers to look for dealers that provide the reports.

Gamache also says Carfax works hard to build its brand and deliver a quality product. As result, 37 manufacturer certified used-vehicle programs have chosen Carfax as their exclusive vehicle history report provider as have dealership groups such as Swope Automotive Group and AutoNation Inc., the nation's largest group.

But he also pointed out that all businesses are free to choose their business partners.

"AutoTrader.com and Cars.com have decided the only vehicle history report they allow on their Web sites is a Carfax vehicle history report," Gamache says of Carfax's exclusivity deals.

"We have to prove over and over again that the Carfax vehicle history report is the vehicle history report of excellence. And if we don't do that, our partners are free to choose alternatives."

Though Carfax's starting price of $499 a month for unlimited reports is lower than AutoCheck's $635, dealers and managers agree Carfax, which bases prices on dealer's inventory, generally winds up being thousands of dollars a month more.

Cary Donovan, director of used-vehicle operations at Swope Automotive Group in Louisville, Ky., sees Carfax as a valued partner.

He says his 27-dealership group "co-brands" with Carfax by providing one of its reports with every used car and truck it sells. He says the partnership enables Swope to capitalize on Carfax's consumer awareness while providing customers with a transparent dealership experience.

Donovan says he used AutoCheck reports in the past but found them "very vague" compared with those he purchases from Carfax.

For example, Carfax reports include information about when and where a vehicle was serviced and what services were performed. He also likes Carfax's in-dealership customer support.

Danny Papakalos, a regional used-car director for 11 AutoNation stores in Washington state, says the group's customers know and trust Carfax reports -- and so does he.

"I wouldn't think of doing business without it," he says.

A lot of companies sell vehicle history reports.

Ten, including Carfax and Experian's AutoCheck, are listed as approved on the National Motor Vehicle Title Information System, a database of vehicle title information to which 40 states contribute, according to the U.S. Department of Justice Web site.

But, clearly, Carfax and Experian's AutoCheck dominate the space. Both cater to retail and wholesale used-vehicle buyers.

Both companies gather data from thousands of sources, such as state departments of motor vehicles, insurance companies, police accident records and repair shops.

They seek evidence of major accidents, flood damage, odometer tampering and titles designated as salvage or junk.

Dave Nemtuda, an AutoCheck vice president, says his vehicle history reports help dealers compare used vehicles and select the right ones for customers.

He says the company advertises its product to consumers and engages in sponsorships on third-party sites such as kbb.com, Edmunds.com, NADAguides.com and eBay.

That's because those are sites consumers turn to when shopping for a used vehicle.

Nemtuda says shoppers who may not be familiar with AutoCheck understand what a vehicle report is and are familiar with Experian as a company that provides analytics, data and scoring.

"Consumers are naturally understanding of it right away," he says.

Carfax and Experian have tangled in court more than once. The two companies are currently locked in a legal fistfight.

At issue: Did Carfax defame Experian in a letter intended to dissuade Subaru of America from signing up with Experian for AutoCheck vehicle history reports?

In July, a U.S. District Court judge in Chicago dismissed some of Experian's defamation claims against Carfax. Other defamation allegations remain active.

The legal system will decide that. But in the marketplace, Carfax remains the dominant player.